Current uncertainties are increasing the ethical challenges accountants face, says Ken Siong, Senior Technical Director at the International Ethics Standards Board for Accountants, based in New York. Nicky Burridge talks to him about his role in restructuring the code of ethics and in helping accountants maintain and heighten trust in the profession
In just four months the coronavirus pandemic has had a significant impact on the world, leading to changes in the way we live, work and travel. It has also brought increased risks and uncertainty to businesses, creating new challenges for accountants to grapple with. But Ken Siong, Senior Technical Director at the International Ethics Standards Board for Accountants (IESBA), does not think the impact on the profession ends there.
Instead he warns that the coronavirus has also increased the ethical issues that accountants must be on their guard against. “A number of regulations have been put in place that deal with public health and safety, and accountants are not absolved from compliance with those regulations. There are also greater opportunities for fraud, for example we have seen reports of fraudulent medical products that don’t meet safety standards and fake medicines, and accountants have to be on the alert for that as they have a responsibility to respond to non-compliance with laws and regulations under the code of ethics.”
At the same time, he says many organizations have been badly affected and are reaching out to governments for emergency support, often turning to their accountants for assistance in applying for the schemes. “For accountants it is not just about making sure they are supporting their clients or employers in an ethical manner, but they must also be on the lookout for fake applications, as unfortunately these are a fact of life in the times in which we live.” He notes that IESBA staff recently issued a Q&A publication that highlights these and other ethics and independence considerations for accountants in response to the pandemic.
Siong, a member of the Hong Kong Institute of CPAs, points out that accountants have an important role to play in terms of the public interest. “The profession has a responsibility under the code to act in the public interest. In these times of uncertainty, accountants should bear in mind they have an ethical responsibility to provide truthful information, no matter how bad that information might be,” he says.
Pressures and incentives
Siong thinks ethical issues are something the profession has always had to deal with on a daily basis. He points out that no matter what their goals or professional responsibilities are, accountants have to deal with pressures and incentives that might lead them to act contrary to the ethical expectations and obligations that apply to them as members of the profession.
He explains that because accountants are at the centre of the production of information, both financial and non-financial, they often have to navigate complex situations where they may come under pressure to misreport or underreport information, or act in certain capacities for which they might not have the right competencies. Siong adds that accountants may also face pressure from clients whose financial interests are at stake, or pressure from their own organizations to take certain actions that lead to certain unethical outcomes.
Meanwhile, they can also face incentives, such as compensation that is based on achieving certain outcomes, which can create inducements for them to put a favourable spin on numbers. “How to navigate those very complex behavioural situations is what we deal with here through the standards,” he says.
Siong points out that ethical risks are constantly evolving, and technology has added a new dimension to the issues that accountants face, particularly as many practices now offer technology-related services. There is a risk of really stepping over the line in terms of maintaining independence, particularly regarding audit clients. He adds, “For example, a firm might partner with an audit client in developing or promoting tech-related solutions to the market, and that creates a business relationship which could raise some potential red flags in terms of self-interest or intimidation threats to the firm’s independence.”
IESBA is the independent standard-setting board for ethics for accountants and, among other things, it produces the International Code of Ethics for Professional Accountants.
On a day-to-day basis, Siong leads IESBA’s team of six professional staff, directing the organization’s work programme, and deciding which projects to prioritize. He also advises the board and planning committee on strategy and operations, works with task forces and coordinates with IESBA’s sister board at the International Auditing and Assurance Standards Board (IAASB).
A large part of his work involves liaising with global accounting organizations, such as the International Federation of Accountants (IFAC), and carrying out stakeholder outreach with the regulatory community, national standard setters and professional accounting organizations, as well as other members of the financial reporting ecosystem, including corporate investors and directors. “It is a very varied job. I am involved in all of this, providing direction, insight and counsel,” he says.
Unsurprisingly, the role also involves a lot of travel, with Siong on the road 10 to 12 times a year under normal circumstances. In the past year, he has travelled to the United Kingdom, Europe, Russia, Mainland China and Saudi Arabia.
Siong says he needs to be both a strategist and soother in his role. “We are the go-to place for international standards on ethics and our stakeholder base is the entire world. We can never please everybody, so it is always a matter of seeking the right balance.”
