Managing ethics in a small practice

The culture and ethical stance of a micro practice is just as vital as those of larger counterparts. But without compliance officers, line managers and an array of colleagues to act as a sounding board, sole practitioners face unique ethical challenges related to confidentiality, competence and compliance.

For sole practitioners, managing sensitive client information becomes even more challenging due to often limited resources. They may also face conflicts of interest as they work with various clients across industries, and may also feel pressured to appease clients in order to secure repeat business.

Paul Aplin, a former tax partner at AC Mole & Sons, with 40 years’ experience, says integrity – a vital part of ethical behaviour – is doing the right thing “even when no-one is looking, when no-one would ever know if you did the wrong thing”.

“The important point is that you would know. Integrity is like holding water in your cupped hands: once you let it slip through your fingers you can never get it back,” Aplin adds.

It is vital that the culture of the firm embeds ethics and encourages ethical behaviour – or, more importantly, shuns unethical behaviour. Whatever size the firm is, that comes down to leadership.

For Della Hudson, a chartered accountant and director of Hudson Business Advice, business ethics are part of being a decent human being. Most people know instinctively if something is right or wrong.

“The difficulty is that the people who need written ethical guides are the ones who don’t have that instinct,” Hudson says.

Judging yourself

However, according to Professor Chris Cowton at the Institute of Business Ethics, people have a “highly optimistic” view about how ethical they are but they’re not always good judges. Part of the reason, he believes, is that “ethics is a competency, and research shows people dramatically overestimate it”.

Cowton says there are four stages to competency in making an ethical decision:

1. Recognising that there might be something of ethical significance
2. Being able to make a sound judgement about what to do – which he says can be supported by using the profession’s code of ethics or conceptual framework
3. Forming an intention
4. Carrying it through into behaviour

“It is a skill, it is not just a question of having a broadly good intention,” Cowton says. “When accountants get worried about ethical judgement, I say ‘you are in the judgement game already. You make technical judgements every day, you are a professional’.”

Build in safeguards

The big challenges for a micro practice are understanding where the limit of competence is and keeping up to date with those things that are key to operations. The “obvious threat” is that the practitioner is unable to do what they have held themselves out to do, Cowton explains. But they can mitigate this by putting in safeguards.

“You have got to invest in training or make sure you serve your client by bringing in the right people at the right time, whether it is sending the client somewhere else or collaborating with another practice,” says Cowton.

“Of course, all of this either loses you income or costs you money, so there is perhaps a temptation to push against the limits of what you are able to do. But that can pose a real risk to professional integrity.”

Indeed, the duties of an accountant in public practice who faces an ethical dilemma cannot always be easily reconciled. Sometimes this will mean challenging a client’s decisions, or in extreme situations distancing – or even dropping – the client.

For such grey areas, sole practitioners will benefit from having a trusted network made up of like-minded peers, members of their professional body or clients, who can provide advice on regulatory issues, or offer support for tricky problems.

Della Hudson looks to her team to challenge her.

“Having recruited the best people, I listen to what they have to say. Plus, my professional body carries out regular compliance checks,” Hudson says.

Sole practitioners must also stay updated on the latest laws, regulations, and standards to provide accurate advice. But this can be difficult with a full workload.

Hudson ensures her team invests time in continuous learning and professional development, and completes CPD training each year, including an ethics update to ensure the firm follows professional standards and best practice.

Ideally, everyone should have someone they can “bounce ideas off confidentially”, Paul Aplin says. He recommends that a sole practitioner should have an “alternate” – a suitably qualified individual or firm appointed to continue running their practice in the event of their death or incapacity.

“I think you have to be very brave to be a sole practitioner, given the levels of technical complexity, and administrative and compliance process professionals have to face these days,” says Aplin.

“Not having someone to turn to when a difficult ethical or technical issue arises is potentially very dangerous.”

Ethical principles

Professional accountants are required to adhere to the five fundamental ethics principles contained within the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants, namely integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

• Integrity: To be straightforward and honest in all professional business relationships.
• Objectivity: To exercise professional or business judgement without being compromised by bias, conflict of interest, or undue influence of or reliance on, individuals, organisations, technology or other factors.
• Professional competence and due care: To act diligently and maintain professional knowledge and skill at the level required to ensure that a client receives competent professional service based on current technical standards and relevant legislation.
• Confidentiality: To respect the confidentiality of information acquired as a result of professional and business relationships.
• Professional behaviour: To comply with relevant laws and regulations, behave in a manner consistent with the profession’s responsibility to act in the public interest, and avoid any conduct that the accountant knows might discredit the profession.