Michael Diviney and Níall Fitzgerald explore the ethical challenges arising from artificial intelligence (AI), particularly ‘narrow’ AI, and highlight the importance of ethics and professional competence in its deployment Earlier this year, artificial intelligence (AI) industry leaders, leading researchers and influencers signed a succinct statement and warning: “Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war.” Was this a publicity stunt? Well, probably not, as the generative AI ChatGPT was already the fastest-adopted application in history.  Was this an over-the-top, alarmist statement by a group possibly trying to steal a march on self-regulation of a rapidly emerging technology and growing industry?  Again, this is unlikely if one considers the warnings of pioneer thinkers like Nick Bostrom, Max Tegmark, Stephen Hawking and Astronomer Royal Martin Rees. They concur that there is an existential threat to humankind if human-level or ‘general’ AI is developed and the ‘singularity’ is reached when AI surpasses human intelligence.  Autonomous weapons and targeting are a clear risk, but more broadly, unless we can ensure that the goals of a future superintelligence are aligned and remain aligned with our goals, we may be considered superfluous and dispensable by that superintelligence.  As well as the extinction threat, general AI presents other potential ethical challenges.  For example, if AI attains subjective consciousness and is capable of suffering, does it then acquire rights? Do we have the right to interfere with these, including the right to attempt to switch it off and end its digital life?  Will AI become a legal entity and have property rights? After all, much of our economy is owned by companies, another form of artificial ‘person’. Ethical challenges from ‘narrow’ AI Until general AI is here, however – and there is informed scepticism about its possibility – the AI tools currently in use are weak or ‘narrow’ AI. They are designed to perform a specific task or a group of related tasks and rely on algorithms to process data on which they have been trained.  Narrow AI presents various ethical challenges:  Unfairness arising from bias and opacity (e.g. AI used in the initial screening of job candidates include a gender bias based on historical data – in the past more men were hired); The right to privacy (AI trained with data without the consent of the data subjects); Threats to physical safety (e.g. self-driving vehicles); Intellectual property and moral rights, plagiarism and passing-off issues in the use of generative AI like ChatGPT and Bard; and Threats to human dignity from the hollowing out of work and loss of purpose. Regulation vs. ethics Such issues arising from the use of AI, particularly related to personal data, mean that regulation is inevitable.  We can see this, for example, with the EU’s landmark AI Act, due to apply by the end of 2025, which aims to regulate AI’s potential to cause harm and to hold companies accountable for how their systems are used. However, as Professor Pat Barker explained at a recent Consultative Committee of Accountancy Bodies (CCAB) webinar, until such laws are in place, and in the absence of clear rules, ethics are required for deciding on the right way to use AI.  Even when the regulation is in place, there are likely to be cases and dilemmas that it has not anticipated or about which it is unclear. Legal compliance should not be assumed to have all the ethical issues covered, and as AI is evolving so quickly, new ethical issues and choices will inevitably emerge.  Ethics involves the application of a decision-making framework to a dilemma or choice about the right thing to do. While such a framework or philosophy can reflect one’s values, it must also be objective, considered, universalisable and not just based on an instinctual response or what may be expedient. Established ethics frameworks include: the consequentialist or utilitarian approach – in the case of AI, does it maximise benefits for the greatest number of people?; and the deontological approach, which is based on first principles, such as the inalienable rights of the individual (an underlying philosophy of the EU’s AI Act). (The Institute’s Ethics Quick Reference Guide, found on the charteredaccountants.ie website, outlines five steps to prepare for ethical dilemmas and decision-making.)  A practical approach While such philosophical approaches are effective for questions like “Should we do this?” and “Is it good for society”, as Reid Blackman argues in Harvard Business Review, businesses and professionals may need a more practical approach, asking: “Given that we are going to [use AI], how can we do it without making ourselves vulnerable to ethical risks?”  Clear protocols, policies, due diligence and an emphasis on ethical risk management and mitigation are required, for example responsible AI clauses in agreements with suppliers. In this respect, accountants have an arguably competitive advantage in being members of a profession; they can access and apply an existing ethical framework, which is evolving and adapting as the technology, its opportunities and challenges change.  The Code of Ethics The International Ethics Standards Board for Accountants (IESBA) recently revised the Code of Ethics for Professional Accountants (Code) to reflect the impact of technology, including AI, on the profession. The Chartered Accountants Ireland Code of Ethics will ultimately reflect these revisions.  IESBA has identified the two types of AI likely to have the most impact on the ethical behaviour of accountants:  Assisted intelligence or robotic process automation (RPA) in which machines carry out tasks previously done by humans, who continue to make decisions; and  Augmented intelligence, which involves collaboration between human and machine in decision-making. The revisions also include guidance on how accountants might address the risks presented by AI to ethical behaviour and decision-making in performing their role and responsibilities.  