On a strategic level, Siong says he is always having to deal with competing needs and priorities to enable IESBA to balance deliverables against its mandate and resources. “There is always more that we are asked to do than we have capacity to do, so my role is to try to strike the right balance in terms of priority and focus," he says. “We always have to get standards out as quickly as possible to the market for timeliness, but we have to balance this with the need to engage and consult with stakeholders and achieve their buy in.
“Sometimes, there are complex issues that are not fully within IESBA’s remit to consider alone, such as the long-standing concern about audit firms providing a wide range of consulting and other services to their clients – the so-called ‘business model issue.’ IESBA has two projects nearing completion that are looking at aspects of this issue in terms of the permissibility of non-assurance services to audit clients, and fees charged to audit clients. However, it also recognizes that there are benefits to audit quality from the multidisciplinary model of audit firms. So, a holistic response to the issue will require a multi-stakeholder dialogue.”
He adds that IESBA also has to be conscious of the market’s capacity to absorb new standards and how much time it needs to give jurisdictions to do this. For example, its standard on Responding to Non-Compliance with Laws and Regulations, which became effective in 2017, is still awaiting adoption in Brazil pending finalization of legislation to provide accountants with protection if they report instances of non-compliance. But at the same time, he points out that as the world is constantly evolving, IESBA also has to ensure its standards keep up to stay relevant and continue to underpin public trust in the profession. “That is a constant issue we have to battle with,” he says.
Another issue Siong says IESBA has to be sensitive to is what he describes as “aspirational standards.” He explains: “IESBA is often pressed to strengthen the standards but sometimes there is only so far it can go. The standards have to be globally applicable, and standards that are capable of being applied in the United States, U.K. or Hong Kong may not be readily operable in other jurisdictions because of different realities and contexts.”
But Siong adds that these challenges and the diversity of the role are what keeps it interesting. “There is no single day that is the same because we deal with so many different projects and initiatives, in so many different areas.”
Revising the code
One of the IESBA’s recent major projects was revising and restructuring the code of ethics. The original code had been in existence for more than 30 years, during which time it has been adopted in more than 120 jurisdictions and translated into more than 40 languages. But Siong says that as the code evolved, it had become complex and difficult to follow. “We heard from the regulatory community that it had become difficult to enforce. The requirements were not as clear as they could be,” he says.
At the same time, a survey carried out by IFAC’s Small and Medium Practices Committee on the challenges smaller firms faced implementing the code also flagged up issues. “It had become wordy, with very long and complex sentences that were difficult to understand, especially for those for whom English is not their mother tongue,” Siong says.
As a result, IESBA embarked on a four-year project to rewrite the code, with the new code becoming effective in June last year. “We came up with a completely redrafted and restructured code of ethics to make sure that we have a code that can be adopted, and consistently implemented, applied and enforced.”
The restructured version aims to be clearer by flagging up the requirements themselves and distinguishing them from the application guidance. “We have clarified the particular responsibilities of firms and individual professional accountants, as previously in a number of areas of the code that was not as clear as it could have been,” Siong says. “We have ended up with a code of ethics that is now a lot more clearly written, more user-friendly and more enforceable.”
Siong, who had oversight of the restructuring project, coordinated the different strands of the work. “It was quite a complex coordination. I was also closely involved in terms of the technical content itself, providing input to our task force, to make sure that we did not change the meaning of the code itself,” he says.
IESBA has also enhanced the conceptual framework that underpins the whole code, clarifying how accountants, including auditors, should think about threats to compliance with the fundamental ethical principles and, where applicable, to their independence. “We have enhanced the guidance and given additional support and illustrations on how to evaluate and address those threats, whether it is dealing with the circumstances or relationships themselves, or the safeguards that may be applied to address them,” Siong says.
A number of areas of the code have also been substantively revised, such as the part that applies to professional accountants in business, which now includes a new section dealing with the different types of pressure they may face and how to navigate this. Another new section of the code deals with the preparation and presentation of information. “Accountants are a critical cog in the whole system of producing information, and information is the life blood of financial markets,” he says. “So, we have really clarified the ethical responsibilities of accountants when they are charged with producing information, whether they are the preparer themselves or using others to prepare information.”
This part of the code also clarifies the ethical expectations of accountants when they face inducements. “We have clarified that the critical thing is the intent behind the inducement, because not all inducements have a negative connotation to them. They can be positive inducements to complete or improve work. But there can be inducements to act unethically, including to commit fraud,” Siong explains.
