Podcasts: Ethics and the Professional Accountant

dreamstime_m_16826054In 2013 CPA Australia’s In the Black magazine hosted a series of informative and entertaining podcasts on ethical behaviour and the professional identity of accountants, with Professor Sally Gunz.

Sally is Professor of Professional Ethics and Business Law at the University of Waterloo in Canada, and the Director of the Centre for Accounting Ethics. She visited Macquarie University’s International Governance and Performance (IGAP) Research Centre in mid-2013, and discussed ethics with Dr Eva Tsahuridu, Policy Adviser at CPA Australia.

The pod-casts cover three themes:

1. common ethical challenges.

2. ethical obligations; and

2. professional trust, obligation and crises of consciousness;

This series explores ethical challenges facing professional accountants across different industries, including in public practice, not-for-profits, business and the public sector.

For Professor Gunz, the common ethical obligation for all professional accountants to consider is serving the public interest:

“It always comes back to the ultimate responsibility to serve the public. You have to remember as a professional of any stripe that even though you may act as a manager many times, you’re different from a manager.”

“You have additional responsibilities. You ultimately have the responsibility to your profession, which translates to serving the public.”

“You are there because of that responsibility. And when push comes to shove, if you don’t remember that, the question is, ‘Why are you there?’”

A good question to consider heading into 2014.

Des Pearson on Public Sector Audit

DP PicThe International Governance and Performance (IGAP) Research Centre was pleased to host Mr Des Pearson, who recently retired as Auditor General of Victoria, as the IGAP Executive in Residence sponsored by CPA Australia. Des’s public sector career spanned over 40 years and 5 jurisdictions, with more than 30 years’ experience at senior, chief executive and statutory officer levels. Des has worked in governance, financial and program management, performance evaluation and accountability roles, including more than 21 years as an Auditor General across two jurisdictions.

During his time at IGAP, Des presented two seminars: at an IGAP/ CPA Australia Roundtable on performance reporting; and at Macquarie University’s Department of Accounting and Corporate Governance on public sector reporting. The slides and key points from Des’s presentations are below.

Performance Reporting (at CPA Australia)

  • Public sector audits include financial and non-financial audit: both financial ‘how much’ and performance ‘how well’, are critical.
  • While financial reporting in the public sector is well-developed, performance reporting is still ad-hoc.
  • Public sector audits have unique challenges: a democracy (and therefore adversarial governance); and the rationing of limited (taxpayer funded) resources against excess demand (from the community).
  • Other challenges include: adopting market models within the public sector; co-ordination between the government and other entities; and public sector timelines (3-4 year terms of office).
  • Possible responses to these challenges are: comprehensive performance reporting; sustainability and integrated reporting; and, building on the Productivity Commission’s Report of Government Services.

SLIDES: PERFORMANCE REPORTING CPA

Public Sector Reporting (at Macquarie University)

  • The Federal, NSW and Victorian state public sectors arguably represent Australia’s first, second and third largest businesses. The auditor general needs to provide assurance to Parliament that these sectors are performing and accountable.
  • Public sector clients are diverse, including local governments, water corporations, police, emergency services, financial institutions, and universities.
  • The key focus for all audits is accountability: that is, reporting back to those who have charged you with a responsibility. The funding of the public sector by a forcible extraction of funds via taxes and charges adds an extra layer of accountability as there is an obligation to apply these funds ‘in the public interest ‘.
  • The Australian public sector needs to be made accountable, not only for probity, integrity and performance management, but also for a working democracy. Quality in public service audit, means reliable assurance of efficiency, economy and effectiveness in program delivery.

SLIDES: PUBLIC SECTOR ACCOUNTING MACQUARIE UNIVERSITY

Four ideas for improving Integrated Reporting

The International Integrated Reporting Council (IIRC) recently completed the consultation period for its draft version of the International Integrated Reporting (<IR>) framework, with <IR> ‘Version 1’ to be released in December. IGAP researchers Dr Dale Tweedie and Prof. Nonna Martinov-Bennie raised four ideas for the IIRC to consider in its revisions.