Professional competence and due care The Code requires an accountant to ensure they have an appropriate level of understanding relevant to their role and responsibilities and the work they undertake. The revisions acknowledge that the accountant’s role is evolving and that many of the activities they undertake can be impacted by AI.  The degree of competency required in relation to AI will be commensurate with the extent of an accountant’s use of and/or reliance on it. While programming AI may be beyond the competency of many accountants, they have the skill set to:  identify and articulate the problem the AI is being used to solve;  understand the type, source and integrity of the data required; and assess the utility and reasonableness of the output.  This makes accountants well placed to advise on aspects of the use of AI. The Code provides some examples of risks and considerations to be managed by professional accountants using AI, including: The data available might not be sufficient for the effective use of the AI tool. The accountant needs to consider the appropriateness of the source data (e.g. relevance, completeness and integrity) and other inputs, such as the decisions and assumptions being used as inputs by the AI. This includes identifying any underlying bias so that it can be addressed in final decision-making. The AI might not be appropriate for the purpose for which the organisation intends to use it. Is it the right tool for the job and designed for that particular purpose? Are users of the AI tool authorised and trained in its correct use within the organisation’s control framework? (One chief technology officer has suggested not only considering the capabilities of the AI tool but also its limitations to be better aware of the risks of something going wrong or where its use may not be appropriate.) The accountant may not have the ability, or have access to an expert with that ability, to understand and explain the AI and its appropriate use.  If the AI has been appropriately tested and evaluated for the purpose intended. The controls relating to the source data and the AI’s design, implementation and use, including user access. So, how does the accountant apply their skills and expertise in this context?  It is expected that accountants will use many of the established skills for which the profession is known to assess the input and interpret the output of an AI tool, including interpersonal, communication and organisational skills, but also technical knowledge relevant to the activity they are performing, whether it is an accounting, tax, auditing, compliance, strategic or operational business decision that is being made.  Data and confidentiality According to the Code, when an accountant receives or acquires confidential information, their duty of confidentiality begins. AI requires data, usually lots of it, with which it is trained. It also requires decisions by individuals in relation to how the AI should work (programming), when it should be used, how its use should be controlled, etc.  The use of confidential information with AI presents several confidentiality challenges for accountants. The Code includes several considerations for accountants in this regard, including: Obtaining authorisation from the source (e.g. clients or customers) for the use of confidential information, whether anonymised or otherwise, for purposes other than those for which it was provided. This includes whether the information can be used for training AI tools.  Considering controls to safeguard confidentiality, including anonymising data, encryption and access controls, and security policies to protect against data leaks.  Ensuring controls are in place for the coding and updating of the AI used in the organisation. Outdated code, bugs and irregular updates to the software can pose a security risk. Reviewing the security certification of the AI tool and ensuring it is up to date can offer some comfort.  Many data breaches result from human error, e.g. inputting confidential information into an open-access web-based application is a confidentiality breach if that information is saved, stored and later used by that application. Staff need to be trained in the correct use and purpose of AI applications and the safeguarding of confidential information. Dealing with complexity The Code acknowledges that technology, including AI, can help manage complexity.  AI tools can be particularly useful for performing complex analysis or financial modelling to inform decision-making or alerting the accountant to any developments or changes that require a re-assessment of a situation. In doing so, vast amounts of data are collected and used by AI, and the ability to check and verify the integrity of the data introduces another level of complexity.  The Code makes frequent reference to “relevancy” in relation to the analysis of information, scenarios, variables, relationships, etc., and highlights the importance of ensuring that data is relevant to the problem or issue being addressed. IESBA was mindful, when revising the Code, that there are various conceivable ways AI tools can be designed and developed to use and interpret data.  For example, objectivity can be challenged when faced with the complexity of divergent views supported by data, making it difficult to come to a decision. AI can present additional complexity for accountants, but the considerations set out in the Code are useful reminders of the essential skills necessary to manage complexity. Changing how we work As well as its hugely beneficial applications in, for example, healthcare and science, AI is proving to be transformative as a source of business value.  With a range of significant new tools launched daily, from personal effectiveness to analysis and process optimisation, AI is changing how we work. These are powerful tools, but with power comes responsibility. For the professional accountant, certain skills will be brought to the fore, including adaptability, change and risk management, and leadership amidst rapidly evolving work practices and business models. Accountants are well placed to provide these skills and support the responsible and ethical use of AI.  Rather than fearing being replaced by AI, accountants can prepare to meet expectations to provide added value and be at the helm of using AI tools for finance, management, strategic decision-making and other opportunities. Michael Diviney is Executive Head of Thought Leadership at Chartered Accountants Ireland Níall Fitzgerald is Head of Ethics and Governance at Chartered Accountants Ireland

