Business Ethics and the Accounting Department v1.1
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Business Ethics and the Accounting Department v1.1

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When working at a CPA firm, ethical standards and requirements are pretty straight forward: independence, standards of practice, etc. But once you move outside of the firm, how does the term ...

When working at a CPA firm, ethical standards and requirements are pretty straight forward: independence, standards of practice, etc. But once you move outside of the firm, how does the term “ethics” apply to CPAs who are now in finance departments, internal audit, or other leadership positions in business & industry? This thought provoking session will take a look at the results of the 2012 AICPA & CIMA survey on business ethics and highlight the important role that CPAs in business & industry play in helping their organizations to manage their businesses ethically. Learn about the changing role of the accounting department and how you can help ensure that your organization stays out of the news headlines for being “unethical”.

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Business Ethics and the Accounting Department v1.1 Business Ethics and the Accounting Department v1.1 Presentation Transcript

  • Business Ethics and the Accounting Department August 23, 2013 Hawaii Society of CPAs Donny C. Shimamoto, CPA/CITP, CGMA Managing Director, IntrapriseTechKnowlogies LLC v1.1-CPA Based on information and data from: “Managing Responsible Business: A global survey on business ethics”, CGMA, 2012
  • Speaker Biography Donny C. Shimamoto,    CPA/CITP, CGMA Donny is the founder of IntrapriseTechKnowlogies LLC, an CPA firm focused on organizational development and advisory services for the middle market. An active CPA, Certified IT Professional (CITP), and Chartered Global Management Accountant (CGMA), Donny helps many organizations by bridging accounting and IT to: strengthen organizational governance and risk management, improve business processes through IT, and increase the effectiveness of decision making through business intelligence. Donny also serves as an outsourced IT Audit “Partner” and advisor for smaller regional/local firms and internal audit departments who lack inhouse IT management and IT audit expertise; Helping with IT risk assessments, and enabling increased staff proficiency with IT tools supporting internal operations and client engagements. Donny received was recognized as one of 25 Top Thought Leaders in Public Accounting by CPA Practice Advisor in 2012 & 2013, received the 2009-2010 President’s Award from the Hawaii Society of CPAs, was named to CPA Technology Advisor’s 40 Under 40 list in 2007 & 2009 and was also a Hawaii Top High Tech Leader in 2004 © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Business Ethics and the Acct Dept   Ethical drivers in the new economy Four business challenges related to ethics 1. 2. Ethical dilemmas and pressures 4. 3 Accounting for Ethics 3.  Ethical Culture Business issues Role of the accountant in ethics management © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Ethical Drivers in the New Economy Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Business scandals highlight the impact and cost of not behaving ethically – Public distrust and protest against corporate and government misdemeanors  –  Occupy Wall Street and India’s Anna Hazare Business failures and scandals Increased government action – 2011 UK Bribery Act – U.S. Foreign Corrupt Practices Act  4 Increased U.S. Justice Department investigations © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Ethical Drivers in the New Economy Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Growing awareness of ethics & governance – – Adoption of codes of conduct –  Ethics/governance-related legislation Definition and enforcement of ethics-related business policies and procedures Leadership, ethics, and organization culture – – Leaders must behave openly and transparently – 5 Set by “tone at top” whether senior management, branch managers, team leaders Demonstrated both internally and externally © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Ethical Drivers in the New Economy Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012 “Doing business ethically is not just something which is handled by someone in compliance or legal, it should be a part of the way everybody works within an organization.” Philippa Foster Back OBE, Director, Institute of Business Ethics  Creating a sustainable environment for ethical behavior requires: – – Embedding business ethics throughout the org – 6 Clear leadership support True organizational culture change © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Four Business Challenges Related To Ethics Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Four business challenges to focus on: 1. Ethical Culture – framework and architecture, roles & responsibilities, codes of conduct, other polices & procedures 2. Accounting for Ethics – information that is collected, analyzed, reviewed, and used 3. Ethical Dilemmas and Pressures – threats and challenges (i.e. risks) to ethical behavior 4. Business Issues – information security, bribery, social pressure on business, etc. Addressing these challenges are key to the sustainable success of the organization! 7 © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Business Challenge #1 Ethical Culture Elements of Ethical Culture • Codes, policies, training, and hotlines • Responsibility for ethical standards • Collection and use of ethics information 8 © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #1: Ethical Culture Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Code of Ethics & Statements of Ethics – –  80% of respondents’ orgs have code of ethics Up from 72% in 2008 Increased efforts for U.S. ethical awareness (Source: Ethics Resource Center research findings, via CIMA) – – 9 42% of employees reported increased efforts by their companies to raise awareness 1/3 of employees say management now watches them more closely © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #1: Ethical Culture Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012 Does your organization provide a code of ethics or similar document to guide staff about ethical standards in their work? 10 © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #1: Ethical Culture Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Who is responsible for Ethical Standards? – – CFO/Finance Director – HR Director – Audit Committee – 11 Chief Executive –  Board of Directors Internal Audit Who should be responsible? © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #1: Ethical