Proposed Global Whistleblower Standard Presents Challenges: The IESBA Issued an Exposure Draft Describing How Professional Accountants Should Respond When They Discover Unethical And/or Illegal Acts in the Course of Their Duties. Intended to Encourage Accountants to Blow the Whistle on Unethical Companies or Individuals, Some of the Changes May Conflict with Other Ethical Responsibilities
Verschoor, Curtis C., Strategic Finance
Research has repeatedly shown the importance of tip information to the solution of fraud and other criminal cases, but efforts to promote whistleblowing may conflict with ethics requirements contained in codes of ethics guiding professional accountants, such as the IMA Statement of Ethical Professional Practice or the American Institute of Certified Public Accountants' (AICPA) Code of Professional Conduct. In the United States, for example, the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in July 2010 contained provisions to encourage whistleblowing and protect whistleblowers when reporting suspected violations of securities laws, yet these provisions encourage behavior from professional accountants that may conflict with their ethical responsibilities regarding confidentiality.
The International Ethics Standards Board for Accountants (IESBA), a global organization that works to facilitate the convergence of the ethics standards used by professional accountants throughout the world, maintains the Code of Ethics for Professional Accountants (COEPA). On August 22, 2012, IESBA issued an exposure draft (ED) titled "Responding to a Suspected Illegal Act" that would modify COEPA to outline the types of situations where a professional accountant would have an ethical responsibility to blow the whistle. But some of the proposed changes create potential conflicts for accountants.
Varied Whistleblowing Practices Systems to encourage whistleblowing and protect whistleblowers differ around the world, and some countries have more refined structures in place than others. But as governments work to reduce the instances of fraud, their legislative efforts create ethics challenges for accountants.
As a part of the implementation of the whistleblower section of Dodd-Frank, for example, the U.S. Securities & Exchange Commission (SEC) established an Office of the Whistleblower (OW) to work with whistleblowers, handle their tips and complaints, and help determine the awards for individuals who provide information that leads to a successful enforcement action. The final whistleblower regulations, which became effective in August 2011, enable the SEC to pay substantial cash bounties to eligible whistleblowers who "voluntarily provide the Commission with original information about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action." The bounty payment is unique in the world as it creates a very significant motivation for people to ignore internal procedures and ethical boundaries in order to claim cash.
Dodd-Frank defines circumstances when bounties may be paid to auditing, legal, and compliance personnel and when they can be protected from retaliatory acts if they had a reasonable belief that whistleblowing was necessary:
* To prevent substantial injury to the financial interests of the company or its shareholders, or
* That the company was about to impede an investigation of the misconduct, or
* That 120 days had passed since the whistleblower reported (or officials already knew about) the possible violations.
Under Dodd-Frank, accountants in industry, employees engaged in internal auditing or compliance processes, and auditors engaged in an independent audit of the financial statements of a public company can be compensated as whistleblowers. The SEC realizes this causes a potential conflict of loyalty to employers and/or clients. In its adopting release for the Dodd-Frank regulations, the Commission noted, "We believe it is in the public interest to accept whistleblower submissions and to reward whistleblowers--whether they are officers, directors, auditors, or similar responsible personnel--who give us information that allows us to take enforcement action to prevent substantial injury to the entity or to investors."
In the United Kingdom, the Public Interest Disclosure Act of 1998 sets forth substantial legal protections against employer retaliation on workplace whistleblowers. …