The roadmap for the EU Commission’s milestone Corporate Sustainability Reporting Directive is taking shape and now is the time to start preparing for a brave new era in non-financial reporting, writes Conor Holland With the Corporate Sustainability Reporting Directive (CSRD) now approved by the European Council, entities in the EU must begin to invest significant time and resources in preparing for the advent of a new era in non-financial reporting, which places the public disclosure of environmental, social affairs and governance matters (ESG) matters on a par with financial information. Under the CSRD, entities will have to disclose much more sustainability-related information about their business models, strategy and supply chains than they have to date. They will also need to report ESG information in a standardised format that can be assured by an independent third party. For those charged with governance, the CSRD will bring further augmented requirements. Audit committees will need to oversee new reporting processes and monitor the effectiveness of systems and controls setup. They will also have enhanced responsibilities. Along with monitoring an entity’s ESG reporting process, and evaluating the integrity of the sustainability information reported by that entity, audit committees will need to: Monitor the effectiveness of the entity’s internal quality control and risk management systems and internal audit functions; Monitor the assurance of annual and consolidated sustainability reporting; Inform the entity’s administrative or supervisory body of the outcome of the assurance of sustainability reporting; and Review and monitor the independence of the assurance provider. The CSRD stipulates the requirement for limited assurance over the reported information. However, it also includes the option for assurance requirements to evolve to reasonable assurance at a later stage. The EU estimates that 49,000 companies across the EU will fall under the requirements of the new CSRD Directive, compared to the 11,600 companies that currently have reporting obligations. The EU has confirmed that the implementation of the CSRD will take place in three stages: 1 January 2024 for companies already subject to the non-financial reporting directive (reporting in 2025 for the financial year 2024); 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive (reporting in 2026 for the financial year 2025); 1 January 2026 for listed SMEs, small and non-complex credit institutions, and captive insurance undertakings (reporting in 2027 for the financial year 2026). A large undertaking is defined as an entity that exceeds at least two of the following criteria: A net turnover of €40 million A balance sheet total of €20 million 250 employees on average over the financial year The final text of the CSRD has also set timelines for when the Commission should adopt further delegated acts on reporting standards, with 30 June 2023 set as the date by which the Commission should adopt delegated acts specifying the information that undertakings will be required to report. European Financial Reporting Advisory Group In tandem, the European Financial Reporting Advisory Group (EFRAG) is working on a first set of draft sustainability reporting standards (ESRS). These draft standards will be ready for consideration by the Commission once the Parliament and Council have agreed a legislative text. The current draft standards provide an outline as to the depth and breadth of what entities will be required to report. Significantly, the ESRS should be considered as analogous to accountancy standards—with detailed disclosure requirements (qualitative and quantitative), a conceptual framework and associated application guidance. Readers should take note—the ESRS are much more than a handful of metrics supplementary to the financial statements. They represent a step change in what corporate reporting entails, moving non-financial information toward an equilibrium with financial information. Moreover, the reporting boundaries would be based on financial statements but expanded significantly for the upstream and downstream value chain, meaning an entity would need to capture material sustainability matters that are connected to the entity by its direct or indirect business relationships, regardless of its level of control over them. While the standards and associated requirements are now largely finalised, in early November 2022, EFRAG published a revised iteration to the draft ESRS, introducing certain changes to the original draft standards. While the broad requirements and content remain largely the same, some notable changes include: Structure of the reporting areas has been aligned with TCFD (Task Force on Climate-Related Financial Disclosures) and ISSB (International Sustainability Standards Board) standards – specifically, the ESRS will be tailored around “governance”, “strategy”, “management of impacts, risks and opportunities”, and “metrics and targets”. Definition of financial materiality is now more closely aligned to ISSB standards. Impact materiality is more commensurate with the GRI (Global Reporting Initiative) definition of impact materiality. Time horizons are now just a recommendation; entities may deviate and would disclose their entity-specific time horizons used. Incorporation of one governance standard into the cross-cutting standard requirements on the reporting area of governance. Slight reduction in the number of data points required within the disclosure requirements. ESRS and international standards By adopting double materiality principles, the proposed ESRS consider a wider range of stakeholders than IFRS® Sustainability Disclosure Standards or the US Securities and Exchange Commission (SEC) published proposal. Instead, they aim to meet public policy objectives as well as meeting the needs of capital markets. It