• Mr Raymond Kgagudi (Manager: BMD SA)
• Pat Semenya Head of ACCA South Africa
• Fellow Participants, namely:
  • Dr Nechi Ezeako,
  • Mr Seyi Oshibolu,
  • Mr Idy Enang,
  • Mr Edmond Shoko-Lekhuleni
• ACCA members
• Ladies and Gentlemen

Let me first take this opportunity to thank the Association of Chartered Certified Accountants for this rare invitation to address you at this Global Ethics Day, on a very important topic, Ethics in Action. At the outset, allow me to inform you that my aptitude for numeracy, and by extension accountancy, is very modest.

However, the topic cuts across all fields of work and professions, the topic matters to accountants, it matters to lawyers, engineers, politicians, gamblers, doctors, sports personalities, educators etc. It is an important topic because adherence to ethical behaviour, which constitutes the core values of the institution or a profession, is important for the respect of the honour that the institution or profession carries.

Ethical failures by institutions or professions have far-reaching implications, they can easily move from scandals into global crisis. It sounds perfectly obvious to say that accountants ought to behave in an ethical manner. But the failure of ethics by accountants laid at the core of the major scandals in the 21st century. I’m certain that many participants can remember the following “cooking of books scandals”:

Enron scandal of 2001, draw attention to accounting and corporate fraud as its shareholders lost $74 billion in four years leading to bankruptcy and the employees lost billions in pension benefits.

The WorldCom Scandal of 2002, WorldCom was a telecommunications company that went bankrupt in 2002 following massive accounting fraud, to date this remains one of the biggest accounting scandal in US history as well as the largest bankruptcies.

The Lehman Brothers Scandal of 2008, which was a result of colossal miscalculation in the subprime market, leading to a global financial crisis given the size of the company and its status as a major player in the US and globally. To date there are many countries that are struggling to fully recover from the 2009 financial crisis.

The Olympus Scandal of 2011, this was an accounting scandal where the executives managed to hide $2.1 billion in losses for over 20 years

In South Africa the past decade has been marred by a series of scandals, each demonstrating a clear lack of ethics, accompanied by accounting fraud in their own special way. Just to mention few:

Steinhoff scandal, the company employed accounting tricks and forged documents to boost its value, billions of rands were lost, about R4 billion of public service pension money was lost.

Tongaat Hulett scandal, the biggest sugar producer in SA, 127 years old admitted that certain past accounting practices did not reflect the company’s business performance.  The 2018 financial results were overstated by between R3.5 to 4.5 billion.

Gupta scandal, in which the Gupta’s owned companies in various sectors colluded with accounting firms to engage in extensive criminal activities. This is a matter of investigation by the Commission on State Capture.

VBS bank scandal, merely R2 billion was looted from this bank in collusion with KPMG audit partner. Leaving thousands of rural poor masses scrambling to get back their investments.

McKinsey scandal, the company admitted last year that it “made several accounting errors” while working for ESKOM and had to repay R1 billion.

Many of these scandals dented the pristine image of the accounting profession in South Africa and throughout the world. Following a string of scandals that called into question the accounting and auditing standards in South Africa, our Auditor General, Mr Kimi Makwethu, has called for trust to be restored in the accounting profession to help South Africa to attract the much needed foreign investment.

All of these scandals were due to ethical failures. According to Jennings “ethical failure is when an organisation has drifted from its core values, and all for the purpose of getting the results they want and need at almost any cost”.

Moderator, in his Testament (May 10, 1969) Ho Chi Minh made a call to his party members that I think is relevant to professional accountants, this is what he said “each one of us must be deeply imbued in our organisational ethics, show honesty, thrift, integrity, uprightness and total dedication to the public interest. We should try by all means and struggle at all times to preserve the absolute purity of our party”.

So, with all the challenges which are there due ethical failures in the profession, each accountant must use all means and try at all times to preserve the absolute purity of the accounting profession.

I often ask myself: “Can we intellectualise honesty? Is it a state of being? Or, can it be regulated?

With regard to the last question, I am certain that with the large part of this webinar comprising accountants, the answer would be an unconditional and resounding “Yes.”

Ladies and Gentlemen, fellow participants, ethics, honesty and integrity can be regulated and in preparing for this webinar I must admit that myself and my team pored over many academic papers and journals on what constitutes ethics in the accounting profession. Generally ethics are constituted by core values that govern a person’s behaviour or conduct. Hence, I consider it to be critical to briefly reflect on what I think are values.

I believe that values regulate our behaviour in the absence of rules – or when others are not around to apply the rules. For example it  is our values that make us choose to assist an elder person to carry their goods across the road – or to avoid taking what is not due to us when we are not seen. Values are not always economically rational – there is no economic benefit to a person who assists an elderly person to carry their goods; and you cannot measure maternal love in economic terms. Judicial processes necessary to respond to corruption are essential but difficult to justify in purely economic terms.

Conversely speaking, Honourable Moderator, values can be negative – selfishness is a value since it directs the behaviour of the selfish person. We interpret the empirically observable world through the lens of our values; racism or gender-based violence are negative responses to important questions of the human relations because they draw from particular value systems associated with power and the ‘othering’ of particular groups of people.

