COVID-19 - Ethical issues for members in business

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW business members to navigate some of the ethical issues that may arise during the COVID-19 pandemic. This helpsheet addresses circumstances in which compliance with the ICAEW Code of Ethics might be compromised.

A professional accountant has a responsibility to further the legitimate objectives of the accountant’s employer, but also has a continuing obligation to comply with the law and uphold high ethical standards, even in difficult circumstances.

Members may also wish to refer to the following related helpsheets and guidance:

• Compliance and professional conduct
• Disclosure of confidential information (for members in business)
• The ethics of a chartered accountant in business
• Ethical problems – framework for resolution

Members in practice may instead wish to refer to the helpsheet COVID-19: Ethical issues for members in practice.

Paragraph R111.2 of the ICAEW Code of Ethics ;states:

Where a professional accountant becomes aware of having been associated with such information, paragraph R111.3 requires them to take steps to be disassociated from that information.

Furthermore, when preparing or presenting information, a professional accountant shall prepare or present the information in a manner that is intended neither to mislead nor to influence contractual or regulatory outcomes inappropriately and must exercise professional judgement to represent the facts accurately and completely in all material respects (paragraph R220.4).

Scenario 1 – Potentially fraudulent grant claims

A professional accountant is asked to prepare a Coronavirus Job Retention Scheme (CJRS) grant claim but is aware that some employees listed have been working for the organisation during recorded hours of supposed furlough. To claim the grant for them would therefore be fraudulent.

As the professional accountant knows or has reason to believe that the claim would be fraudulent, they must not submit the claim as it currently stands. The professional accountant should follow the guidance contained within Section 220 Preparation and presentation of information and Section 260 Responding to non-compliance with laws and regulations of the ICAEW Code of Ethics.

In doing so, the professional accountant should discuss their concerns with the appropriate level(s) of management within their organisation. It may be that the employer is simply unaware of the requirements surrounding claims and the information can be easily corrected. If the accountant continues to come under pressure to submit a misleading claim they should escalate the matter within the employing organisation, in accordance with the employer’s policies, explaining the risks of such a claim. If the professional accountant determines that the claim will not be amended they shall refuse to submit it. It may be appropriate for the accountant to seek legal advice to protect their position.

A professional accountant in business owes a duty of confidentiality to their employer, as set out in Section 114 of the ICAEW Code of Ethics. They must not, therefore disclose confidential information outside the employing organisation without proper and specific authority, unless there is a legal or professional duty or right to disclose (guidance is available in the helpsheet Disclosure of confidential information (for members in business)). If, for example, the professional accountant becomes aware that their employer goes ahead and does submit a fraudulent CJRS claim and receives the proceeds of it, they will not have an obligation to make a suspicious activity report (SAR) unless the business operates within a regulated sector for the purpose of anti-money laundering legislation.

Professional accountants must comply with the fundamental principle of professional competence and due care, as set out in Section 113 of the ICAEW Code of Ethics.

The principle of professional competence and due care requires that a professional accountant only undertake significant tasks for which the accountant has, or can obtain, sufficient training or expertise (paragraph 230.3 A1 of the ICAEW Code of Ethics). A self-interest threat to compliance with the fundamental principle of professional competency and due care might be created if there is insufficient time for performing or completing relevant duties (paragraph 230.3 A2).

Scenario 2 – Staffing issues

Due to COVID-19, staffing levels in the finance department are lower than usual and the financial controller is currently on sick leave whilst self-isolating. However, an urgent reporting deadline is looming and a junior accountant is asked to prepare some financial information that takes them far outside their comfort zone, it is a particularly tricky area that is usually handled by the financial controller.

Relevant factors to consider here will be the size and experience of the team, the seniority of the accountant and the level of supervision over their work. In this case the accountant is a junior and the scenario implies there may be limited supervision over their work at present.

In the first instance the accountant should seek assistance or training from someone with the necessary expertise, possibly a colleague in the same department who may have experience of the task. They should also seek to understand the nature of the reporting deadline and negotiate an extension if possible, explaining the situation and their ethical responsibilities. If none of the above is possible the accountant might determine that declining to perform the task is appropriate, explaining the reasons why. It may ultimately be the case that the work needs to be dealt with by someone significantly more senior.

A professional accountant might become aware of non-compliance with laws and regulations during the course of their work. These may be financial matters (see Scenario 1) or other matters relating to the business (including health and safety). Such matters will require the professional accountant in business to alert the appropriate level of management or take steps to deter non-compliance in accordance with Section 260 Responding to non-compliance with laws and regulations of the ICAEW Code of Ethics.