is the ISSB’s aim to create a global baseline for sustainability reporting standards that allows local standard setters to add additional requirements (building blocks), rather than face a coexistence of multiple separate frameworks. The CSRD requires EFRAG to take account of global standard-setting initiatives to the greatest extent possible. In this regard, EFRAG has published a comparison with the ISSB’s proposals and committed to joining an ISSB working group to drive global alignment. However, in the short term, entities and investors may potentially have to deal with three sets of sustainability reporting standards in setting up their reporting processes, controls, and governance. Key differences The proposed ESRS list detailed disclosure requirements for all ESG topics. The proposed IFRS Sustainability Disclosure Standards would also require disclosure in relation to all relevant ESG topics, but the ISSB has to date only prepared a detailed exposure draft on climate, asking preparers to consider general requirements and other sources of information to report on other sustainability topics. The SEC focused on climate in its recent proposal. The proposed ESRS are more prescriptive, and the number of disclosure requirements significantly exceeds those in the proposed IFRS Sustainability Disclosure Standards. Whereas the proposed IFRS Sustainability Disclosure Standards are intended to focus on the information needs of capital markets, ESRS also aim to address the policy objectives of the EU by addressing wider stakeholder needs. Given the significance of the directive—and the remaining time to get ready for it—entities should now start preparing for its implementation. It is important that entities develop plans to understand the full extent of the CSRD requirements, and the implications for their reporting infrastructure. As such, they should take some immediate steps to prepare, and consider: Performing a gap analysis—i.e. what the entity reports today, contrasted with what will be required under the CSRD. This is a useful exercise to inform entities on where resources should be directed, including how management identify sustainability-related information, and what KPIs they will be required to report on. Undertaking a ‘double materiality’ analysis to identify what topics would be considered material from an impact and financial perspective—as required under the CSRD. Get ‘assurance ready’—entities will need to be comfortable that processes and controls exist to support ESG information, and that the information can ultimately be assured. The Corporate Sustainability Reporting Directive represents a fundamental change in the nature of corporate reporting—the time to act is now and the first deadline is closing in.

Chartered Accountant Eamonn Hughes is playing a leading role in Bank of Ireland’s Responsible and Sustainable Business Strategy. Hughes tells Accountancy Ireland about the four-year plan and his goals as Chief Sustainability and Investor Relations Officer  Before joining Bank of Ireland Group in February as Chief Sustainability and Investor Relations Officer, Chartered Accountant Eamonn Hughes had a longstanding career as a sell-side market analyst with more than 25 years’ experience in capital markets and domestic banking.  Having worked most recently with Goodbody, the stockbroking firm, as Irish Banks and Insurance Sector Analyst and, before that, Head of Research, Hughes also had a clear view of the swift rise in environmental, social and governance (ESG) to the top of the financial agenda worldwide. “I could see that ESG was becoming hugely important in capital markets and the financial sector. The climate crisis, in particular, is a critical threat, but also a significant opportunity,” said Hughes. “For our planet, there is no Plan B, but the discussion about sustainability is not just about climate change. It is also about creating a more sustainable business model. Our vision at Bank of Ireland is to be the national champion in Ireland, to use our balance sheet and resources to drive positive change for a better, fairer society and improve the environment. “This gives me a very strong framework to think about my role, because, if we can deliver on our ESG strategy, we can ultimately deliver a more sustainable business model for all stakeholders and positive returns for investors. “The ESG agenda also involves regulators, so disclosure and risk management are very important—and there are reporting frameworks in place, but they are evolving very quickly. This is one of the challenges we face and is also why transparency and the availability of clear data is so important.  “With my background in capital markets, I can clearly see the mobilisation in capital, and I think the banking sector has a very obvious supporting role to play in society’s sustainability transition.” Investing in tomorrow Bank of Ireland published its Responsible and Sustainable Business Strategy in March 2021, a year before Hughes joined the group.  Bank of Ireland’s four-year Investing in Tomorrow strategy set out its own goals to support the green transition, alongside two additional pillars: enabling colleagues to thrive; and enhancing customers’ financial wellbeing. The Investing in Tomorrow green transition pillar included the setting of science-based targets aligning the bank’s lending portfolios with the Paris Agreement. The international treaty on climate change, adopted in 2015 at COP 21, set out a goal to limit global warming to 1.5 degrees Celsius, compared to pre-industrial levels. “Data is key across all three pillars, because reporting is essentially an output of what we are doing in support of climate change, colleagues, customers and the organisation as a whole,” said Hughes. “We need to focus on how we interact with our stakeholders internally and externally and, in my role, investors are obviously a key priority. As investors now have to produce more disclosures themselves, they will need to engage more with us in terms of what we are doing on our own ESG journey.” Clear reporting strategy How Bank of Ireland communicates with, and reports to, stakeholders on the progress of its