Caroline Gardner is the Auditor General for Scotland and has been a public member of International Ethics Standards Board for Accountants (IESBA, the Ethics Board) since 2010.
What made you interested in serving on the Ethics Board?
CG: I was serving as the president of CIPFA [The Chartered Institute of Public Finance and Accountants], in 2006 when we adopted the IESBA’s Code of Ethics for Professional Accountants [the Code]. As president, I had the opportunity to lead our adoption of the code and to talk with many of our members about why ethics matters. I’ve had a particular interest in ethics since then.
What particular perspectives or experiences do you bring to the board as a public member?
CG: As a public member, I’m even more aware of the importance of making sure the board’s decisions, and the implications of the board’s decisions, truly further the public interest as much as possible. Because I’ve worked in public service for most of my career and I currently serve as Auditor General for Scotland, I have a very clear sense of the importance of ethics in government and public services. I understand the way decisions are made and that the perception of good ethical conduct is very important. I try to bring that perspective, keeping that sense of the public interest first and foremost, into my work both with the board and as Auditor General.
Since you became a member, how has your view of the Ethics Board and its work changed? Has serving on IESBA been what you expected?
CG: I’d highlight two changes since joining the board in 2010. First of all, the aftermath of the global financial crisis, and various other corporate failures, has heightened my sense of the importance of ethics. What they show is the damage that can be done, not just to the investors in those companies, but more widely.
Second, it’s become clear to me that the public interest isn’t a straightforward thing. Good ethical conduct is often very complex and can sometimes require difficult tradeoffs. For example, I am currently chairing the task force that is addressing what professional accountants should do if they come across a suspected illegal act [now called non-compliance with laws and regulations, or NOCLAR]. In these situations, professional accountants are put in a very difficult position—trying to balance the fundamental principles, particularly confidentiality in this case, with serving the wider public interest by reporting a potentially illegal act—and it’s not always clear which action is the right one. This project has shown me that professional accountants are often faced with very complex decisions, which they do not take lightly, and they need support in making the best decision they can.
A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. What does this mean to you?
CG: As professional accountants we need to recognize that we are required to really think through the consequences of our professional conduct and decisions, not just for ourselves and our own financial interests or those of our colleagues or employer, but much more widely than that. We have to consider who else might be affected by our decisions. And, depending on what role we play as professional accountants that group may vary. It could well include the investing public, the suppliers and customers of the companies that we work for, or the wider, general public when we talk about accountants in health and safety or employment practice. Holding that very broad frame of reference in mind, and considering the effects our actions will have, is very much a part of the challenge of what it means to act in the public interest. It’s also a key part of what makes us valuable as a profession—to be trusted to take that wider perspective, and not just think about our own immediate personal or professional interests.
What pressures or challenges do accounting professionals face today in terms of acting ethically?
CG: I think the real challenges come from two pervasive factors that we all have to deal with: First, the world that we’re operating in continues to become more and more complex, and we need to look at some of the complex judgments and strategic decisions that auditors and professional accountants have to make every day. Technology and environmental considerations are some of the drivers of this complexity that are making it more difficult to ensure that we’re acting ethically. For instance, we might be able to make profits from manufacturing goods in the short term, but they will have a damaging effect on the environment in the long term, so emissions and overall carbon footprint are the sort of things we have to take into consideration, in addition to the financial.
Second, I think that in the wake of the financial crisis, the public and regulatory expectations of the profession are continuing to increase. Things that were considered acceptable in the past are no longer seen as acceptable. And when things go wrong, people are more and more likely to ask questions about what the professional accountant or the auditor is doing. I think this raises the stakes for acting ethically at all times. At the same time as I said before, our complex environment means that ethical dilemmas are becoming more prevalent, so making the most ethical decision is becoming more challenging.
What do you see as the key factors influencing the development of global ethics standards in the future?
CG: I think the biggest challenge for us is to first of all not just respond to but lead the way in meeting public expectations for where the ethics of the profession ought to be—that expectation for greater transparency and a greater willingness to put personal/professional interests to one side in the name of the public interest, and to do that in a world where there is still a great deal of difference between the local legislative, regulatory, and cultural environments.
Again, if I think about the project that I’m working on [NOCLAR], there are huge differences from country to country. Some jurisdictions are already very clear on the requirement to report breaches of laws and regulations to the appropriate authority, and it’s very straightforward in that sort of environment. But in other jurisdictions where the laws are not clear on this issue or where people don’t have confidence that the existing laws will work properly or that whistleblowers will be properly protected, it’s much more difficult for the board to play its part.
So I think the challenge is seeing the Code as part of a wider system of laws and regulations, and developing it in a way that is really leading expectations of ethical conduct while recognizing that it can’t be a substitute for an effective legal and regulatory framework, good judicial processes, and a culture where ethical behavior is expected. It’s a fine balance for us to get right.
Earlier this year, we had three very successful global roundtables on non-compliance with laws and regulations to get additional input from various key stakeholders, such as regulatory bodies like the IOSCO, the investing community, and the international corporate governance network. This sort of outreach is critical to helping us understand the various environments and may set a new precedent for our standard-setting activity in the future.
About the “We Are IESBA” Series
The purpose of this series is to bring the work of the IESBA to life, adding context and color to the people who carry out the activity of ethics standard setting for the international accountancy profession. The series aims to further increase the transparency of the board’s activities. Transparency is written into the board’s due process, and indeed, into its operations. The IESBA’s agenda papers and meetings are public (you can register to attend and observe any meeting, or listen to meetings and summaries via our iTunes channel). To learn more about the board, follow along via Twitter and email: Follow @Ethics_Board and subscribe to IESBA eNews. For additional developments related to ethics and other areas of the profession, subscribe to topics from the Global Knowledge Gateway.