As already mentioned above, a professional accountant in business owes a duty of confidentiality to their employer, as set out in Section 114 of the ICAEW Code of Ethics. They must not, therefore disclose confidential information outside the employing organisation without proper and specific authority, unless there is a legal or professional duty or right to disclose (guidance is available in the helpsheet Disclosure of confidential information (for members in business)).

Scenario 3 – Health and safety

Upon returning to the workplace following lockdown the Finance Director (FD) of a medium sized business discovers that the organisation has not assessed the health and safety risks surrounding COVID-19, including matters such as cleaning and social distancing.

Given the senior position of the accountant, they will have a greater ability to influence policies, decisions made and actions taken within the organisation than a more junior accountant.

Whilst the accountant is not expected to have a level of understanding of laws and regulations greater than that required for their role, if they do identify or suspect non-compliance with health and safety regulations they shall (subject to any protocols and procedures within the employing organisation) discuss the matter with their immediate superior, in this case the Managing Director (MD), to address the matter. In this scenario it would also be appropriate to involve HR (since this is likely to be their area of responsibility) and the board may wish to seek legal advice.

NOCLAR permits a senior professional accountant to make disclosure to the appropriate authority (in this case the Health and Safety Executive (HSE)) without first reporting the matter to management, but only under exceptional circumstances. Typically there must be reason to believe that there will be an imminent breach of law or regulation that would cause substantial harm to stakeholders.

The FD is encouraged to document the issue and actions taken including the results of discussions, and the response.

A professional accountant shall comply with the fundamental principle of integrity as set out in Section 111 of the ICAEW Code of Ethics. This requires a professional accountant to be straightforward and honest in all professional and business relationships (paragraph R111.1).

Furthermore, company directors have responsibilities under insolvency legislation that they need to comply with. This should be the legislation prevailing at the point in time, not proposals announced regarding such legislation.

Scenario 4 – Solvency concerns

The FD of a small manufacturing business has significant concerns over the entity’s ability to meet its debts as they fall due, and is coming under pressure to favour certain suppliers when it comes to payment.

The professional accountant must consider their many legal responsibilities including the provisions of the Insolvency Act 1986 regarding fraudulent/wrongful trading and their duties under s172 of the Companies Act 2006. Furthermore, the fundamental principle of integrity implies fair dealing and truthfulness (paragraph 111.1 A1 of the ICAEW Code of Ethics).

The professional accountant should recommend the board seek the advice of a regulated insolvency practitioner and there may be sources of financial support available and a number of options. Cash flow and forecasting will be essential.

In the absence of aggravating factors, being a director of an entity that may be facing insolvency will not automatically prompt ICAEW disciplinary action (unless it is a member firm). ICAEW will take a proportionate approach to regulation and discipline. For example, any new complaints made about the conduct of an ICAEW firm or member during this COVID-19 period will be investigated by the Professional Conduct Department (PCD) in the usual way. A member who is disqualified under the Company Directors Disqualification Act 1986 will, however, be subject to disciplinary action. PCD case managers and the Investigation Committee will take into account mitigating circumstances surrounding conduct.

A professional accountant shall not allow pressure from others to result in a breach of compliance with the fundamental principles or place such pressure on others (paragraph R270.3 of the CAEW Code of Ethics).

Scenario 5 – Working whilst furloughed

A financial controller is under pressure to send some work to a furloughed employee, the management accountant. The financial controller has not been furloughed.

The fundamental principle of professional behaviour requires the financial controller to comply with relevant laws and regulations as well as take steps to address potential non-compliance (see Scenario 3). Performing tasks whilst furloughed may have contractual implications and may invalidate any CJRS grant claim in respect of the management accountant (see Scenario 1).

Factors to consider here include the intent and seniority of the individual who is exerting the pressure and the extent of the pressure. The financial controller needs to understand the circumstances as it may be that the individual is unaware that the employee has been furloughed, or the intent may be to perform the work outside their hours of furlough (e.g. for the employee to be flexibly furloughed and undertake these tasks during the hours they are working) and this has not been adequately communicated. In the case of the latter, HR should be formally involved in the process. It may also be a non-furloughed employee such as the financial controller could perform the task. The matter should therefore be discussed with the individual exerting the pressure, and/or with the financial controller’s superior. If they are the same person it may be appropriate to escalate the matter in accordance with the employing organisation’s policies, possibly to HR.

The financial controller is encouraged to document the facts, the communications involved and how the matter was resolved.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.