ESG strategy is a priority for Hughes in his role as Chief Sustainability and Investor Relations Officer. “Ultimately, we need to explain how we are meeting the targets set out in our strategy, and it is incumbent upon us to develop the capacity and skill sets we need to support reporting and strategy delivery,” he said. “My role is to support in delivering across all three pillars, which involves a lot of data-gathering internally, particularly from a regulatory and reporting perspective.” Detailed progress reports on ESG will now be a core part of Bank of Ireland’s annual reporting cycle. “We need to be able to demonstrate clearly that we are creating a sustainable business strategy, enabling colleagues to thrive in the organisation and enhancing financial well-being among customers, in addition to supporting the sustainable transition,” said Hughes. “Transparency is hugely important. There are a lot of differentials in this space, so we need to standardise our reporting; to be able to explain clearly and cohesively what we are doing and why.” Commercialisation is becoming increasingly important as Bank of Ireland continues to implement Investing in Tomorrow, Hughes said. “Like many banks, we are in the commercialisation phase of our ESG strategy with the creation of sustainable finance solutions for, and increasing engagement with, customers. We are supporting and incentivising customers through competitive rates to buy or build an energy efficient home or to retrofit their home or business to make it more energy efficient.” Sustainable finance fund Bank of Ireland recently announced a €3 billion increase in its Sustainable Finance Fund, which will bring it to €5 billion by 2024. The fund covers green propositions, including mortgages, home improvement loans and business  loans.  Bank of Ireland’s inaugural standalone Responsible and Sustainable Business Report, published in June, tracked the progress of its ESG strategy in 2021. More than €1.8 billion in mortgages, home improvement loans and business loans had been drawn down from the Sustainable Finance Fund by the end of the year, the report stated. Thirty-five percent of all mortgages provided by the bank in 2021 were green, rising to 48 percent in the first half of 2022.  Bank of Ireland was also the largest provider of wholesale finance for electric vehicles in 2021, providing finance to 13 of the 15 car manufacturer franchises. The publication of the Responsible and Sustainable Business Report marked a significant “step-change in the tracking and transparency” of the bank’s ESG reporting, Hughes noted.  “Our stakeholders—including customers, shareholders, and regulators—are demanding far greater transparency as to how we are meeting our ESG commitments,” he said. “This report provides insight into our strategic approach, appraisal of our progress to achieve our purpose, and information on the key focus areas we plan to progress in the years ahead. Being clear on ESG, and showing how you are delivering what you sign up to, is now a commercial imperative for all lenders, including Bank of Ireland.” Science-based targets Bank of Ireland has also committed to setting science-based targets across portfolios and operations to align lending practice with the low carbon ambitions set out in the Paris Agreement. “We completed two successful green bond issuances in 2021, raising €1.25 billion with the capital used to finance green buildings, renewable energy projects and clean transportation,” said Hughes. “Thirty-five per cent of the mortgages we provided in 2021 were green and we have also launched a green mortgage product in the UK.” Bank of Ireland is providing finance for the development of at least 750 megawatts of renewable wind capacity across the island of Ireland. The bank is also in the process of decarbonising its own operations—reducing absolute emissions by 88 percent between 2011 and 2021. Social and governance Although supporting the green agenda is a major part of Investing in Tomorrow, the strategy also sets goals for investing in colleagues and enhancing customers’ financial wellbeing. “We recognise the supporting role we can play in Ireland’s response to the climate crisis, but the ‘S’ and ‘G’ are equally important when we consider ESG,” Hughes said. “We have a strategy to improve the financial wellbeing of our customers and to foster a financially inclusive society.” Bank of Ireland was, Hughes said, supporting customers to become more financially confident, while also working to simplify processes, so that the “financially marginalised have easier access to banking services.” Financial health and inclusion  Bank of Ireland is one of 28 banks around the world that have signed the Commitment to Financial Health and Inclusion published in December 2021 under the United Nations Principles for Responsible Banking (PRB). A first-of-its-kind initiative aimed at promoting universal financial inclusion and health in the banking sector, its launch closely followed the publication of the UN’s PRB Collective Progress Report. The report identified financial inclusion as the third most pressing sustainability challenge facing signatory banks, behind climate mitigation and adaptation. “This UN initiative is particularly important in an environment in which we have a cost-of-living crisis and customers are facing major challenges in the medium- to long-term. The question for us is, ‘how can we deliver this particular skill set and support our customers at a time when they really need it?’” said Hughes. Bank of Ireland is also helping customers to “live more sustainably” with the recent announcement of the roll out of bio-sourced debit and credit cards. Launched in October, the initiative will over time replace all plastic debit and credit cards issued by the bank, to help support the reduction of single-use plastic. “If we are to live in a more sustainable way, we need to do things differently, including through our everyday banking. The introduction of bio-sourced cards is a very practical way we can help our customers to reduce their environmental footprint,” Hughes said. “As a bank, we are working very closely with our customers on the sustainability transition. As they deliver, we deliver. It is a symbiotic relationship and an exciting place to be.”  