Changes were also made to the code for accountants in public practice, specifically auditors. “We have revised our independence standard that deals with the long association of auditors with their audit clients, and we have strengthened the partner rotation requirements for auditors when they have been associated with their clients for a long time.”
One aspect of his job that Siong likes most is the technical challenges involved in writing standards. Another one is what he terms the “people side” of introducing them. “We have a very extensive network of partners, collaborators and stakeholders who we engage with on an ongoing basis, and that is an aspect that I greatly enjoy because it gives me the opportunity to connect with people in different areas of the profession and the broader financial ecosystem. I discuss issues and proposals with them and hear their diverse perspectives. It is a really interesting part of the role and a constant appeal,” he says.
The process for creating a standard is a lengthy one, and Siong says people are often surprised to learn that it can take three to four years before a standard can be put to the market. He explains that IESBA has a system of due process it goes through to ensure the final standard is high quality and has benefitted from as broad a range of input from stakeholders as possible. “We have to consider all possible angles to an issue, and we have to calibrate very carefully the balances we need to strike on some of the standards because their impact can be significant and far-reaching. It can be a painstaking process,” he says.
The IESBA also recognizes that it takes time for jurisdictions to adopt new standards, and Siong says it will not begin any post-implementation review work on the code until 2022 or 2023. “We need to give it sufficient time to bed down,” he says.
Siong highlights how national standard setters and professional accounting organizations have a very important role to play in promoting developments in international ethics standards and communicating the work IESBA is doing to their constituents and encouraging them to become involved. “The Institute is a very active member on our National Standard Setters Liaison Group. We are always keen to engage with Hong Kong because we always receive very valuable feedback in terms of how the standards are being applied in practice, and what challenges accountants in business and public practice are dealing with,” he says.
Siong adds that in terms of the Institute’s role as the professional accounting body, there is also a lot it can do to provide support and guidance to its members in dealing with ethical issues, and helping them to think through challenges and come to the right decision on what they need to do.
A bent for complexity
It was a fascination with complexity that attracted Siong to his current role and made him interested in the profession in the first place. Born and raised in Mauritius, he graduated with a Bachelor of Computer Science from the University of Bristol but decided to go into accounting. “It struck me that the profession is so influential. It plays so many different roles in the business world as an enabler, a trusted advisor, a guardrail, a facilitator, among others. It was something I really wanted to be involved in,” he says. “There was so much for me to learn. I have not looked back ever since.”
He trained and qualified with a six-partner firm in the U.K., working in its audit practice for around five years, before moving to Singapore and taking up a post with Deloitte.
After three years in Singapore, he was recruited by PwC in Hong Kong, where he spent two years as a senior manager in the assurance practice, managing transnational audits for clients in a range of different industries.
Siong qualified as a CPA in Hong Kong in 2001. He credits his training for giving him the foundational skills to understand how businesses operate. “We covered so much. Whether it is in terms of auditing, or financial reporting, or understanding the business context or the taxation angle, we developed a firm grounding to be a very productive and value-added member of society.”
He adds that he really values the opportunities he has had to work with organizations of different types and sizes, as well as across a range of different industries.
After being in Hong Kong for two years, Siong had the opportunity to move to New York and take up a post with the IAASB, where he worked for 10 years and rose to deputy director, before moving to IESBA eight years ago. It was the technical challenges that these roles offered that attracted him. “I always had a technical bent to my quiver, and in practice I really enjoyed tackling technical issues,” he says. “Financial reporting and auditing standards nowadays are very complex and the need to apply judgement is so critical to finding a position on a financial reporting issue that is defensible. I really enjoyed that and when the opportunity came up to move to New York, I grabbed it.”
Siong does not have much free time, but when he does, he likes to take trips with his wife and four daughters, aged 17, 15, 12 and seven. “We like to travel. Last year, we spent time in California and went to Yosemite and drove along the Pacific Coast,” he says. When he is not travelling, either for work or with his family, he tries to keep fit. “I like to jog and to swim, so that occupies my time along with the family.”
He is also passionate about passing on what he has learned and mentoring people. “I have really learned so much and I am always of the mindset of giving back and passing on my knowledge and experience to others who are coming up on my heels.”