????????????????????????????????????????????????????????????????????????????????????????1. Clarifying the relationship between <IR> and other reporting systems

The IIRC’s ‘value-creation’ approach to non-financial reporting is very different from the ‘impact-assessment’ approach used by the Global Reporting Initiative (GRI). Users of <IR> would benefit from greater guidance on how <IR> and GRI4 can be complementary in a practical reporting context; for example, by clarifying differences in the materiality determination processes of <IR> and GRI4 and which – if any – takes precedence.

2. Acknowledge and address stakeholder conflicts

The IIRC’s view that the interests of providers of financial capital – the primary audience of <IR> – and other stakeholders will align over the long term overlooks potential conflicts between these groups, and so how conflicts should be reported. An example in Australia is coal seam gas (CSG) exploration, which promises significant financial benefits to mining and energy organisations, but which other stakeholders have claimed is a long-term risk (e.g. to primary production and water supply). Given this perceived conflict, what should be reported by organisations engaged in CSG exploration? Further clarity on the ‘legitimate needs, interest and expectations’ of other stakeholders that an <IR> should acknowledge would help address these kinds of issues.

3. Increase comparability through a stronger ‘core’

As our earlier blog discussed, while a principles-based framework is a useful method of avoiding boiler-plate disclosures, <IR>s need sufficient commonalities to be comparable over time and between organisations. Providing a stronger ‘core’ of reporting requirements and methods, best practice guidance (e.g. on carbon reporting) and definitions of key terms could encourage comparability without sacrificing the principles-based approach.

4. Governance as accountability

The draft <IR> framework asks each organisation to explain how its ‘governance structure support[s] its ability to create value in the short, medium and long term’. While good governance is part of value creation, the key features of governance are accountability, transparency and ethics, which are fundamental to ensuring that the value that organisations create is managed and distributed in appropriate ways. Following the King Reports in South Africa, <IR> could play a greater role in emphasising and communicating the importance of these aspects of governance. 

Telework to ‘Anywhere Working’: The Next Steps

As reported in the Australian Financial Review, a key theme emerging from the recent Digital Productivity in the Workplace of the Future Conference, sponsored by Macquarie University and CSIRO, was that the conversation is moving on from ‘telework’ from a home office to ‘anywhere working’. Increasingly we will see employees working from locations such as a café, a partner’s, supplier’s or customer’s premises, a smart work centre, a co-working centre, from home, a car, an airport lounge or anywhere that is conducive to achieving the outcomes and levels of productivity required to achieve organisational strategic objectives.

On the latest statistics, around six percent of Australian workers have formal anywhere working arrangements. The statistics on informal arrangements for working from anywhere are more difficult to ascertain. This is an important area for research because workers with informal anywhere working arrangements typically have more autonomy to complete ?????????????????????????????????????????????????????????????????????????????????their tasks and projects, and so this is where we are more likely to see productivity gains.

Clearly not all organisations see anywhere working as an effective strategy, and prefer their employees to work from an office.  Marissa Mayer, CEO of Yahoo, famously (or infamously) banned all work from home arrangements early this year. Ms Mayer argued that innovation and creativity only occurred when people were together. Yahoo are not alone. Google publically stated that their organisation did not condone working from home.

However, several developments may mitigate the limitations of working from home that Yahoo and others have cited. Co-working or collaborative working spaces are providing opportunities for freelancers and entrepreneurs to collaborate and connect. Hub Australia has hubs in Melbourne and Sydney with another to open in Adelaide later in the ?????????????????????????????????????????????????????????????????year.  Fishburners is a co-working space for technology start-ups and has two locations in central Sydney.

Smart work centres (SWCs) provide an alternative for those employees who are unable to work from home for a variety of reasons including social isolation and lack of space. Employers may be more open to employees working from SWCs because these centres can address issues that arise when working from home such as work, health and safety and difficulties in managing remote employees. A sustainable business model will be critical for the success of SWCs, which is another key area for future research.