Conal Kennedy, Head of Practice Consulting, writes: In Practice Consulting, we often take calls and emails from members about difficulties and challenges that arise in practice. One of the most common queries surrounds the rights and obligations of the various parties when there is a change of professional adviser. When a client decides to move from one accounting firm to another, both parties should cooperate to make the transition as smooth as possible. However, complications and difficulties can arise when one of the parties has a grievance. Sometimes, the relationship between the firm and the client may have lasted many years, and its ending can come as an unpleasant surprise to the existing accountant, the worse so if they have not been fully paid for all work done. On the other hand, the new accountant may be very pleased to gain a new client, and may be surprised in their turn by difficulties posed by the incumbent. In some rare instances, incoming accountants do not do all that is required of them under the Code of Ethics, particularly around professional enquiries. In Practice Consulting, we receive communications from members on both sides of the fence. We provide information and guidance to the member, bearing in mind of course that there are two sides to every issue. Let’s look at a typical scenario and discuss some of the issues and possible misconceptions, with the details anonymised but addressing problems that are common enough. As always, we need to concentrate on the key matters in a generalised way, so if you are faced with this scenario yourself, please go to the Sections 320 of the Code of Ethics for the full requirements and guidance. In our example, a firm has made contact with Practice Consulting, explaining that they have recently taken on a new client. The client is a limited company, who needs a non-audit accounts preparation assignment and tax compliance work carried out. The firm has sent the professional enquiry letter to the previous accountant. However, the outgoing accountant has written back to the firm and the client to say that they have not been paid for a certain piece of work, and are withholding clearance and keeping possession of all records until they have been paid in full. What are the rights and obligations of the parties? In the first instance, there is no such thing as “professional clearance” as such. No accounting firm can prevent another accounting firm from working for a client, and therefore no firm can give or withhold clearance. The incoming accountant is obliged to carry out professional enquiries to determine if there is any professional reason why they should not take up the appointment. This is the purpose of the “any professional reason” letter, to which the outgoing accountant should respond, with the approval of the client. The new agent should make their best efforts to obtain responses to the letter, including re-sending the letter by registered mail, if necessary. However, if they do not receive a response following reasonable efforts, and their other enquiries are sufficient to indicate that there is no valid reason not to take up the assignment, then they may proceed. In this instance, the existing accountant would appear to be attempting to take a lien, meaning a right to retain possession over certain documents that they have in their possession until they have been paid. Whilst this right still exists, it is really only applicable in quite narrow circumstances. Firstly, the outgoing accountant is obliged to co-operate with the successor to ensure that the client’s interests are not prejudiced, including the client’s obligation to comply with its legal obligations if there is no other means to do so. This may in effect mean the that the incumbent accountant is obliged to forward any missing information to ensure that tax compliance and filing obligations are met, or other interests are protected, and therefore the right of lien may be largely irrelevant in respect of the core accounting records of the entity. Secondly, in the case of an incorporated client, insofar as any of the documents held by the outgoing accountant constitute the accounting records of the company, then company law requires that these should be returned to the directors of the company. The fact that the outgoing accountant has not been paid does not affect either of the obligations mentioned above. Insofar as the accountant proposes to take a lien, this only applies to documents that have been worked on and for which the accountant has not been paid. In the case above, it would appear that the outgoing accountant is obliged to hand over the key accounting records that it holds, and to separately seek payment of the outstanding fees. The outgoing accountant should also respond to the professional enquiry letter. When we discuss the above rights and obligations with members who contact us, the members occasionally observe that the advantage appears to be with the incoming accountant. In fact, the Code of Ethics cannot override the obligation of the client to comply with legislation, or give the existing accountant rights that contradict company law. The message that members should draw is that their rights to refuse cooperation in the event of non-payment are quite limited, and they should organise their credit control policies accordingly. Many firms have a policy of limiting their exposure to large outstanding fees through direct debit and staged payment arrangements with clients. In the case of audit clients, the incoming auditor has certain rights to access information held by the outgoing auditor. The circumstances in which these rights apply differ slightly between ROI and UK, but are a legal right of the incoming auditor, and the application of them differs somewhat from the ethical obligations discussed above. If you have questions in connection with this issue or other practice related issues or dilemmas, please contact Practice Consulting and we will endeavour to give you the information and guidance that you need.

