Here are some extracts from a speech recently delivered by Paul Munter, Chief Accountant of the SEC, at the AICPA and CIMA conference.

• Unfortunately, across the globe, we have observed high-profile cases of unethical behavior by accountants that were not limited to just one firm, one issuer, or one jurisdiction. The recurrence of ethical lapses has adverse consequences on the accounting profession and global capital markets, undermining public trust in both accounting professionals and financial reporting. It also raises broader concerns about the culture and governance within accounting firms and issuers.
• Accountants serve as important gatekeepers to promote the integrity of our markets and protect investors regardless of whether they are internal or external auditors, preparers, tax professionals, audit committee members, or serve in other roles. The value of an accountant’s services depends on their credibility and trustworthiness. Trust is hard to gain and easy to lose, both individually and as a profession, so accountants should consider the importance of building and maintaining trust every single day.
• For auditors, the foundation of this trust lies in the auditor’s required independence. Every member of an audit firm should keep this in mind, and audit firm leadership should reinforce this message by actively championing the principles in the auditor independence rules, as opposed to setting a tone of independence as a compliance exercise where independence violations and the resultant enforcement actions are merely a “cost of doing business.”
• For audit firms and issuers, a strong culture and tone at the top that prioritizes doing the right thing above all else empowers all accountants, regardless of their role or level of experience, to exercise professional skepticism and, where appropriate, to challenge management. In many cases, fraud is eventually uncovered by an accountant who exercises professional skepticism, refuses to stop asking questions, and doesn’t succumb to pressure, but these behaviors are also key to elevating financial reporting and audit quality.
• In addition to the importance of a strong, ethical tone at the top, there is academic research that shows that behavior is driven the most by the people that are directly around you, which some refer to as the “mood in the middle” or the “buzz at the bottom.”For example, an academic study specific to auditors showed that staff auditors will be more influenced by the tone of their supervising senior than the partner when these two individuals provide conflicting tones. Leaders should therefore ensure that the tone they set at the top is actually flowing through the rest of the organization…
• With ongoing concerns in our profession about our ability to continue to attract and retain talented individuals who are dedicated to serving in the public interest, I believe we are at an inflection point. That is why all of us should remember that those professionals around us are learning by our example and taking our lead—it is incumbent upon each of us to take seriously our responsibility to build and maintain public trust in our profession. 

Unfortunately, Munter’s specific examples of how accountants might promote the public interest don’t quite live up to that build-up: he notes that it’s critical “that preparers view financial reporting as a communication activity, and not simply a compliance exercise,” and that “auditors would be well-served to view investors, and not management, as their client.” That aside though, they’re interesting remarks, notwithstanding the prevailing tone of a principal wagging a reproaching finger at his under-performing minions.

Unfortunately, as I mused here, there’s good reason to think the value of trust may be eroding. Whatever one might think of the Trump election win, it certainly wasn’t based in a conventional toting of competing promises and capabilities: Trump’s proven corruption and immorality and compulsive lying, far from being disqualifying liabilities, seem for many voters to have been assets, evidence of his capability to transcend normal limits and boundaries, to break the mold, drain the swamp. He’s promised to gut long-established institutions, to appoint manifestly unsuitable people into key positions, to disregard ethical norms; he encourages expressions of violence and hatred; and yet corporate leaders have been rushing to curry his favour. If “tone at the top” means anything in a nation-wide sense, America is entering a period of overflowing malignity, which we can presumably then expect to trickle down through the country and its institutions. It’s wistful to think that the accounting profession – which after all is full of financially driven Trump voters – would somehow stand apart from this.

Against that backdrop, Munter’s comments about the buzz at the bottom and so forth will ring hollow if they mainly translate in practice to saddling audit firms with unrealistic expectations and jumping on minor transgressions as evidence of rot. The remarks seem to imply that the issues he discusses are significant in attracting and retaining staff, but ambitious people want to stretch and grow and advance while also having fun, and the audit profession, defined to some degree by subservience, isn’t as naturally aligned with those goals as most other competing professions. The biggest problem, as I see it, is that the more we seek to elevate our concept of what the audit profession could and should be, the more we reduce the population of people who might want to devote themselves to it for the long-term, especially in a time of contemptuous Trumpian swagger…

The opinions expressed are simply those of the author.