Promoting a Worldwide Commitment to Integrity,Objectivity and Professional Competence

Marilyn PENDERGASTChairman,IFAC Ethics CommitteeManaging Director,Urbach Kahn & Werlin Advisors, IncUnited States

WORLD CONGRESS OF WORLD CONGRESS OF ACCOUNTANTSACCOUNTANTS

Promoting a Worldwide Commitment to Promoting a Worldwide Commitment to Integrity, Objectivity and Professional Integrity, Objectivity and Professional

CompetenceCompetenceMarilyn Pendergast, ChairMarilyn Pendergast, Chair

IFAC Ethics CommitteeIFAC Ethics Committee

Crisis In Public Confidence

Executives Have ResponsibilitiesExecutives Have Responsibilities

• Moral as well as legalMoral as well as legal

• Management for the benefit of shareholdersManagement for the benefit of shareholders

• Honest communicationHonest communication

• Strong, principled ethical conductStrong, principled ethical conduct

Boards Have ResponsibilitiesBoards Have Responsibilities

• Ensure management operates with integrityEnsure management operates with integrity

• Exercise oversight over managers and over the Exercise oversight over managers and over the independence and work of the outside auditorindependence and work of the outside auditor

Auditors Have ResponsibilitiesAuditors Have Responsibilities

• Ethical StandardsEthical Standards

• Auditing StandardsAuditing Standards

• Accounting StandardsAccounting Standards

Lenders and Analysts Have ResponsibilitiesLenders and Analysts Have Responsibilities

• Scrutinize borrowers’ creditworthinessScrutinize borrowers’ creditworthiness

• Project business opportunities and growthProject business opportunities and growth

• Assess and interpret and numbersAssess and interpret and numbers

Regulators Have ResponsibilitiesRegulators Have Responsibilities

• Consistent and meaningful regulationConsistent and meaningful regulation

• Timely review of filingsTimely review of filings

• Enforcement of standardsEnforcement of standards

Investors Have ResponsibilitiesInvestors Have Responsibilities

• Recognition of RisksRecognition of Risks

Responsibility of Member BodiesResponsibility of Member Bodies

• Provide ethical requirements to ensure the highest Provide ethical requirements to ensure the highest quality of performance and maintain public quality of performance and maintain public confidenceconfidence

• The international code serves as a model on which The international code serves as a model on which to base national guidelines.to base national guidelines.

• Give consideration to the public service and user Give consideration to the public service and user expectations expectations

Achieving Harmonized StandardsAchieving Harmonized Standards

• International Solutions International Solutions for Global Issuesfor Global Issues

Fundamental Principles Applicable Fundamental Principles Applicable to All Professional Accountantsto All Professional Accountants

• IntegrityIntegrity

• ObjectivityObjectivity

• Professional competence and due careProfessional competence and due care

• Professional BehaviorProfessional Behavior

• ConfidentialityConfidentiality

IntegrityIntegrity

ObjectivityObjectivity

Professional Competence And Due CareProfessional Competence And Due Care

Professional BehaviorProfessional Behavior

ConfidentialityConfidentiality

INDEPENDENCE INDEPENDENCE

The Foundation for Public Trust The Foundation for Public Trust

INDEPENDENCE FOR ACCOUNTANTS INDEPENDENCE FOR ACCOUNTANTS IN PUBLIC PRACTICEIN PUBLIC PRACTICE

• ThreatsThreats– Self-InterestSelf-Interest

– Self-ReviewSelf-Review

– AdvocacyAdvocacy

– FamiliarityFamiliarity

• SafeguardsSafeguards– Created by the profession, legislation or regulationCreated by the profession, legislation or regulation

– Within the assurance clientWithin the assurance client

– Within the firm’s own systems and proceduresWithin the firm’s own systems and procedures

INDEPENDENCE FOR INDEPENDENCE FOR ACCOUNTANTS IN PUBLIC ACCOUNTANTS IN PUBLIC

PRACTICEPRACTICE

• Independence-- the Conceptual ApproachIndependence-- the Conceptual Approach

– Independence of MindIndependence of Mind

– Independence in AppearanceIndependence in Appearance

Some Areas of Current InterestSome Areas of Current Interest

• Technology servicesTechnology services

• Internal auditingInternal auditing

• The “revolving door”The “revolving door”

Activities Not Allowed for Audit ClientsActivities Not Allowed for Audit Clients

• Authorizing transactions on behalf of clientAuthorizing transactions on behalf of client• Determining recommendations to be implementedDetermining recommendations to be implemented• Reporting in a management roleReporting in a management role• Valuation of material matters involving subjectivityValuation of material matters involving subjectivity• Making management decisions related to client Making management decisions related to client

personnelpersonnel• Promoting or underwriting sharesPromoting or underwriting shares

Role of the Accountant in Management

Conflict of loyalties

Presentation of financial information

Professional Competence

Support for Professional Colleagues

Accountants in Management Roles

It’s not easy but it must be doneIt’s not easy but it must be done