Members of Chartered Accountants Ireland are annually required to confirm that they are aware of their “obligations as set out in the Code of Ethics for members”. Accounting firms are required to indicate in their annual return whether they have “taken steps to ensure that all Principals, Employees and Subcontractors fully comply with the Institute’s Code of Ethics for Members”. A glance at the Regulation section of Accountancy Ireland reveals that non-compliance with the Code of Ethics is a frequent finding leading to disciplinary action against an individual member or firm. So how do you ensure you and all in the firm are familiar with the obligations as set out in the Code of Ethics? While reading the Code of Ethics is a good starting point, the current version is a long read at 202 pages, 261 if you include the obligations applying to insolvency practitioners. Recent research and engagement with accounting professionals on ethics has consistently identified training and illustrative case studies as the preferred supports for increasing familiarisation with the Code of Ethics. Professional accountants have expressed a preference for real-life examples and case studies which allow them to consider ethical dilemmas in a practical way, relevant to their own experience. The recent publication of five sets of ethical dilemmas case studies by the Consultative Committee of Accounting Bodies (CCAB), of which Chartered Accountants Ireland is a member, is a welcome response to this need. The case studies, which are applicable in both UK and Ireland, illustrate how the Code of Ethics can be applied by members working in business, not-for-profits, the public sector, public practice, and as non-executive directors. Each set contains several case studies tailored to reflect ethical dilemmas that can arise in the course of their professional work. They are designed to outline key principles and processes that can be considered when attempting to identify, evaluate and address ethical threats in line with the Code of Ethics. While more than one set of case studies may be relevant to an individual member, members in practice will appreciate the case studies exploring a range of ethical dilemmas tailored for professional accountants in public practice. This set explores the following ethical dilemmas: Case Study 1 explores the dilemma faced by a manager in relation to a very competent junior member of staff whose personal circumstances require her to take regular absences from work. This is having a negative impact on her colleagues, who are vocal about being overworked. Like other case studies in the set, it works through the dilemma in a structured manner, consistent with the conceptual framework outlined in the Code of Ethics, to: consider which of the five fundamental principles (integrity, confidentiality, professional behaviour, objectivity, professional competence and due care) are under threat; consider the relevant facts, which also involves seeking out information rather than solely relying on the information presented prima facie; identify affected parties, including considering the culture and reputation of the firm; determine who should be involved in the resolution and whether to consult with a colleague, external expert, or other trusted advisor; determine a possible course of action and implement, with the advice to document the steps taken in resolving the dilemma in case your ethical judgement is challenged in the future. Case Study 2 presents a dilemma faced by a partner in a three-partner firm. He discovers a client is not recording certain cash sales in their accounts. The case study examines the practical considerations including how to communicate the issue with the client and possible actions to take if the client is not receptive to the news. The commentary includes an outline of a thought process that prioritises the reputation of the firm, the five fundamental principles of the Code of Ethics, and relevant laws and regulations, to decide on the best advice for the client. This case also highlights the importance of considering legal reporting obligations, particularly in relation to anti-money laundering legislation and fraud. Case Study 3 tackles an ethical dilemma facing a sole practitioner who loses a local small business client (Company A) and is subsequently approached to help a local competitor of Company A (Company B) make an offer to buy their former client. This dilemma is compounded by the fact that Company A is struggling financially but this is not common knowledge. Also, the sole practitioner is acting as an alternate/continuity provider for another local sole practitioner, who is convalescing after a medical treatment. Company B is a client of the other practitioner. This case is a good example of how there can be several dimensions to an ethical dilemma, and the benefits of having a structured process in addressing such dilemmas. In Case Study 4, an accountant is advising a medium-sized group on a range of improvements to its operations and systems. After identifying a range of issues and preparing a report estimating the costs, the accountant becomes aware that the director with whom they are liaising has significantly