Ethics for bookkeepers

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A bookkeeper is exposed to the kind of financial information that normally, only directors of a company would be privy to.

This can put a heavy weight on their shoulders. What happens if you see figures that don’t add up? How do you go about addressing this? And what happens if you’re expected to be less than transparent?

“Being pressured to do something unethical is a real problem,” says Paul Connolly, Director of The Tax Shop Group. Bookkeepers need to be vigilant to omissions, errors or even deliberate accounting violations. For Connolly, the key is to trust your instincts. “You have to understand the company culture you are going into – research them. Ethics is an upper management problem – that’s where most unethical behaviour is.”

If a bookkeeper has suspicions that all is not right, what should they do? “Talk to people. Go to two or three knowledgeable close friends. With accounts, there can be case-by-case grey areas about what you can and cannot do legally. The particular situation you’re facing might not be in the manual. If that’s the case, you need to discuss.”

Such dilemmas are faced daily and a rule of thumb can be helpful. “If you’re a bookkeeper with your own practice, say to the client, if you can defend this action to HMRC, then do it. If you can’t defend it, then don’t do it because you know it’s wrong.” Connolly advises an anticipatory approach. “If you’re taking on clients, it’s absolutely vital to be sure where you stand from the off. Make it clear at the beginning that you play a completely straight bat. That puts you in a very strong position with the client if, further down the line, a query emerges. They know that you’re not open to influence.” Problems arise, Connolly says, because every business is different from another – and whilst a code of ethics is in tune with what the law says, there will always be gaps. To put it another way, you have to interpret tax law. “A simple example is buying a car for the business and then using it for personal travel. What proportion is being legitimately used for the company? When does the grey area cross from acceptable to wrong? You need to look at it objectively.”

The situation can be more complicated for employed bookkeepers. “Employment is very different because you are in service to that company – rather than providing services. But, the key is to have the same agreement with your boss.” Bookkeepers need to say from the start that ultimately, their loyalties are to the law, not the company. “It is harder in employment,” Connolly acknowledges, “because you don’t have the choice not to work for the person concerned.”

At this point, personal responsibility becomes key. “I’ve always been lucky in my jobs in that I haven’t had to make any difficult calls,” says Aimee Johnson, a bookkeeper and Cost Accountant at RS Components, “but if I did have to, I would deal with it professionally and honestly. Having MAAT status, I feel I have a duty to be honest and comply with accounting policies and procedures.”

Colouring the grey areas

Developing a code of ethics means recognising the gaps between what the law says and what the individual or company believes is acceptable. “This is where tribunals come in,” Paul Connolly explains. “A company might think – if we went to court on this, we’d win. The issue is that ethics is rarely a clear-cut case of yes or no.” If the employee is worried or thinks something is not quite right, what should they do? “They need to know that they can challenge the employer,” Connolly says. “And morally, you need to report the correct figures,” adds Aimee Johnson. “At the end of the day, you just have to stand up to management even though it can be difficult.”

History offers valuable lessons in the importance not just of having a code of ethics in place, but sticking to it. In 2000, Enron was on Fortune’s ‘100 best companies to work for in America’ list. Within a year it was bankrupt. In essence, Enron’s fraudulent accounting practices involved concealing debts to make the books appear robust. But a key part of the cover-up was that between 1996 and 2000, Enron reported an increase in sales from $13.3 billion to a remarkable $100.8 billion. This revenue “was based on its exploitation of a loophole in accounting rules that allowed it to book revenue from huge energy-derivative contracts at their gross value, not their net value as is done with other securities transactions,” Dan Ackman wrote in Forbes Magazine not long after the scandal broke. In other words, what Enron was doing with its sales reporting was not, technically, illegal. To prevent scandals like Enron happening, company culture needs to recognise when something is ethically wrong – even though it may be acceptable on paper.

Actions for bookkeepers

If you are in doubt, help is at hand. AAT, ICAEW and ACCA have all published Codes of Ethics that are available online. Absorbing the information and acting on it are important development milestones for the individual to take on board. The ACCA Rulebook “isn’t just a list of rules,” says an ACCA spokesperson, “but instead sets out a framework that helps us to resolve or avoid ethical dilemmas in a way that shouldn’t conflict with our personal ethics.” In business, “it is organisations and not individuals who are responsible for ensuring individuals feel safe enough to speak up. Through robust processes and a commitment to visible action, firms can emerge from a crisis with enhanced trust, both internally and externally as they ‘do the right thing’.”

Take-outs for bookkeepers

  • Improve your knowledge. “A key quotient is technical skills and ethics (TEQ),” says ACCA; “the skills and abilities to perform activities consistently to a defined standard while maintaining the highest standards of integrity, independence and scepticism.”
  • Have procedures in place. “I complete a lot of reconciliations in my workplace, and these are checked by managers and queried if there are any issues,” says Aimee Johnson. “It’s a process of checking each other’s work, as it’s hard to judge your own work for errors sometimes.”
  • Defend yourself against bad ethical behaviour – but don’t panic. “HMRC will make incremental enquiries if something is not right, but as long as you can show due diligence, you will be treated fairly,” says Paul Connolly. Ultimately, the taxpayer (i.e. your client or the company you work for) is liable.
  • Be vigilant. “You need to demonstrate this to stakeholders including regulators, investors and colleagues, as well as to clients,” ACCA “Vigilance is also needed in observing and applying local and international laws, regulations and standards relating to professional services such as audit and assurance of historical financial statements. You also need to demonstrate applicable accounting standards such as IFRS, relevant company laws, and regulations such as that on data protection.”
  • Say No toolkitAlso recommended is the Institute of Business Ethics (IBE) ‘Say No’ toolkit which is designed to help organisations encourage employees to make the right decision in difficult circumstances.

Mark Blayney Stuart is Business Journalist of the Year, Wales Media Awards 2017 and Former Head of Research at the Chartered Institute of Marketing.

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