U4 Helpdesk Query

U4 helpdesk reply

There are of course no easy or quick answers to the important concerns highlighted in your query. While any substantial and long-term effects can only be accomplished through comprehensive reforms of the accounting and auditing sectors, we have tried to present some practical advice in the interim.

The following steps are worth exploring to remedy the situation, when encountered with incidents of bribery/corruption occurring in the local branches of the international auditing firms:

1. Refer the matter to the Headquarters of the international firms. For this purpose it is important of course to know what the company rules are, and whether there are company codes of conduct and standards of ethics, integrity, conflict of interest that apply to all employees of that company worldwide. We have done some research on four international auditing firms (all of which have branches in Mozambique) - see the results below in section I.

2. Consult National Regulatory and/or Professional Bodies responsible for Auditing Standards (including those of private firms) - see section II below.

3. Consult International Regulatory and/or Standard setting Bodies for the Auditing Practices (including those of private audit firms) - see section III below.

Finally, at the end of the response, we have provided some additional links that may be of interest.

I. The Standards of the "Big Four" Accounting/Auditing Firms in their Worldwide Operations

Judging from the information available, each of the four international companies (PWC, KPMG, Deloitte Touche Tohmatsu and Ernst&Young) have offices or representation in Mozambique. As a first step, we examined whether the four international accounting/auditing firms have codes of conduct that regulate the ethics and integrity in the auditing practices (preventing and regulating conflicts of interest and corrupt behaviour) and whether these codes are of global nature - i.e. extending to their local firms /branches. Here are the findings of our enquiries:

PricewaterhouseCoopers
PWC seems the only firm to have a truly global Code of Conduct, requiring all of its staff around the world to adhere to standards of ethics and integrity. It contains provision on conflict of interest. It also sets disciplinary measures, should non-compliance or violation of the Code occur. Apart from setting standards of professional conduct for its employees, the section of the code on corporate citizenship expands and states "we are committed to supporting international and local efforts to eliminate corruption and financial crime".
The Code was unveiled in November 2002. A copy of the Code is available at www.pwc.com/ethics

KPMG
There does not seem to be a global code governing all offices of KPMG. After enquiries with a KPMG office engaged with Ethics and Integrity related Services, the following information was provided by one of their officials:

"The codes of conduct at KPMG are internal procedures and may vary from country to country, except for the document "Our Values" which is our generic value statement but this is still an internal document.

Various groups of professionals at KPMG (auditors, accountants, tax advisers, etc) are bound to the professional standards issued by their respective local professional institutes (independence,
confidentiality,...) as well as to local legislation and specific regulation (independence, money laundering, ...). The various codes of conduct in place refer to these local norms.

Related internal policies and procedures are severe and include a.o. communication, awareness, training, monitoring for compliance to these codes, the possibility of internal sanctions in case of non-
compliance, internal reporting and of course adapting these codes to the ever changing professional and legal environment."

Deloitte Touche Tohmatsu and Ernst&Young

Contrary to KPMG and PWC, people contacted at Deloitte and Ernst & Young were unable to provide information on their organisation's code of conduct, as yet.

A representative of Deloitte claimed that such codes existed, but were not available to members of the general public.

According to an article, Ernst & Young have recently issued a new code of conduct and started an ethics hotline in March, 2002. However, contacted staff at various UK offices were unaware of this.

II. National Regulatory and/or Professional Bodies responsible for Auditing Standards (Private Firms)

Most counties have national bodies regulating the auditing profession to ensure professional standards as well as ethical behaviour and integrity of the auditors. We are aware that Mozambique does not at present have such a body. There are furthermore numerous donor country assessments of Mozambique (both multilateral and bilateral) acknowledging the fact that the auditing practice (and indeed even the broader accounting one) is in a very poor state. It also looks like a number of donor initiatives are under way on strengthening Mozambique's fiscal and accountability systems and a reform of the auditing system would seem very appropriate. Should you be interested in what are the typical functions and activities of such national bodies leading the national auditing practice in other countries, one such example to refer to is UK's Auditing Practices Board (www.apb.org.uk) and the accompanying Ethical Standards for Auditors.

III. International Regulatory and/or Standard Setting Bodies for the Auditing Practices (Private Firms)

The International Auditing and Assurance Standards Board (IAASB) functions as an independent standard setting body under the auspices of the International Federation of Accountants (IFAC). The mission of the IAASB is to establish high quality auditing, assurance, quality control and related services standards and to improve the uniformity of practice by professional accountants throughout the world, thereby strengthening public confidence in the global auditing profession and serving the public interest. The IAASB issues an annual report highlighting its progress in meeting this objective. It also regulates ISA (International Standards of Auditing) related matters. See its recently published 2003 Handbook of Auditing, Assurance, and Ethics Pronouncements (online version).

Forum of Firms is another international body of relevance. Launched in January 2001, Forum of Firms (FOF) is an organization of international firms that perform audits of financial statements that are or may be used across national borders. Members of the Forum voluntarily agree to meet certain requirements, including undergoing a global independent quality review. Commitment to the obligations of membership in the Forum contributes to raising the standards of the international practice of auditing in the interest of users of the profession's services.
There is a Constitution to which the member audit firms adhere to. The big four aditing firms mentioned above are listed as founding members on the Constitution. The FOF conducts its business primarily through the Transnational Auditors Committee (TAC), an IFAC committee whose members have been nominated by the members of the Forum.

In addition, below are some further links that may be of interest to you:

The CGAP MFI Audit Information Centre is a tool for MFIs, donors, and auditors. It is designed to provide each with better information on how to contract, conduct and use MFI audits.
It is a useful general site with tips for MFIs/donors on choosing auditors, ensuring standards are met, etc.

Additional Initiatives in different parts of the world:

International/Regional level
EU: Through its Committee on Auditing, the Commission is proposing the adoption, by 2005, of ISAs as a benchmark for EU audit requirements, the development of minimum requirements to ensure the effectiveness of external quality assurance systems for statutory audit, and the examination of a set of core principles on independence and audit objectivity developed by the Fédération des Experts Comptables Européens (FEE). The implementation of these principles is to be achieved through monitored self-regulation, however, the Committee on Auding may where necessary, propose new legislation.

National level
European countries: A study by the FEE (Federation of European Accountants) in 1998 suggests a great variety of arrangements for self-regulation, peer-review and other independent review mechanisms of auditing practices at national level in Europe with "self-assessment by the firms (Austria, Italy), peer review by a panel of auditors (Belgium); peer review on a firm on firm basis (Denmark); monitoring of individual auditors (France, Norway); external regulation (Germany, Czech Republic); and self-regulation by the accountancy bodies (Spain, Finland and the UK).

US: the accounting industry was strongly regulated through the passing of the Sarbanes-Oxley Act of 2002. This act most importantly bans accountants from providing consulting services to the companies they audit, a lesson learnt directly from the Enron case, where Andersen not only provided audit but also management-consulting services to Enron's executive staff. It applies to companies listed in the US (independently of whether their headquarters are in the US or not), and to foreign subsidiaries of US listed companies and their public accounting firms. The act also creates a new regulatory entity, the Public Company Accounting Oversight Board (PCAOB), which oversees the activities of the auditing profession.

The PCAOB is a private-sector, non-profit corporation mandated to oversee the auditors of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports. It has powers to establish rules relating to professional and ethics standards, and to submit them to the Securities and Exchange Commission (SEC) for approval. In line with Section 105 of the Sarbanes-Oxley Act, the PCAOB has investigative and disciplinary authority over registered public accounting firms and persons associated with such firms. Rules relating to investigations and adjudications were submitted to the SEC in October 2003 for approval.