Let's Talk About a Principles-Based Code of Professional Conduct

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I believe a principles-based code of conduct can be superior to the existing “rules-based” code which is currently in place by the provincial accounting bodies in Canada.

We recently caught up with Gary Hannaford, FCPA, FCA, who retired in 2016 from his role as the longtime leader of Institute of Chartered Accountants Manitoba (ICAM) and CPA Manitoba’s first CEO. He provided an update on retired life from his Belleville, Ontario home.

“I’ve been staying busy in both the profession and other volunteer activities,” Hannaford confirmed. “I serve on the Audit and Assurance Standards Oversight Council that provides independent oversight of the Audit and Assurance Standards Board. I’m also a member of the Board and Chair of the Governance, Communications and Strategy Committee of a regional hospital group - which oversees four hospitals in the area. Finally, I am a Board member of our local United Church. So, all of that is keeping me busy,” he explains.

Recently Hannaford gave a presentation to the CPA Manitoba Board of Directors during its strategic retreat, reminding them of the profession’s role in regulating the profession and in particular the merits of a principles-based code of ethics in regulating the profession. “My goal in that presentation was to focus board members on the profession’s legislative mandate to protect the public. If the profession does not fully embrace its mandate to protect the public, the government, as it has in many other jurisdictions around the world, could ask another group to assume that role,” Hannaford said.

No stranger to the topic of professional ethics, Hannaford was first introduced to the importance of that work in 1995 as then Executive Vice-President of ICAM. “In that role you understand pretty quickly that protecting the public is of upmost concern. Of course, providing services and programs of value for our members is also extremely important, but as a profession that has been granted the right to self-regulate, we have a responsibility -- both legally and morally -- to ensure we’re acting in the public interest and that the public is protected at all times.”

Throughout the course of his career, Hannaford embraced this belief that the primary role of any profession is to protect the public. He chaired the Public Trust Committee for both the legacy CA and CPA professions for 11 years and from 2012 to 2018, he served on the International Ethics Standards Board for Accountants (IESBA).

The IESBA is an independent standard-setting board that develops, in the public interest, high-quality ethical standards for professional accountants worldwide. These standards are included in the International Code of Ethics for Professional Accountants.

“As a strong believer in self-regulation I have often asked myself what the best way is to protect the public,” reflected Hannaford. “In my opinion, it is through a strongly worded code of conduct that all members adhere to. And I should point out that the purpose of a good Code of Ethics or Code of Conduct is not to try and ‘catch’ those who don’t comply with it, but to provide guidance to members on how to best act when faced with an ethical dilemma. In many respects, the Code should be a resource that members can turn to when the right path forward is not clear.”

It is understood then that a code of conduct is an integral part of protecting the public and fulfilling the profession’s obligation to self-regulate. Given its importance, how do we ensure that the code of conduct is as strong as it can be in Manitoba and elsewhere throughout Canada?

“First of all, I want to say our current Code is robust and working well. However, given how integral it is to fulfilling our professional mandate, I believe a principles-based code of conduct can be superior to the existing “rules-based” code which is currently in place by the provincial accounting bodies in Canada,” Hannaford said.

A rules-based Code includes “rules” that explain what the CPA must do or must not do in fulfilling their ethical responsibilities. If a matter is not specifically captured by the rules, it is difficult to consider a member guilty of professional misconduct.

On the other hand, a principles-based Code focuses on defining the principles that a professional accountant should comply with. It does not only deal with matters specifically addressed in a rule but requires the professional accountant to consider all matters pertaining to complying with a fundamental principle. In Canada, some provincial bodies have called for a move to a principles-based Code.

Internationally, IESBA’s Code of Ethics is principles-based. This means that in jurisdictions where it is in force, accountants must comply with a defined set of fundamental principles. “Once you understand the principles, you then look for threats that would put complying with that principle in jeopardy. If that arises, you would look to reduce those threats to an acceptable level. If that proves to be too challenging or impossible, the member should not do the work,” explained Hannaford.

Although it may seem like it puts additional judgement on a professional accountant, a principles-based system can succeed where a rules-based system can become less clear.

“Our rules-based system is comparable to a set of laws. They are very clear, but it is impossible to write a rule for every possible situation or eventuality. It also needs to be constantly reviewed and updated as new technologies, tools and business environments are constantly changing. A principles-based code eliminates much of that urgency because new circumstances will almost always fall under one or more of the fundamental principles,” he said.

Changing the Landscape in Canada
Changing the way the Code of Conduct is written and understood in Manitoba does present challenges, however. One of the most obvious is that the professional accounting body in each province and territory is responsible for the protection of the public within its borders and sets its own code. While the code is generally harmonized across provincial jurisdictions, each province will need to move to a principles-based code if they are to be harmonized.

In addition, each province has slightly different ways for making changes to the code in their jurisdiction. In some places a membership vote needs to take place, in others the board has the authority to approve changes on their own. Still other provinces require provincial government approval, and the province of Quebec has the l’office des profession oversees all regulated professions in that province.

The profession has also worked hard to ensure that the Code of Conduct in each province is as close as possible to one another. The benefit of this collaboration means that members can work anywhere in Canada and know how best to protect the public wherever they are. While coordinating a change across the country might appear difficult at first glance, the fact that collaboration already exists in this area could also make change more attainable. “The Public Trust Committee already makes recommendations to the provinces and territories when Code of Conduct changes are necessary,” says Hannaford. “It is certainly possible that they could embrace this change and help drive it forward in an organized way.”

One of the concerns of a principles-based code in the past is whether it is as enforceable as a rules-based code. Some legal experts have expressed this concern in the past and warned it may be harder to hold those accountable who intentionally violate its rules. “In 2017 the IESBA undertook a very significant project to redraft the code so it would resolve the concerns from the legal community,” said Hannaford. “I am confident the International Code, as it’s written today, would pass that hurdle.”

One of the final challenges may be the daunting task of rewriting the code from scratch, and on that point, Hannaford has some interesting solutions too. “Some countries have simply adopted the International Code verbatim. Others have adopted the code and added some unique wording to address specific situations or concerns that are unique to that place. Of course, it could be completely rewritten but at the end of the day it probably does not make the code any stronger.” Rewriting the code to “Canadianize” it does remain a viable option however, and some other countries have taken that approach.

Because of these reasons and others, Hannaford understands that change in this area would not happen overnight. “I think we are getting closer though,” says Hannaford. “Since things are mostly harmonized now, logically I can’t think of a reason they couldn’t be harmonized using a principles-based code instead of a rules-based code. It is going to take a lot of coordination and thoughtful discussion, but considering it is about fulfilling our number one duty to protect the public, if we agree that a principles-based solution is a better way to do that, then it is work well worth the effort”

For now, Hannaford hopes that a call for change can happen organically.

“It is something that we should all be thinking about because protecting the public is so crucial to the long-term viability of self-regulation in the profession. If this resonates with you, talk to your colleagues about it or have a discussion with your coworkers. Review the current Code of Professional Conduct and the International Code of Ethics. Your voice is important and the more we talk about these things as a profession, the better off we will be,” concluded Hannaford.

Gary Hannaford, FCPA, FCPA and CPA Manitoba Lifetime Award Recipient is the former leader of the Institute of Chartered Accountants Manitoba (ICAM) and CPA Manitoba’s first President & CEO. He and his partner, Cathy, are both retired and hoping to travel again soon. Like many of us, they have a long list of places to visit once the COVID-19 pandemic eases.