Xavier (not real name) recently joined a small local company specialising in the sale of marine equipment as its Finance Manager. While his primary role was to oversee the Finance team (comprising Xavier himself and two Accounts Assistants), his Managing Director had recently hinted that he should assume a secondary, albeit more covert, role – to falsify the accounts of the company to cover up the payment of kickbacks to the representatives of the company’s customers.

As Xavier voiced his misgivings over the proposed arrangements, the Managing Director dismissed his concerns, “Come on Xavier, don’t act like a frightened little boy. We have always been doing this. This is common practice in the industry – you scratch my back and I scratch yours. And most importantly, I hired you because I know you are smart enough to do a thorough job. It’s OK. Don’t worry too much.”

One day, seeing that Xavier was still struggling internally, the Managing Director’s face darkened and his voice gradually took on a sterner tone, “Everyone working here knows that there is only my way – or the highway. You can either carry out the task that I have assigned you, or you can start looking around for your next job in the papers. I will give you two days to think through what I have just said.”

Xavier faced two tough choices:

1)    Should he follow his Managing Director’s orders and proceed to falsify the accounts; or 

2)    Should he refuse the Managing Director’s orders and immediately find himself out of job?

Certainly, the first choice would enhance his prospects in the company and enable him to keep his job. But this would make him an accessory to the illegal acts and his standing as a professional accountant may be at risk.

Eventually, Xavier opted for the first option and was subsequently caught. As a consequence, he was sentenced to jail for falsifying accounts. His membership as Chartered Accountant of Singapore was also terminated by the Institute. The Managing Director was also charged in court and sentenced to jail for corruption.

Crime does not pay.

Lessons Learnt

Paragraph 320.3 of the ISCA Code of Professional Conduct and Ethics (ISCA Code) requires a professional accountant in business (PAIB) to take reasonable steps to maintain information for which the PAIB is responsible, in a manner that: 

(a)  Describes clearly the true nature of business transactions, assets, or liabilities;

(b)  Classifies and records information in a timely and proper manner; and

(c)  Represents the facts accurately and completely in all material aspects.

In addition, paragraph 320.4 of the ISCA Code warns that threats to compliance with the fundamental principles, for example, self-interest or intimidation threats to integrity, objectivity or professional competence are created where a PAIB is pressured (either externally or by the possibility of personal gain) to prepare or report information in a misleading way or to become associated with misleading information through the actions of others. Preparing, reporting or being associated with misleading information in any way could have a more far-reaching impact of bringing disrepute to the profession. This may erode the public confidence in professional accountants.

ISCA Members are reminded that the fundamental ethical principle of integrity in paragraph 110.1 of the ISCA Code imposes an obligation on all professional accountants to be straightforward and honest in all professional and business relationships. Furthermore, the principle of objectivity in paragraph 120.1 of the ISCA Code imposes an obligation on all professional accountants not to compromise their professional or business judgement because of bias, conflict of interest or the undue influence of others. Also, the principle of professional behaviour in paragraph 150.1 of the ISCA Code requires ISCA Members to comply with relevant laws and regulations and not perform any action that would discredit the accounting profession.

It is clear that Xavier had breached the above fundamental ethical principles.

To address the issue, paragraph 320.6 of the ISCA Code requires the significance of any threat to be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Such safeguards include consultation with superiors within the employing organisation, the audit committee or those charged with governance of the organisation, or with a relevant professional body.

Where it is not possible to reduce the threat to an acceptable level, paragraph 320.7 of the ISCA Code requires the PAIB to refuse to be associated with the information that he/she determines is misleading.

In this case, given that the company is a small local company and the Managing Director is the perpetrator, Xavier may have no choice but to resign from the company to preserve his professionalism and future career.