A second key theme emerging from the conference was the perceived lack of management and leadership for anywhere working employees. Job design should include autonomy so that employees are able to be productive without the constraints of ‘presenteeism’ (being seen in the office). As Dr Blount from Macquarie University discussed on Sky News, management are unclear about how to develop a business case for anywhere working, and are unsure about the skills required to manage workers who are not office-based. While many employers have the HR policies in place for anywhere working, management resistance is an ongoing barrier to an increased uptake of working more flexibly. Alan Dormer – research leader at the CSIRO’s Government and Commercial Services division – has used research from the The Economist to argue that the reluctance of management to devolve responsibility might be preventing significant gains in both worker productivity and well-being.

The Australian Anywhere Working Research Network – which aims to provide a framework for collaborative research on anywhere working – invites any researchers, employers or government representatives interested in this field to join. To become involved, please contact Dr Yvette Blount in the Department of Accounting and Corporate Governance at Macquarie University.

Telework – Trends and New Opportunities for Collaboration

The adoption of telework is a strategic government objective in the National Digital Economy Strategy.  The stated goal is that by 2020 Australia will have doubled its level of teleworking so that at least 12 per cent of Australian employees will report having a telework arrangement with their employer. Trends indicate that employees are working more flexibly and employers are more accepting of this way of working. Yet, recently the debate has taken a backward step with the announcement by the CEO of Yahoo, Marissa Mayer that all telework arrangements would be rescinded. Google have also been reported in the media as saying that they don’t encourage telework. What is the future of telework?

What is telework??????????????????????????????????????????????????????????????????

Telework is generally referred to as white-collar or professional work conducted outside the main office, usually from home and requires the use of information and communications technology (ICT). Reliable statistics about who teleworks, how and when are difficult to ascertain, largely because the definition of telework is not universally agreed.

Telework is not a new concept.  The IT and software development domain has adopted this work practice since the early 1970s allowing software developers to work from areas remote from central offices.  More recently, the ability to work from anywhere has become more viable due to new developments in the ICT domain.  For example, the internet has increased our networking and collaboration activities allowing us to connect with colleagues nationally and internationally.

The Future of Telework

The capability of workers in Australia to telework will increase as the National Broadband Network (NBN) becomes available for more businesses and their employees. Additionally, the evolution of hand held and mobile devices allows for greater flexibility to access content from anywhere.

A number of studies from industry have predicted that telework will increase significantly. According to a recent report from IBIS World ‘A snapshot of Australia’s Digital Future to 2050’, one in four employees are likely to have some form of teleworking arrangement by the middle of the century. Employee flexibility and increased productivity are frequently cited in the literature as key benefits of telework.  Other benefits include cost savings, increased workforce participation and infrastructure savings.

The potential limitations include not all employees having access to telework, resistance by managers, work, health and safety issues, communication and supervisory issues.

Another trend is the adoption of smart work centres, co-working spaces and hubs that are either being trialled or utilised by governments and organisations to resolve some of the limitations of working from the home while achieving the benefits.

Telework: An Emerging Research Agenda

The trends and issues around telework are yet to be fully explored and are a fertile area for research. The Australian Anywhere Working Research Network’s (AAWRN) aim is to provide a framework for collaborative national (and international) research around flexible ‘anywhere’ working practices that include telework using mobile devices.

There are a number of research projects that are either underway or planned. The Institute for a Broadband-Enabled Society (IBES) in an Australian study in 2012 found that telework increased productivity and wellbeing. The New Zealand Work Research Institute, AUT University and Cisco New Zealand with IBES have extended this research to enhance our understanding of current issues around telework and productivity and employee wellbeing.

Macquarie University and IBES are working on a project to investigate the impact of Telework and Telehealth delivery on worker productivity, wellbeing and service quality in rural, regional and peri-urban areas of Australia. The focus of the study will be on Teleworkers engaged in various forms of Telehealth delivery, in order to explore the types of ICTs used in providing services, and how this impacts worker productivity, wellbeing and quality of service delivery to clients.

