Accountants and ethics: promoting trust in the public sector

The success of public policies can be measured by citizens’ willingness to comply with the rules. That is why trust in governments is so crucial. Recent global crises such as the pandemic, the war in Ukraine and the climate emergency have all led to strong governmental responses to protect citizens and private sector businesses. Yet, nearly two-thirds of those polled in the Edelman Trust Barometer 2022 believed that government leaders are deliberately trying to mislead people by making falsehoods or exaggerations. This decline of trust in government is alarming and rebuilding it is urgent.

This blog will discuss accountants’ roles in building trust, the ethical challenges they encounter and how the International Code of Ethics for Professional Accountants helps them face these challenges.

Accountants in the public sector

Accountants have an important role to play in helping to rebuild trust in public bodies through their multiple roles in the public sector, which include:

• preparing financial information used for internal budgeting and costing purposes, and to prepare published financial information for external stakeholders’ use
• preparing non-financial information including performance reporting and, increasingly, reporting on sustainability, social and governance issues
• internal auditing to test the effectiveness of internal controls, check the financial information’s reliability and accuracy, and provide data-based insight and foresight assisting their organisation to deal with challenges and formulate policy
• external auditing, playing a vital role in supreme audit institutions by assessing the financial statements and compliance with the public sector entities’ governing rules. Increasingly, accountants are being used to assess the effectiveness and efficiency of policies and programmes

Conflicts of interest and political pressure

In performing these different functions, public sector accountants can face very specific ethical issues. These can be conflicts of interest – especially in local government – or very old-fashioned and autocratic work cultures that discourage speaking up on ethical issues. However, the largest ethical challenges come from political pressure.

Government strategy is often driven to achieve political ends and set by people who are not experts in the field. Pressure to show policy achievements in a successful light not only flows down the reporting line but arises from public expectations raised by political statements.

In such circumstances, there can be expectation within an organisation that it will meet the performance obligations that were publicly stated, thereby leading to optimism bias, e.g., when setting budgets, costing programmes or assessing performance.

Code of Ethics for Professional Accountants

Public sector accountants can turn to the International Code of Ethics for Professional Accountants when specific ethical issues arise. The Code is issued by the International Ethics Standards Board for Accountants (IESBA) and is mandatory for most professional accountants – including those working in public sector.

Five fundamental principles

The Code contains detailed rules and guidance and is updated regularly. It is underpinned by five fundamental principles:

1. Integrity
2. Objectivity
3. Professional Competence and Due Care
4. Confidentiality
5. Professional Behaviour

Pressure to break the code

Accountants can refer to several sections of the Code when faced with the pressure to break these principles. For example:

Part 2, Professional Accountants in Business. Section 270.3 A2 mentions “pressure from elected officials on public sector accountants to misrepresent programs or projects to voters”.

Section 270.3 A3 assists professional accountants in business to evaluate the level of the threat created by pressure. Sections 270.3 A4 and A5 contain practical steps for dealing with undue pressure, from discussing the matter with the individual exerting the pressure, to disclosing the matter via whistleblowing mechanisms.

Making public sector finances sustainable

Training on ethical behaviour, together with the application of the Code of Ethics, help public sector accountants and auditors with their crucial role in protecting the public purse. This is especially important as the public sector needs to harness all its resources to make public sector finances sustainable and to plan for future challenges, such as an ageing population and the climate crisis.