Introduction3
Core Standards Project4
Toward an International Code of Ethics.5
Conclusion..7
References..9
Introduction
Since the 1980s, the transformation of accounting in the global financial landscape has led to significant transformation in ethical rules to professional practice. In the international acquisition context, the development of a new ethical accounting best practices framework establishes a baseline decision model for managing challenges in cross-border transactions. Multinational corporations obliged to accounting standards compliance in both the home country, and foreign jurisdictions work toward resolving ethical dilemmas according to legal rules of preemption, and in conjunction with international policy guidelines.
In 2000, the U.S. Securities and Exchange Commission (SEC) laid forth outline to an ethical framework of accounting best practice for both publically traded U.S. companies, as well as foreign issuers conducting business in the market. The SEC’s ethical best practices guidelines are in coordination with ethical rules coinciding with the International Accounting Standards Committee (IASC) and conforming to those found in International Federation of Accounts (IFAC) recommendations (SEC, 2000).
Efforts to develop a global financial reporting framework guided by cornerstone principles in pursuit of the SEC’s mandate of investor protection promote transparency (i.e. full and fair disclosure) in all accounting practice (SEC, 2000). One of the biggest challenges faced by multinational enterprises (MNE) today are the incompatibilities in the “different listing and reporting requirements” often leading to increased cost of multiple capital markets access (SEC, 2000).
Accounting rule changes to cross-border filings in coordination with the International Accounting Standards Committee (IASC) are advocated in the interest of improving compliance and efficiency in financial reporting information. The “inefficiencies in cross-border capital flows” drive much of the change in the legal framework articulating regulation of accounting, and specifically securities controller functions around the world (SEC, 2000).
Core Standards Project
The SEC’s Core Standards Project publication of a single disclosure document for use in cross-border offerings and listings has been facilitative to the development of internationally accepted accounting standards in multinational finance. The goal of the core standards initiative was to ensure that the highest quality financial information would be provided to investors and regulatory bodies. Financial reporting structure is the focus of this framework of ethical responsibility in accounting best practices and establishes rules to application of generally accepted accounting standards and implementation in organizations (SEC, 2000).
The elements of a high quality global financial reporting structure as designated by the SEC are compatible with IASC standards of assurance that all accounting practices: “1) constitute a comprehensive, generally accepted basis of accounting; 2) are of high quality; and 3) can be rigorously interpreted and applied” (SEC, 2000). Organizational accounting standards should also be consistent with underlying conceptual framework in facilitation of any controller function, with clear and unambiguous audit of results to transactions with evidence of minimal alternative accounting treatment.
International standards within the SEC and IASC rules to accounting practice also provide for infrastructural support of applied standards so that “problematic practices are identified and resolved in a timely fashion” (SEC, 2000). Infrastructure supportive of adequate and sufficient accounting practice must illustrate: 1) “effective, independent and high quality accounting and auditing standard setters; 2) high quality auditing standards; 3) audit firms with effective quality controls worldwide; 4) profession-wide quality assurance; and 5) active regulatory oversight” to be in compliance with the SEC’s interpretation of those guidelines (SEC, 2000).
Other elements of the SEC and IASC recommendation to accounting ethical best practices include: high quality accounting standards; high quality auditing standards; audit firm quality control; professional quality assurance; and regulatory oversight in line with U.S. generally accepted accounting principles (GAAP) or alternate comprehensive accounting standards (i.e. IASC) to financial control. In the latter case, foreign private issuers supplying audit for cross-border filings in the U.S., using standards other than GAAP must provide audited reconciliation.
Toward an International Code of Accounting Ethics
Transformation of the licensing regulations and ethical codes and standards of conduct applied within the field of accounting in the U.S. are parallel to similar changes to professional rules abroad (George, 2013). The International Ethics Standards Board for Accountants (IESBA) publishes the Code of Ethics for Professional Accountants used by International Federation of Accounts professionals (IFAC, 2013). Although some jurisdictions may require differing compliance from the Code of Ethics, the accountants in those jurisdictions must be in adherence with the international rules to practice “unless prohibited by law or regulation” (IFAC, 2013).
