IESBA’s new strategy: what you need to know

Garreth Hanley:
This is With Interest, a business, finance and accounting news podcast brought to you by CPA Australia.

Ram Subramanian:
Welcome to With Interest, I'm Ram Subramanian. Today we are talking about the role of ethics in the accounting profession and joining us today is Gabriela Figueiredo Dias. Gabriela is the chair of the International Ethics Standards Board for Accountants, or IESBA, and co-CEO of the International Foundation for Ethics and Audit. In her role as IESBA chair, Gabriela ensures that IESBA activities maintain a public interest focus, while developing high-quality ethics and independent standards.

Her past roles have included serving as the executive chair of the Portuguese Securities Commission, or the CMVM, as a board member of the International Organisation of Securities Commissions, IOSCO, the European Securities and Markets Authority, ESMA, chairing of the ESMA Investment Management Standing Committee, and as member of ESMA's Management Board and Mediation Panel, and as a member of the Portuguese National Council of Financial Regulators. Gabriela has served as vice chair of the Organisation for Economic Cooperation and Development, OECD Corporate Governance Committee. She was a member of IOSCO's Sustainability Task Force between 2020 and 2021 and an observer at the Monitoring Board of the IFRS Foundation.

She's also the founding member of the Portuguese Corporate Governance Institute and a member of the European Corporate Governance Institute. And since February 2021, she has been the president of the General Council of the University of Coimbra in Portugal. Welcome to With Interest, Gabriela.

Gabriela Figueiredo Dias:
Oh, thank you very much, Ram. It's a pleasure to be here having this conversation with you, and I'm grateful for you to providing me the opportunity to tell a bit about the IESBA strategy and work plan for the next four years to With Interest.

Ram Subramanian:
A few weeks ago, the IESBA issued its new strategy and work plan for the period 2024 through to 2027. Can you tell us a bit more about the areas of focus for the next four years and how that will shape the future of ethical conduct within the profession?

Gabriela Figueiredo Dias:
So this strategy and work plan has identified two strategic topics that we will address over the next four years. One is the firm culture and governance, and the other is the possible extension of the scope of our code to other professionals and accountants. These are the two topics that will keep us busy over the next two years. The reason why we identified and decided to move forward with exploring these two topics is that we have, on the one hand, been asked by the stakeholders that we do so.

And on the other hand, because the observation of what's going around the accounting firms and the accountancy services in terms of the opportunities, the risks, the threats, some events, some changes in the environment, makes us think that these are the two topics that we should address. Now, what do I think that might change if we do so? With the firm culture and governance topic, it is interesting that we all have been working in trying to fix some individual problems, look at some individual issues, some individual firms, et cetera, and trying to see if we can do something out of this very individual approach.

But there is a perception that maybe in the firm culture and governance there may be something, which is sometimes not creating the right incentives for ethical behaviours in this context. So what the IESBA is planning to do is to possibly identify the sources of some fragility, some vulnerabilities, possibly identify additional positive incentives to ethical behaviours. And after that work, see if we, as an ethics standards board, have something to do and should do something in that area. Doesn't mean that we will address all the problems, doesn't mean that the IESBA has a magic wand to solve any problems.

But yes, as an ethics standard-setter, we believe that we have the responsibility of looking to the broader situation and context within the firms and try to understand if ethics can be useful there and any ethical new approach to the firm's culture and governance can uphold ethical behaviours in that context.

Ram Subramanian:
So with firm culture and governance, I think the important point perhaps to note is accounting firms and their culture and governance, the role of IESBA here is to set the standards. Of course, those standards have to be followed properly and they have to be enforced and regulated as well. So there is a part to play by others within the accounting profession ecosystem to make sure that the standards are appropriately applied.

Gabriela Figueiredo Dias:
For sure. I completely agree with that. And let me tell you more. It's not only a matter of the standards that we set being complemented by the implementation and enforcement by others. This is an important part of the story, for sure, and there, the profession plays an absolutely critical role and the professional associations mostly and the organisations have a critical role to play there to make sure that these standards not only exist and just existing is not enough, but they are implemented, adopted and enforced. But this is really, this objective of upholding ethics in the accounting services is really a collective project. It's not something that the IESBA or the IESBA standards can address all alone. It's not something that CPA Australia or any other professional organisation can address all alone.

It's a collective project. It's something that has to be achieved in an integrated way where regulators, where companies and clients themselves, governments, corporate governance, community, etc, plays a role here. So what we are doing is, on the one hand, trying to launch this discussion and this perception and awareness of the collective responsibility of us all in doing something to uphold ethical behaviours, but at the same time, trying to see if there is any product, any output that IESBA as an ethics standard-setter can provide beyond the existing code of ethics, which is already a rather strong tool for the purpose, but see if there is anything, in addition, that we can provide.

Ram Subramanian:
Thank you for adding some context to that very important project that you're going to be undertaking. Now if I can touch on the other big project that you've just mentioned, which is on sustainability and the role that ethics plays in that space, as I understand it, IESBA is going to develop a new part five of the code of ethics, which will address sustainability and how ethics plays a role in that. Can you tell us a bit about how the IESBA intends to safeguard the integrity of sustainability reporting and its assurance through these new ethical provisions?

