New technology allows accountants to do much more for their clients, but with this increased ability has come more ethical issues, especially with regard to objectivity, independence, and competence.
This was the conclusion of a recent report from the International Ethics Standards Board for Accountants. While the report said that while the ethical issues arising from rapidly advancing technology in the profession are not necessarily new, it has provided novel contexts for these issues to assert themselves in the digital world.
The report addresses a large number of topics, but some of the most prominent topics include jurisdiction and due care, objectivity, independence, and the need for transparency and confidentiality.
As for competition, while the report says accountants don’t necessarily have to be experts, a certain level of familiarity with the technologies they work with is expected, which some stakeholders say is still too low. He said that accountants often lack the practical experience and knowledge of artificial intelligence, blockchain/cryptocurrency, and data governance to know what types of questions to ask, how to identify and mitigate specific risks and errors, and how to assess the reliability of transformational technologies.
“Where [professional accountants] are actually involved in decision making (for example, generally small and medium-sized organizations and practices), they may lack the relevant understanding of the technology with which they are dealing. This, in turn, could result in a potential misidentification of the risks and controls associated with such technology and a lack of professional competence to determine whether the technology (or its results) is appropriate or reasonable. The potential for miscommunication with software developers and technologists is also seen to increase when public accountants do not have the right skills,” the report says.
For example, blockchain audits in particular require a certain degree of proficiency for accountants to better understand who all the participants in a blockchain are, as they may be provided with business relationships and professional services that could raise issues of auditor independence. The report also noted that coding a blockchain-based application programming interface for a client could also be tricky: to do so, information must be “pushed” into the blockchain, and that information must be accurate and suitable for the purpose of the application. purpose. The report said this could have further independence implications and could further affect the client’s financial reporting and internal controls.
In general, the stakeholders cited in the report said that a reasonably competent accountant should be able to:
- Ask the appropriate questions of IT professionals and understand their answers in the context of the system or tools being evaluated;
- Have confidence in what is happening with the system or tool; Y,
- Being able to justify the use and results of the tool.
inside the black box
The report also noted that the technology opens up problems with the accountant remaining unbiased. Specifically, he pointed to a trend in which certain accountants trust software results over their own human judgment, biasing them toward the machine. People, the report says, “increasingly just decide that the machine is ‘correct’.” He also pointed to a “brand name” bias among certain accountants, where top-selling solutions are often immediately trusted even though accountants don’t have access to things like source code or the detailed quality assessment process. that supports its development. The report also raised stakeholder concerns that the increasingly automated nature of accounting work has begun to degrade people’s knowledge of the fundamentals.
“Less experienced team members, who were never involved in creating the report and understanding its purpose, will be less able to recognize or identify what might be unreasonable or incorrect, and will likely be unable to explain the basis for the report. “if such automated reports are generated regularly enough, even the most experienced team members will fail to notice what might be wrong or omitted,” the report says.
This kind of black box mentality may contribute to another trend mentioned in the report: the increasingly opaque nature of financial reporting. He pointed out, for example, that it can be quite difficult to explain the output of an AI algorithm; things get even more complicated when that same output is used as input to another AI algorithm. The report acknowledged, however, that finding the right balance between transparency and confidentiality can be difficult.
“For example, if a public accountant determines that disclosure of breaches of laws and regulations to a competent authority is an appropriate course of action, they should also consider whether there would be legal protection in the particular jurisdiction if they override the confidentiality terms of your employment contract, this could justify seeking legal advice,” the report says.
Sometimes increased technological capabilities lead to questionable customer requests. For example, auditors have much more information about the data now than when they were just sampling receipts from a warehouse. Client management is increasingly requesting this information, as deeper insights allow them to ask more relevant questions and make better decisions, which technically counts as an advisory engagement, rather than an audit one. An auditor may not even intend to do this.
“One regulator noted the increased risk of a company inadvertently providing a more detailed view of what is appropriate over several years (i.e., the possibility of ‘scope drift’), meaning the company might not be aware that it has assumed management responsibility Other Stakeholders noted that clients sometimes use audit information for purposes other than those intended by the auditor, which again can lead to assuming management responsibility for the audit that the firm might not be aware of and therefore not under the control of the firm,” the report says.
The report said that custom software tools offered by some accounting firms could also present independence issues, particularly when it comes to data analysis. If firms offer these data analysis tools to the entities they audit, or to entities that might become audit clients in the future, a conflict could arise if the entity uses these tools to analyze data that later becomes the subject of the audit. of the signature
The report made several recommendations for changes to the IESBA code of ethics to take these factors into account. Among other things, he said that the IESBA should:
- Achieve clarity on whether companies and organizations can use customer or customer data for internal purposes, such as training AI models and, if so, the parameters of such use (prior informed consent; anonymisation);
- Develop further guidance on the importance of transparency and explainability;
- Address the ethical implications of a public accountant’s custody or possession of financial or non-financial data belonging to clients, clients, or other third parties;
- Engage more actively with other bodies, such as IFAC’s International Panel on Accounting Education and professional accountancy organizations, to encourage them to organize educational activities to raise awareness of the characteristics of “sufficient” competence; Y,
- Continue initiatives to uphold the importance and relevance of the IESBA Code of Ethics, as well as to develop, facilitate the development of, and/or contribute to unauthorized resources and materials.