Culture Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012 Who has formal responsibility for ethical standards across your organization? Traditionally held by Accountants* *Donny’s Interpretation 12 © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #1: Ethical Culture Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Significant decline in corporate leaders responsible for ethical standards (2008  2012) – –  67%  60% for Board of Directors 55%  49% for Chief Executive Increase in finance-related responsibility – – 34%  39% for CFO/Finance Director – 24%  28% for Head of Internal Audit – 13 33%  36% for Audit Committee 20%  24% for Compliance Officer © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #1: Ethical Culture Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  What is ethics information? – – Training on ethical standards – Hotline for reporting ethics violations – Helpline for advice on behaving ethically – 14 Statement of ethical values, business principles, or commitments to stakeholders –  Code of ethics Performance incentives for ethical conduct Which of these do you have in your org? © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #1: Ethical Culture Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012 Does your org provide the following? 15 % © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #1: Ethical Culture Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  2008  2012 saw decline in review, analysis, and monitoring activities – –  86%  78% senior management 68%  56% board of directors Other users of ethics information – – Regulators (27% in U.S. vs. 18% globally) – Investors (17% globally) – 16 Legal department (38% in U.S. vs. 23% globally) Community or pressure groups (14% globally) © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #1: Ethical Culture Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Why establish an ethical culture? – – Economic difficulties in developed economies –  Increasingly competitive business environment Rapid growth in emerging economies Elements of Ethical Culture – – Responsibility for ethical standards – 17 Codes, policies, training, and hotlines Collection and use of ethics information © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Business Challenge #2 Accounting for Ethics • • • • • 18 Why Account for Ethics? Managing Ethical Performance Reporting Ethics Information Challenges with Accounting for Ethics Collecting Ethics Information © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #2: Accounting for Ethics Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Why do we need to account for ethics? – –  2011 AIRMIC study of 18 major corporate crises where lack of ethics was the major causes of the crisis Yet risks related to failures of ethos, culture, and behavior tended to go unrecognized Growing importance of integrated reporting – More consumers and investors considering ethics and social responsibility in their decisions – 75% of leading CEOs recognize need to put more emphasis on measuring and demonstrating non-financial value of the business – 53% of S&P 500 companies in 2012 utilizing integrated reporting, up from 19-20% in 2010?* *Source: “Governance & Accountability Institute’s report: 2012 Corporate Environmental, Social and Governance / Sustainability / Responsibility Reporting – Does It Matter?”, via AICPA Insights, 6/4/2013 19 © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #2: Accounting for Ethics Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Ethical performance can be managed and monitored by collecting ethics information – – Ethics compliance metrics & measurements – Ethics actions/incidents information –  Risk analyses related to ethics Supplier (& customer) due diligence Overall increase in collection & reporting – – 20 30%  36% Collection of ethics information 35%  40% Reporting on ethical info and corporate social responsibility © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #2: Accounting for Ethics Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012 Does your organization publically report on ethical performance / corporate social responsibility (CSR)? 21 © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #2: Accounting for Ethics Donny’s Interpretation  Challenges with accounting for ethics – Ethics information reporting frequently sourced and reported outside of the finance function  Corporate responsibility teams  Human resources  Marketing – – 22 Lack of systems supporting collection of data –  Reporting may not be formal or systematic Lack of standards for measurement/reporting Yes, managing ethical behavior is part of the business (financial) reporting function! © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #2: Accounting for Ethics Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012 Does your organization collect management information on ethics? 23 © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #2: Accounting for Ethics Donny’s Interpretation   If we’re going to be collecting data and reporting on ethics, then we need internal controls over that function. As with any internal control you have to: – –  24 Identify metrics to measure behavior consistent with the stated ethics-related policy Monitor compliance and progress toward ethics-related control objectives Yes, managing ethical behavior is part of the internal control environment! © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #2: Accounting for Ethics Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012   25 Is there benefit from collecting management information on ethics? Donny’s Advice: Make Accounting for Ethics part of your Accounting Department responsibilities! © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Business Challenge #3 Ethical Dilemmas & Pressures • • • • 26 Pressure to Act Unethically Experiences of Ethical Lapses Reporting Ethical Misconduct Ethics Risk Management © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #3: Ethical Dilemmas and Pressures Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Despite public demand for increased ethical behavior, there is also increasing Pressure to Act Unethically 28%  35% Always or sometimes feel under pressure to compromise their organization’s standards of ethical conduct 27 © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #3: Ethical Dilemmas and Pressures Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  28 Pressure to Act Unethically varies by country © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #3: Ethical Dilemmas and Pressures Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  29 Pressure to Act Unethically is also impacted by economic upturn or downturn © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #3: Ethical