Gabriela Figueiredo Dias:
Well, the new ethical provisions will hopefully support the sustainability reporting standards and the sustainability assurance standards developed by other standard-setters, by providing the baseline for the ones who will apply those standards to adopt the right behaviour. And this per se is an important product, an important contribution to the integrity of the sustainability information. If I may, sustainability information is something that is being required by investors, by users, et cetera to make sure that their decisions are based on integral information, complete information, reliable information. And this is only achievable if we make sure that the ones who are preparing the sustainability information reports and those who are involved in providing sustainability assurance, adopt the right behaviour in applying the other standards.

There are already reporting standards, IFRS S1 and S2, the European ESRS. There will be assurance standards, performance standards. But ultimately, all these problems of green-washing, green-hushing, et cetera, they start and they exist because in some moment of this sustainability reporting preparation or sustainability reporting assurance, someone made the wrong decision, someone opted to take the wrong behavioural approach to the way they should provide information, assure information, et cetera. These standards are not another set of standards to say the same thing. It's really an ethical behaviour for professionals and all the providers of these kind of services to understand how to navigate the ethical dilemmas, pressures, perplexities, et cetera, that they will face when developing sustainability reports or performing sustainability assurance. This is not new. There are ethical standards in place for financial reporting and for financial assurance.

And everybody agrees, I think, or can agree that without this ethical standards, without the ethical principles on integrity, confidentiality, objectivity, et cetera, and all this framework that IESBA already offers to deal with independence matters, conflicts of interests, pressure from the management or from the client, financial interests, lack of competence, et cetera, these standards are absolutely necessary for financial reporting and for financial assurance and nobody disagrees with that. There is at least the same need for sustainability reporting and sustainability assurance. And when I say at least the same necessity, it's because this information has some specificity, some characteristics which eventually makes it even more necessary to have a global international set of standards which make very clear expected behaviours from those performing these activities and the acceptable behaviours of the same people.

Jacqueline Blondell:
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Ram Subramanian:
You made a very good point there about well-established practises of ethical conduct and ethical standards being applied in the context of financial reporting and assurance because that's been established for decades, so people understand that quite well within the profession. You also touched on things like green-washing and green-hushing, which are issues or challenges that we could face with sustainability reporting and sustainability assurance.

Some of it, some may say, is to do with forward-looking information because with sustainability reporting there is a tendency for more information to be forward-looking, includes estimates that are future-based, et cetera. Financial reporting, arguably, people will say it's more backward-looking, more historical. So with that in mind, what do you see as the challenges that you would get from an ethical standpoint when addressing appropriate disclosure of forward-looking information supported by appropriate assurance of that information?

Gabriela Figueiredo Dias:
This was exactly one of the things that I had in mind when I said that, if anything, ethics is even more important in sustainability reporting and assurance than it is for financial reporting and assurance, exactly because this information is a little bit different, and this is one of the reasons, more forward-looking, more based on estimations and, therefore, requiring from the provider or the preparer, more judgement . And this judgement needs to be guided by very strong ethical basis, principles and standards.

If there is space for more subjectivity, it's probably not the right word, but there is a wider space of intervention, decision and judgement for the provider or the practitioner than it exists for financial information. And, for that reason, it's absolutely critical to have this baseline, this piece of the structure which is ethical and independent standards. But in addition, we have to think that this is new. The data that is used for sustainability information and sustainability assurance is still very immature. And this all just brings the clearer, more clear the need for the ones providing this services to be guided by very strong ethical behaviours.

Ram Subramanian:
So you've touched on two very important projects that IESBA is going to be undertaking in the next few years. Just to close off, do you have any closing remarks on the role IESBA plays in safeguarding the role of the accounting profession within the global markets and within individual jurisdictions as well to protect and safeguard these individual economies and jurisdictions?

Gabriela Figueiredo Dias:
Well, we are an international standard-setter. And with that in mind, I would say that whatever we do applies at the international level and will directly or indirectly help the individual jurisdictions, as you mentioned, in developing their frameworks and, therefore, supporting the practise of the profession of accountants and accounting services. Our role is really to make sure that we realise the changes, the needs and the developments around us and respond quickly in a timely manner, in an effective manner by developing the necessary ethics standards, when necessary, to face all these situations.

So over the next few years and our strategy and our plan, I think, speaks about it, over the next few years, the IESBA will be trying as much as possible to broaden its impact by making sure that we do what is necessary, namely on firm culture and governance, to address the problems that we have been seeing around, but also that we take a broader perspective and that we possibly include or explore the possibility of including not only the professional accountants, but all other or part of the other services providers, according to our vision that in the future what should guide, what should be the scope and the focus of the standard, should be not that much the profession, but the service that is being provided.

Ram Subramanian:
Thank you for those very important insights into what really forms the bedrock of the accounting profession. And it's good to hear that you are focusing on not just the profession, but also the kinds of services that may need to be underpinned by good ethical behaviour. So thank you for that. And thank you also for taking time out from a very busy schedule and spending time doing this podcast with us. Thank you once again, Gabriela.

Gabriela Figueiredo Dias:
Thank you so much. My pleasure.

Ram Subramanian:
For more information about ethics, including links to additional resources, you can refer to the show notes for this episode. With Interest is a regular podcast. If you liked today's show, you can subscribe on your favourite podcast app by searching for CPA Australia's With Interest. I'm Ram Subramanian. Until next time, thanks for listening.

Garreth Hanley:
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