The International Federation of Accounts (IFAC) (2013) is the policy body guiding public “issues where the accountancy profession’s expertise is most relevant, and encourages accountability and transparency from governments around the world” offers framework to ethical best practices in accounting (IFAC, 2013). The IFAC Code has been adopted by more than one hundred countries, and is the relevant conceptual framework for evaluation of due care and confidentiality in circumstances where ethical issues have been raised (Allen and Bunting, 2008).
The fundamental principles to an ethical international accounting practice are guided by a five (5) point professional recommendation to proper conduct in all financial controller activities (Table 1).
The IFAC gives notice that competence and due care “requires accountants to act diligently and in accordance with current technical, professional and legislative requirements when engaged in professional activities” and that where any professional activity may compromise compliance to those fundamental principles that proper risk mitigation be implemented to control for financial or other liabilities to an organization or client party (George, 2013). Compromise is identified in the IFAC code of practice as activities that may threaten accounting practices by way of: self-interest, self-review, advocacy, familiarity or intimidation (George, 2013).
Conclusion
In 2000, the U.S. Securities and Exchange Commission announced its intent to work Towards Convergence of Accounting Standards in a Global Environment (SEC, 2000). The SEC’s participation in setting a standard for global best practices in accounting encourages “convergence of accounting standards” through consensus with international financial reporting bodies (SEC, 2000). Consistency and transparency are the two main priorities in the trend to serve the needs of businesses and investors in conformance with accounting rules and regulations at both the national and international levels.
The increased convergence of accounting practices globally has been reliant up on a few key principles in guidance of those policies. Foremost, the requirement of large multinational enterprises in the acquisition process has promulgated the demand for a ‘merger’ of ethical best practices in accounting. Application of accounting standards in a foreign market in coordination with those of company’ headquarters in another, establishes the need for a transnational accounting best practices framework to standards in financial management. IFAC rules established to correspond with other standards bodies such as the IASC, as well as U.S. GAAP rules to accounting now guide MNE upon acquisition in a foreign jurisdiction from that of the parent company.
Transparency in reporting that is consistent and comparable worldwide has been the main challenge and goal of this conjoint rule participation. Securities regulators and national accounting standard setters have collaborated in this policy trend, and are continuously seeking better approaches to international accounting practice. Convergence of disclosure in accounting practice has also contributed an increased interest by publicly listed companies trading securities on the U.S. capital markets (SEC, 2000). To this end, a reduction in disparities in accounting practice is creating a higher quality financial reporting environment.
References
Allen, C. and Bunting, R. (2008). A Global Standard for Professional Ethics. Journal of Accountancy May 2008. Retrieved from: http://www.journalofaccountancy.com/Issues/2008/May/AGlobalStandardforProfessionalEthics.htm
George, R. (2005). Code of Ethics - IFAC issues revised code for professional Accountants. Chartered Accountants Ireland. Retrieved from: http://www.accountancyireland.ie/Archive/2005/October-2005/Code-of-Ethics---IFAC-issues-revised-code-for-professional-Accountants/
Handbook of the Code of Ethics for Professional Accountants. New York: International Federation of Accountants (2012). International Ethics Standards Board for Accountants. Retrieved from: http://www.ifac.org/sites/default/files/publications/files/2012-IESBA-Handbook.pdf
International Federation of Accountants (2013). Retrieved from: http://www.ifac.org/
SEC Concept Release (International Accounting Standards: 17 CFR Parts 230 and 240 [Release No. 33-7801, 34-42430; International Series No. 1215] File No. S7-04-00 [RIN: 3235-AH65], International Accounting Standards) (2000). Securities and Exchange Commission. Retrieved from: http://www.sec.gov/rules/concept/34-42430.htm