Opportunities for Collaboration

Macquarie University and the AAWRN are working on a research project proposal around smart work centres.  The overarching question for this research is “How to develop smart work centres so that they are viable and sustainable to achieve the anywhere working objectives in Australia”.

To continue the conversation, a Digital Productivity in the Workplace Conference will be held on Monday 17th June 2013. We welcome papers on existing and proposed research projects.  This conference will provide an opportunity for all interested parties to engage on this topic.

– by Dr Yvette Blount

Internal Audit ‘After the Crisis’

In the aftermath of prominent corporate scandals and the global financial crisis, corporate governance has received close attention from regulators and the public. Regulatory responses have focused on increasing governance requirements and disclosures and this has, in turn, driven increased awareness and demand for internal assurance within organisations. Internal audit is integral to corporate governance, and is well placed to provide this assurance. In a recent article, Dominic Soh and Nonna Martinov-Bennie used interviews with audit committee chairs and chief audit executives to investigate internal audit functions in the Australian context, and to consider how their effectiveness might be improved.

 KEY FINDINGS ??????????????????????????????????????????????????????????????????????????????????????????????

1. The scope of the internal audit function has expanded and refocused in recent years. Internal audit is increasingly involved in risk management rather than traditional “tick and flick” financial audits. There is also greater engagement in operational areas, and increased focus on performing a value-adding role, such as identifying how businesses can increase their efficiency and effectiveness. There is a clear expectation that in addition to its assurance role, this ‘value-added’ emphasis will continue.

2. The changing role of internal audit is largely due to regulatory reforms. Increased sensitivity to directors’ liabilities, particularly of those directors on the audit committee, has meant increased acceptance of the importance and value of the internal audit function as the ‘eyes and ears’ of the organisation. Some audit committee chairs described the assurance and comfort from internal audit as greater, and perhaps more valued, than from external audit.

3. The effectiveness of internal audit depends on its structure, resourcing and organisational status.

  • There was a clear preference for an in-house function (or at least an internal chief audit executive), on the basis that intimate business knowledge contributes to an effective audit function and makes it better equipped to meet the audit committee’s assurance needs.
  • Interviewees highlighted the importance of key competencies (audit, finance, operational, technological, and legal), but especially the capacity of the chief audit executive to ‘command the confidence and respect of the people out in the field so as to be able to gain access and cooperation’.
  • Good relationships with, and support from, the audit committee and senior management were seen as critical to an effective internal audit function. For example, it is imperative that the audit committee supports and protects the status and visibility of the function e.g. by providing a platform for internal auditors to present their findings at audit committee meetings, ensuring the chief audit executive is present in operations meetings, and ensuring that management undertakes appropriate remedial action in response to audit recommendations.

4. Performance metrics have not evolved in line with internal audit’s role. Common measures of effectiveness related to the annual audit work plan and to measures of acceptance and adoption of audit recommendations. Since these measures were similar to prior surveys, it is clear that performance evaluation mechanisms have not evolved alongside the expansion and refocus of the internal audit function.

IMPLICATIONS:

1. Internal audit cannot be evaluated in isolation. The quality and effectiveness of the internal audit function is largely dependent on other parties within the organisation, especially the audit committee and senior managers. Consequently, an ineffective internal audit function might indicate that there are broader issues in the organisation’s corporate governance.

2. Whether internal audit meets stakeholder expectations is unclear. The misalignment between the current and evolving role of internal audit and static performance measures makes it difficult to assess whether internal audit is meeting stakeholders’ expectations. Given that the internal audit function serves different stakeholders (who at times have divergent interests) within the organisation, more diverse metrics are required to measure whether internal audit is meeting the potentially different needs of stakeholders. For example, while audit committee chairs emphasised the value of assurance, chief audit executives emphasised ‘value added’ from the organisation’s perspective.

3. New performance metrics may be required. Given the increasing emphasis on the consulting and value adding role of the internal audit function, alternative metrics such as value tracking by cost savings or value creation may better measure the performance and effectiveness of the function. There is however a potential risk that such metrics would impair internal auditor’s independence and objectivity, with implications for the external auditor’s evaluation and reliance on the internal audit function.