Dilemmas and Pressures Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  So where are people feeling the pressure to act unethically? Core Accounting Function (high risk for Accountants)* 30 *Donny’s Interpretation Accounting Involved Function (moderate risk for Accountants)* © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #3: Ethical Dilemmas and Pressures Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  31 Increasing pressure has also resulted in an increase in the witnessing of ethical lapses © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #3: Ethical Dilemmas and Pressures Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012   After witnessing ethical lapses, did people report ethical lapses? Yes, 69% reported it! Of the 69% reporting lapses: – –  26% feared they could be regarded as troublemakers Half felt satisfied about the way the ethical concern was handled; 13% neutral Why didn’t people report it? – 32 37% perceived that reporting wouldn’t make a difference © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #3: Ethical Dilemmas and Pressures Donny’s Interpretation  The accumulation of ethics information (incl. report of lapses) can be reported on: – Internal management reports / scorecards – Integrated corporate reporting   E.g. Corporate Responsibility Report, Corporate Social Responsibility Report Reporting enables an organization to – – 33 Manage its performance on ethical issues Determine the extent to which it is aligning its behavior with its stated ethical values and commitments © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #3: Ethical Dilemmas and Pressures Donny’s Interpretation  Ethical Dilemmas and Pressures drives the need for Ethics Risk Management – Identify situations that have a stronger inherent risk for unethical conduct  – Implement controls to prevent or detect violations of ethical standards  – Ethical dilemmas, pressures, and business issues See “Accounting for Ethics” section Monitor the operating effectiveness of the controls and report on outcomes   34 internal and/or on a corporate responsibility report Consider conducting assurance activities on the rpt © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Business Challenge #4 Business Issues • • • 35 Business Issues with Ethical Impact Issue Highlight: Information Security Issue Highlight: Environmental © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #4: Business Issues Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012 A variety of business issues have an impact on ethical behavior and management CGMA 2011/12 CIMA 2008 IBE 2010 Security of information 91% 93% (1) 78% (4) Safety and security 88% 81% (2) 74% (6) Bribery 78% 75% (6) 83% (1) Discrimination 75% 81% (2) 83% (2) Conflicts of interest 74% 76% (5) 70% (7) Environmental 73% 77% (4) 76% (5) Supply chain 72% 69% (7) 70% (8) Human rights 64% 55% (12) 50% (10) Responsible marketing 64% 63% (9) 52% (9) Whistle-blowing 63% 62% (10) 83% (3) Fairness of remuneration 55% 65% (8) 48% (11) Work/life balance 53% 59% (11) 37% (12) Business Issue 36 © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #4: Business Issues Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Issue Highlight: Security of Information – – Increasing volume of sensitive data – Growing threat of cyber crime –  Accelerating technological advances Increasing risk of fraud Impact on Accountants – – Greater access to confidential data than others – 37 Role as guardian of information Responsible for information integrity © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #4: Business Issues Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Issue Highlight: Environmental – – Many trying to reduce impact on environment –  Increased attention on resource utilization and climate change Growth of sustainable procurement policies Impact on Accountants (*Donny’s Interpretation) – – 38 How to measure and report on environmental impact and sustainability? Development, implementation and monitoring of sustainable procurement policies © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Challenge #4: Business Issues Donny’s Interpretation   Orgs of all sizes are dealing with Business Issues related to ethical management Donny’s Advice: – – 39 There are accounting and reporting impacts and implications that have to be considered in addressing these issues. Consider the how the Accounting Department can help guide the organization in addressing these issues (or at least how the issues are being measured and reported on). © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Role of the Accountant in Ethics Management • • 40 Responsibilities of the Accountant Opportunities for Accountants © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Responsibilities of the Accountant Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012 Accountants play a key role in managing the ethical performance of the organization 41 © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Responsibilities of the Accountant Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  42 In which ways do you contribute to management of ethical performance? © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Opportunities for the Accountant Adapted from: “Managing Responsible Business: A global survey on business ethics”, CIMA, 2012  Low involvement of accountants in: – – 17% Collecting ethical management information –  19% Reporting ethical performance against goals 17% Analyzing ethical management information Donny’s Advice: Explore outside of finance – – Help ensure the accuracy, completeness, etc. of reporting on ethics information – 43 Help ensure the integrity of the collection of ethical management information Help analyze the impact of actions (or inaction) toward ethical performance goals © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Business Ethics and the Acct Dept   Increasing public focus on Business Ethics presents some distinct challenges for all organizations regardless of size or location Accountants can play a key role by – – – –  44 Helping to establish an ethical culture Accounting for ethics Guiding ethics-related risk mgmt activities Guiding the addressing of business issues Call to Action: Write down one way you can improve the ethical management environment at your organization. Go back and DO IT! © 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved.
  • Thank you for your attention and participation! Any Questions? Donny C. Shimamoto, CPA/CITP, CGMA IntrapriseTechKnowlogies LLC email: donny808@cpa.com voice: (808) 735-8324 twitter: @donnyitk See also: • CGMA Report: “Managing Responsible Business: A global survey on business ethics”, 2012 • CGMA Tool: “Ethical management reflection checklist and worksheet”