Ethical leadership requires that the values of those in senior leadership positions are properly aligned with their institutional values, which must be directed to ensure that the institution delivers on its mandate.

Moderator, senior leaders of enterprises and social institutions are obliged to interpret the outcomes of their work by overlaying their institutional values on the things that they measure. So, a balance sheet in accounting terms, is not reality –  it is a representation of reality that requires those who read it to wear the lenses of their values.

In this regard, the global financial collapse in 2009 was as the result of large corporate entities giving debt to poor people, who they knew would not be able to repay. Subsequently, they put people out of their homes and traded their debt as a commodity. The balance sheet grew in currency terms, but the values of such corporates, as social institutions, were distorted and the hardship they caused visited the homes of those who could least bear the blow, and that was the poor and the socially marginalised.

Honourable Moderator, democratic social institutions work best when they are structured to defend the tendency to bad behaviour by individuals, but this requires mutual oversight by others, internal and external to the institution.

External overseers such as auditors, carry the additional burden of assuring society of the good governance and proper functioning of the institutions that are meant to serve them. In this sense, they act as guardians of social and public trust and must themselves be willing to be subjected to higher standards of accountability.

As such, many social liberties that may be available to other citizens are not available to leaders of social institutions nor to the guardians of our social trust. It is correct that society does not expect to see a judge of the high court in a casino or a senior politician walking drunk down the road – legal as such acts might be. Such people and institutions must hold themselves to higher accountability.

It is therefore expected of professional Accountants to see their responsibility as a noble calling in support of a greater good. I am certain that you will agree that basically ethics in the accounting profession are underpinned by, amongst others, the following core principles as postulated by Gordon Kiernander:

A. Integrity: which is honesty and transparency in all business relationships?

B. Objectivity: absence of bias, conflict of interest or undue influence of others to override professional or business judgments.

C. Professional Competence and due Care: this is the on-going responsibility to maintain professional knowledge and skills to ensure that a client or employer receives competent professional service based on current and industry accepted norms, values, legislation and techniques.

D. Confidentiality: the need to respect and uphold the confidentiality of information acquired as a result of professional and business relationships and must not disclose any such information to third parties without proper and specific authority unless there is a legal or professional obligation to disclose; and

E. Compliance with the Law: compliance with relevant laws and regulations and must at all costs ,avoid any action that discredits the profession.

Kiernander further mentions that a Professional Accountant has an obligation to evaluate any threats to compliance with the fundamental principles. This includes threats such as self-interest, self-review, advocacy, familiarity, and intimidation.

Ladies and Gentlemen, professional accountants and Auditors in South Africa subscribe to and have adopted and incorporated in full, the code of ethics issued by the International Ethics Standards Board for Accountants.

There have, however, been lapses in the application of these standards in the recent past as observed in a number of instances which I have, mentioned above. There exists clear evidence that certain auditing and accounting firms, including financial institutions, wittingly aided and abetted corrupt practices. They practically aided grand scale corruption in both the public and private sector.

Honourable Moderator, economic crimes have dominated the news in recent times and accounting and auditing firms, such as the so called “Big Four,” namely Deloitte, Ernst and Young, KPMG and Price Waterhouse Coopers have been implicated. Evidence at hand strongly suggests that these companies have prioritised profit over professional ethics and the law.

There is a need for reforms to bring about greater accountability in the accounting and auditing professions.

The effects of contemporary State Capture cannot be quantified in monetary terms only, but in ethical terms as well.  Being cognisant of the vast sums of money lost to corruption, thousands of jobs have been lost public debt and borrowing costs have risen to astronomical levels and in this regard it is estimated that the cost of such malfeasance could be about 10% of our GDP, which is about R500billion to R1, 5 trillion.

As has been submitted to the State Capture Commission, banks, law firms, consultancies and auditing firms were the principal enablers of the state capture project and its associated detrimental effects on the well-being of our nation.  

In essence, Honourable Moderator, Ladies and Gentlemen, in the current social milieu and the post-truth world, it takes extra-ordinary courage to be ethical. People that ground their conduct and attitude on ethical consideration tend to be very unpopular and much reviled or despised. Because to be ethical, is indeed to be different. An ethical leader acknowledges the difficulties of running a responsible business, yet tries to do it anyway.

Therefore, it is my fervent wish and sincere desire to see, not in the too distant future, that professional accountants and people in the allied professions take what is akin to a Hippocratic Oath which medical doctors and other health professionals do when assuming office.

In conclusion Programme Moderator, Ladies and Gentlemen, I am of the considered view that ethical codes are the fundamental principles that accounting professionals must adhere to in order to enhance the stature and standing of this noble profession.  By doing this they will continue to maintain the public trust in the execution of their tasks with honesty, fairness, independence and professional probity. And those that do not adhere to the ethical requirements of the craft must be exposed and this must be done in a fair, expeditious and comprehensive manner. To do anything less will surely compromise your profession as ethics and integrity have never been more important than today.

I Thank You

Nike