4. The chief audit executive skills need careful assessment. The increasing involvement of internal auditors in consulting and operational areas requires staff with industry knowledge and experience. In addition to strength of character and an inquiring mind, the chief audit executive needs strong communication skills to build bridges with all business areas, and to confidently report to higher organisational levels. Developing these competencies is no mean feat, and would take considerable time. Organisations therefore need to consider how limited tenure or rotation of this role could work, if it is required or even tenable.  These also have implications for what the career path of a chief audit executive would ultimately look like.

See: Dominic Soh’s and Nonna Martinov-Bennie’s article and abstract:

Integrated Reporting: Lessons from the Global Reporting Initiative?

???????????????????????????????????????????????????????????????????????????????On April 16, 2013 the International Integrated Reported Council (IIRC) will release a draft of ‘Version 1’ of its Integrated Reporting framework for public comment. This release marks a new stage in efforts to measure organisations’ performance on non-financial grounds, such as their use or ‘stewardship’ of social and environmental resources. While there have been many previous methods of social and environmental reporting, the distinctive idea of Integrated Reporting is to use simultaneous presentation of financial and non-financial information to show how organisations’ management of different types of resources – financial, human, and environmental – are interconnected, so that success or failure in one area (e.g. use of natural resources) has consequences for the whole. Integrated reporting has attracted significant support in a comparatively short period of time, including from major international organisations like Microsoft, Coca-Cola and Volvo in the IIRC’s pilot program and business network, and recognition from the peak international professional body in accounting: the International Federation of Accountants.

Will IR be successful over the long term? A useful starting point is the experience of the Global Reporting Initiative (GRI), which co-founded the IIRC in 2010. From small beginnings in 1997, the GRI has grown to become arguably the most well-known and widely used means of reporting social and environmental information. However, there has been considerable debate over the impact that the GRI is having on corporate reporting. On one hand, many studies have highlighted the extensive use of sustainability reporting by the world’s largest firms, with the GRI the most popular reporting mechanism. On the other hand, critics like David Levy, Halina Brown and Martin de Jong have argued that the adoption of GRI by businesses overall has been comparatively low. More importantly, they claim, the social and environmental measures developed by the GRI are not being widely used by investors and social institutions for their intended purposes.

It remains to be seen whether the fourth iteration of GRI due out in May – ‘G4’ – will address some or all of its critics’ concerns. However, regardless of your view on the GRI, the GRI debate raises important questions about how IR will deliver enough value to stakeholders to encourage use of integrated reports over the long term. One feature of the IIRC’s approach is to stress that IR can add value to companies by promoting dialogue across the organisation. The feedback on the IIRC’s pilot program suggests that at least those large international companies that are trialling IR view this approach positively. Yet while the abstract value of sustainability reporting (e.g. to organisational reputation) has been long discussed, it has proved more difficult to quantify these benefits, especially for the smaller to medium sized organisations which face relatively higher costs.

As the GRI debate also highlights, the usefulness of IR to investors will depend not only on the internal benefits of IR for any one organisation, but also on investors’ ability to compare organisations’ performance on social and environmental indicators. It remains to be seen whether the voluntary framework proposed by the IIRC is capable of meeting this objective, especially where organisations adopting IR have discretion over the indicators they choose to report.

Finally, while the IIRC has been making a strong case for the business benefits of IR, the IIRC’s focus on investors has at least temporarily sidelined the question of whether IR provides the type of transparency that broader groups of stakeholders require. As also raised in GRI debates, increasing organisations’ accountability for their use of social and environmental resources requires some mechanism of limiting their motivation or capacity to ignore or ‘greenwash’ information that presents their activities in an unfavourable light. If part of the public case for supporting IR is that it will increase public accountability in this sense, then one question future IIRC releases need to clarify is how the IR framework will perform this additional reporting function.

Dr Dale Tweedie, IGAP Research Fellow.

What is your view of the IIRC’s approach? Is integrated reporting likely to be useful to you or your organisation?