An auditor has enormous powers which s/he should use judiciously, intelligently and appropriately. It is only through a strict observation of the conduct that members of the profession could create a situation where they could be relied upon as persons of character and integrity.
After the political democratization and economic liberalization in Nepal, increased opportunities have prompted international players to restudy and reassess their professional focus, realign their resources and prepare for a new international order. The ethics of the accounting profession is seen vital when imposing the auditing criteria in terms and conditions of the United States' Millennium Challenge Corporation's Nepal Compact Grant.
The way auditing is structured and regulated reflects the importance of ethics. Ethics, either subjective or relative, is a 'state of mind' and/or 'set of moral principles.' The scope of ethics changes with changing circumstances and needs of society.
With the enactment of the Chartered Accountants Act, 1997, the Institute of Chartered Accountants of Nepal (ICAN) was formed and set up to regulate the profession of auditors. The Act enumerates various circumstances under which a member could be held guilty of 'professional misconduct.' The circumstances are specified in parts that deal with misconduct of a member in practice and envisage cases of misconduct by members in services and, deal with misconduct of members in general. It prescribes what an accountant should do or not do and enjoins on members to maintain a standard of behavior which can ethically be regarded as right.
In 1977, the International Federation of Accountants (IFAC) was set up with a view to bring harmony in the profession of accountancy on an international scale. It stressed the fundamental principles by which an accountant should be governed through integrity, objectivity, independence, confidentiality, technical standards and ethical behavior.
As the ICAN is a member of the IFAC, the former's Code of Conduct, too, states that the practice of professional ethics is largely a matter of conscience and determination of members to distinguish between right and wrong. It reflects tremendous responsibilities like conceiving the Code and formulating it, educating its members, ensuring competence, exercising vigilance over members, and policing defaults and aberrations. Whenever members are confronted with two interpretations on a matter relating to professional conduct – one ethical and the other legalistic – they would adopt the stricter interpretation than the more liberal one, even though the latter may be perfectly legal.
The Code of Professional Ethics signifies voluntary assumption of the obligation of self discipline above and beyond the requirement of the law. It extensively deals with matters that relate to professional responsibility and attitudes. It is a minimum level of morality which ought to be practiced by the accounting professionals failing which the profession would be regarded as a social threat. Professional ethics, which learned professionals have imposed on themselves, means rules of many kinds enforced in many ways through laws, customs, moral standards, social etiquette etc.
An accountant becomes an important link between investors, regulatory bodies and the public at large. The demands for consultancy and advisory services in areas of foreign direct investments, merchant banking, venture capital, mergers and acquisition are on the rise. With the increase in cross border trade, the need for uniform accounting practices the world over has arisen.
Attempts have been made through relevant companies and income tax laws, guidelines, directives and, rules to regulate at least the appearance of ethics and to isolate auditors from situations in which threats to ethical conduct can arise. Even if there are some erring professionals, the profession of accounting as such will survive only by virtue of a solid ethical base. Since an auditor is a learned professional, one is expected to conduct in a manner which is not derogatory but upholds the dignity and prestige of the profession. Else, one will be guilty of professional misconduct and actionable.
It is necessary to effectively observe self-regulatory measures in the true spirit. A profession can gain public trust and confidence only if specific norms of behavior of members of the profession are laid down and observed strictly with erring members being disciplined effectively on a continuous basis.
Whether there is a case for review of old rules particularly with regard to new areas of public practice work where members are in unequal competition with non-members who have the facility to advertise and whether the need to regulate advertisements should imply an inflexible approach to all aspects of the professional work.
The major issue faced is the technical competence that is sometimes used as a mask for dishonest reporting of financial statements. There is a growing belief that auditors are too close to company management and too readily see their loyalties as lying in this direction. Due to the growing expectations from the general public, auditors are expected to be ethical by a society that itself is full of corruption.
There is a tendency on the part of some professionals to ignore the practical importance of relevant rules of conduct and to brush them aside as remote 'preaching' from realities of life. The mandatory systems of applications of accrual and going-concern are sometimes neither completely followed nor has any action been taken against misreporting.
It has been reported that if a tax audit has to be performed, auditors or ghost workers are (un)intensely charging the amount of some 3% of the total turnover from last two consecutive years of financial statements from their clients as a bribe said to be given to officials of the Internal Revenue Department instead of 0.3% as what the latter (un)officially used to demand for tax settlement. Such an unethical practice occurs to small and medium sized enterprises that have no other options to fully trust their auditors.
After more and more companies are getting listed on the Nepal Stock Exchange, it is now necessary to consider whether a limit for the number of years of audit continuously done by one single audit firm or in the name of different partners of the same entity should be brought about just like audits of banks, financial institutions, insurance companies etc. It would not only help entry level accountants but also lead to a qualitative improvement in the services rendered. However, some malpractices of bargaining for audits while appointing auditors have surfaced in some listed and multinational companies. The need for an unbiased attitude has to be emphasized.
The ICAN must look into valid complaints and act accordingly. It must invite eminent people from various walks of life known for their uncompromising stand on ethics. The pride in service should be imbibed in the minds of present and future members.
Probable information technology threats like frauds, manipulations or hackings can be mitigated by a strong ethical security control system audit. It can be further strengthened through the Nepal Accounting Standards and the Standards of Auditing.
Though the accounting profession has adopted an amalgam of written and unwritten rules, it doesn't escape modern waves of prevailing international changes. It has now become essential to modify relevant ethical regulations and review the existing guidelines for mandatory compliance so that it is consistent with the needs of the present environment for strengthening the auditor's position, whistle-blowing and mutual relationship.
An auditor has enormous powers to use them judiciously, intelligently and appropriately. It is only through a strict observation of the conduct that members of the profession could create a situation where they could be relied upon as persons of character and integrity.