CA to incorporate ‘whistle- blowing’ into Ethics Code
The Institute of Chartered Accountants Sri Lanka (CA) plans to incorporate a ‘whistle-blowing’ element into its Ethics Code, a follow up to the Securities and Exchange Commission (SEC) saying recently that it wants audit firms to whistle blow as and when they come across ‘anything unusual’ in listed firms they audit.
“We want to look at fulfilling the expectations of the regulator by incorporating these elements in our Code of Ethics,” Arjuna Herath, President CA told the Business Times on the sidelines of a CEO Breakfast Forum organised by the CA and the Chartered Institute of Securities Management on Tuesday. He added that legislative action can be counter productive as it can be defensive and this (ethics code inclusion) is one way to accommodate progressive reforms.
SEC Chairman Thilak Karunaratne told the Business Times recently that the SEC is planning on bringing fresh laws mandating auditors to bring any financial irregularities to the SEC and that similar laws are adopted in countries such as Malaysia and the US. “We are exploring the possibility of placing a legal duty on Audit Firms carrying out audits of Listed Companies to report any irregularities or improper conduct they find in the financial statements of the company to SEC,” he said.
Analysts say that whistle blowing by accountants and auditors is filled with ethical challenges. “Auditors have a confidentiality obligation not to divulge client information,” an analyst said, adding that they have a confidentiality responsibility not to reveal actions of their firms that also deal with client issues, such as failed audits. He added that auditors are supposed to seek out and find instances of materially false and ambiguous financial statements. But there’s another school of thought which says that when the cost of non-disclosure is potentially damaging to individuals or society, discretion must be overridden. They say that while it’s true that there’s a duty of loyalty that bars one from reporting his employer or firm, it is only a prima facie duty of loyalty. “So it can be overridden by a superior duty to the public good,” another analyst added.
An analyst said the UK Public Interest Disclosure Act 1998 (PIDA) sections
2(1) and 3(1A) grants protection to individuals who make certain disclosures in good faith and in the public interest and this covers a broad range.
Right balance
At Tuesday’s forum, visiting Lord Mayor of London Alderman Alan Yarrow Yarrow cautioned against over-regulation, saying it could kill innovation.
Adding that markets were always ahead of regulation, he said it was up to individual countries to decide whether to embrace a model of single super regulator or multiple regulators.
“Innovation is critically important. It is about what customers really want and trying to put the transaction in place where value is delivered to the customer. But innovation alone cannot deliver value to the customer. We want the right cluster of lawyers and the right cluster of professionals and also the right cluster of banking services. Basically, it is about a combination of everything being in one place,” he added.
In response to this statement, Mr. Karunaratne told the Business Times that the local capital market is under-regulated as the SEC Act doesn’t have adequate provisioning to bring culprits to book in a fast and proper manner where investors feel their money is protected.
Mr. Yarrow added that there’s no right model in terms of regulation. “People will always misbehave – (that’s why) professionalism should be encouraged.”
He added that too much regulation can kill a market, noting that it’s about getting that balance right.
Outlining how Singapore had become successful, he said that although it did not have the luxury of agriculture or skills like Sri Lanka, it thrived by being competitive and open-minded.
In the ensuing panel discussion, HNB Managing Director Rajendra Theagarajah noted that Sri Lanka should drive regulation, rather than follow it. He insisted that regulatory opportunities for arbitrage should be plugged.
First Capital CEO Dilshan Wirasekara said that regulators need to engage with market players and make the necessary changes.
He added that the events of the past few years provide a reminder of the importance of firms acting and demonstrating their honesty, openness, transparency and fairness in all their business activities.
“Poor actions by single individuals can result in great costs to firms, both financially and through loss of reputation. Fostering an environment of trust, integrity and professionalism leads to greater confidence – ultimately strengthening a firm’s reputation in the market. To use a cliché about trust: it arrives on foot and leaves in a Ferrari,” he said. Mr.
Theagarajah emphasised the lack of quality education while Chanakya Dissanayake, Country Head Amba Research highlighted the importance of a global sourcing model for talent.
\In the meantime, the government has established a committee to investigate corruption and malpractices at the SLPA, the minister said at the briefing.
The committee headed by Nalin Ladduwahetty PC comprises Chartered Accountant Amitha Shaktha Amaratunga and Attorney at Law Gamini Bandara while an Engineer would also be appointed in the near future.
They are expected to investigate corruption as highlighted by some of the trade union members and other port staff that claim malpractices were carried out in the purchase of equipment and tender procedures by the former management at both the Colombo and Hambantota ports Minister Ranatunga said he would take all measures to ensure that whoever was found guilty following this investigation would be brought to book.