20 May 2016
As more revelations from the Panama Papers hit the media, it will be foolhardy to brush the leak off as just another whistleblowing incident. Make no mistake, the high-profile Panama Papers has taken whistleblowing to a whole new level. The colossal amount of information involved (11.5 million documents or 2.6 terabytes, equivalent to the storage capacity of about 167 of the common 16-gigabyte thumb drives), the prominent list of notables implicated so far, and the massive coordination effort undertaken to investigate the information and release them to the public, is of an unprecedented scale. The Panama Papers saga has given whistleblowing the perfect stage for its moment in the limelight.
In a few months, the International Ethics Standards Board for Accountants (IESBA) is expected to issue new provisions, with elements concerning whistleblowing, to guide accountants (including auditors) in responding to any actual or suspected non-compliance with laws and regulations. This is by no means a knee-jerk reaction to the Panama Papers. The IESBA has been working on this project for many years. Accountants in jurisdictions, including Singapore, which adopt the ethics standards issued by the IESBA will have clearer guidelines to follow regarding whistleblowing, under the requirements of the new standard going forward. It is still early days to know whether Singapore will adopt the standard. Extensive discussions will be held to assess the likely impact on the Singapore accountancy profession before any final decision will be made on the adoption of the standard in Singapore.
In a nutshell, the standard expects accountants who are non-auditors to escalate internally to higher levels of authorities if they come across instances of actual or suspected non-compliance with laws and regulations. If the upper echelons do not take adequate and timely actions to address the non-compliance, the accountants will have to consider if further action is needed and these may include, inter alia, reporting the matter to an external authority or resigning from the organisations. Likewise, auditors are subject to similar requirements, except they will broach the issue with the appropriate level of management and if necessary, the board of directors or audit committees of their audit clients. For example, if an auditor discovers that an Indonesian subsidiary of his client is burning forests and contributing to the haze problem, he may need to report even though this is entirely unrelated to the financial statements. This can be very onerous on the auditor who may now be bogged down by an expectation to know a lot more about his client beyond the audit of the financial statements.
Whistleblowing is a contentious topic. Unsurprisingly, the IESBA encountered stern opposition from some stakeholders on its initial set of proposals. But the IESBA believed the project to be of immense significance to weather the storm and formulate the latest standard which is more calibrated in its approach after taking into account the feedback garnered. The standard provides guidance to a quandary which accountants may face. Being a whistleblower can be a very taxing experience and any direction to help accountants navigate through such uncharted waters would be like the beacon from a lighthouse. Professionally, accountants also have a duty not to ignore such instances of non-compliance, especially when substantial harm may be caused to the wider public. More importantly, whistleblowing is gaining traction as one of the more effective means of uncovering illegal activities such as fraud and corruption. From Enron’s Sherron Watkins and WorldCom’s Cynthia Cooper to the more recent Michael Woodford of Olympus, whistleblowers have made an enormous and lasting impact in some of the major corporate financial scandals that have rocked the world. Riding on such strong tailwinds, this has invariably fuelled the case for whistleblowing to feature more prominently as part of the professional behaviour that accountants should exhibit to uphold ethical business practices.
The promulgation of the standard may be in the public interest, but there are challenging concerns which should be addressed to facilitate the job of accountants. For starters, the standard may adversely impact business and working relationships. The level of trust between accountants and their clients, employers and fellow colleagues could be eroded if accountants are now perceived to be undercover agents on the prowl for wrongdoings. For auditors, clients will be more wary of what they share with the auditors and may even withhold important information from the auditors. Not only will this impede the auditors from carrying out their work in a proper manner, this is unequivocally a hindrance in the pursuit of high quality audits. For accountants who are non-auditors, their loyalty towards their employers and camaraderie with fellow workers may be cast in doubt. They may be treated as an ungrateful lot who bite the hand that feeds them. This could have repercussions on their job security.
In addition, with the new standard, accountants will be caught between the devil and the deep blue sea if they are embroiled in a whistleblowing situation. If they do not blow the whistle, it will constitute non-compliance with the standard. But if they do, it will bring about other complications. In many cases, whistleblowers put their careers, families and even their lives on the line to expose illegal activities. It is not uncommon to hear of whistleblowers being sacked or demoted. They often face persecution and are the subject of reprisals. Yet, their acts of valour may not be reciprocated with legal protection accorded to whistleblowers. Not only do whistleblowers run the risk of being sued for breaches of confidentiality, they may have to serve jail time if they are convicted of complicity in the crime they have reported on, despite having cooperated during investigations.
Presently, different jurisdictions hold different stances when it comes to enacting legislations to protect whistleblowers. Some countries such as the United States and the United Kingdom have laws which shelter whistleblowers. On the contrary, there are others which have resisted calls to have whistleblower protection legislations due to historic baggage, cultural differences or business implications, amongst other reasons. For example, Germany has almost no legal protection for whistleblowers.
However, it is not all doom and gloom for accountants. The new standard does give accountants some room to manoeuvre. One saving grace is that accountants do not have to disclose the matter to an external authority if doing so violates any laws or regulations. Also, before disclosing to an external authority, accountants will have to consider whether:
- there is a suitable authority to receive the information;
- there are sound and trustworthy protection from civil, criminal or professional liability or retaliation afforded by legislation or regulation; and
- there are threats to the physical safety of the accountants or other individuals.
Dissidents would contend that the above factors reduce the robustness and effectiveness of the standard. They would posit that the provisions may be all too conveniently used as an excuse to not disclose to external authorities. While there may be some merit to the argument, the IESBA is cognisant of the need to be pragmatic when it comes to applying the standard in practice. By insisting on overly stringent or prescriptive requirements, it may be a tall order to develop and issue a standard which can be operationally practicable in most, if not all, countries around the world.
Like a daredevil walking a tightrope strung across two skyscrapers, the IESBA has attempted to strike a fine balance for the greater good. Although the jury is still out there on the effectiveness of the provisions, the IESBA has done the right thing by taking the bull by its horns. If the standard achieves its desired objective, it will undoubtedly further elevate the stature of the global accountancy profession and reinforce its position as a key component of an ethical business environment.
The commentary is written by Kang Wai Geat, Assistant Director of Technical Advisory and Professional Standards at Institute of Singapore Chartered Accountants.
A version of this commentary was published in The Business Times on 20 May 2016.
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