understated these in a separate report to the board. The director does not share the accountant’s report with the board. This case requires consideration of to whom the accountant owes their fiduciary duty, and how they might discharge their duties and effectively manage their professional relationship with the client. Case Study 5 outlines a scenario in which a trainee accountant in a firm has been tasked with completing some complicated work within a very tight deadline in the lead-up to them taking study leave. While there are lessons to be learned for both parties, the case highlights that certain behaviour, which itself may be unethical, may give rise to further unethical behaviour directly impacting the quality of work for clients. In Case Study 6, a three-partner firm has a large audit client to whom it also provides non-audit services. There are substantial fees outstanding from the client and significant going-concern issues arise. Several issues are explored in this case, including that the audit planning section was not appropriately reviewed, that key information was missed, and that there is pressure to provide the bank with a clean audit opinion so it can extend the company’s overdraft facility. This is a situation in which more than one set of ethical obligations require consideration, in this case the Code of Ethics and the Ethical Standards for Auditors. Case Study 7 addresses suspected non-compliance with laws and regulations (NOCLAR), including bribery and cover-up of breaches of environmental laws and regulations, and considers any legal reporting obligations for the firm. The case highlights real issues that can arise, including dealing with pressure from clients to disregard any suspicions of noncompliance, desire to disassociate from illegal or unethical activity, deciding whether to override client confidentiality and report suspicions to the appropriate authorities, and balancing duties to the client with the public interest with safeguarding the reputation of the firm. CCAB’s Ethical Dilemma Case Studies provide an interesting and illuminating way to engage with the Code of Ethics while also increasing awareness of some threats to ethical conduct that can arise in an accountancy firm. Members are encouraged to use, read and apply them, and they can also be used by firms and/or training providers provided they are appropriately referenced. The case studies and other resources that can assist members in considering ethical dilemmas can be found on the Chartered Accountants Ireland Ethics Resource Centre. Níall Fitzgerald FCA Head of Ethics & Governance at Chartered Accountants Ireland

Kieran Moynihan explains how boards, and non-executive directors, in particular, can optimise decision-making during times of crisis.A veteran non-executive board director (NED) recently shared valuable insights into the workings of an experienced board dealing with the severe impacts of COVID-19 on the organisation. While this is quite an experienced board with battle-hardened veterans in both the executive and non-executive ranks, he indicated that they collectively struggled with the enormity of the challenge facing the organisation.While the board was quite mature in terms of risk management and business continuity planning, several significant decisions were required in a very short time frame. He was extremely complimentary of the efforts, understanding and commitment of the employees to the organisation as well as the outstanding leadership shown by the CEO and executive team. He also highlighted how much the NEDs “rolled up their sleeves” and provided great support in reviewing, challenging, and providing valuable input to the crisis management plan. He highlighted that the CEO witnessed a “new side” to the board whereby it demonstrated a huge commitment not only to the organisation, but in supporting the CEO and executive team as they implemented an elaborate crisis management plan under severe pressure.Unfortunately, some boards have not performed as well during the crisis. The core problem, I believe, is often the calibre of board members. Some are not strong enough to cope well in an emergency to add any strategic value to the executive team. This scenario continues to play out in boards across the world where, in some cases, board and executive teams have faced existential challenges in terms of their organisation’s survival. Amid the devastating impact on employees, an organisation’s financial health, and its shareholders and stakeholders, boards must stand up and be counted like never before.The following definition of crisis management from Deloitte caught my eye recently: “Crisis management is a special, strategic discipline that enables an organisation to leave ‘business as usual’ behind, and to enter a different mode of governance and operations, designed to get decisions made, implemented and communicated quickly, with clear – but different – designated authorities.” While a board has many broad types of responsibilities, the fundamental duty of a board is to make significant decisions. At a time of extreme crisis management, this acute responsibility comes to the fore. It represents a real test of a board of directors in terms of its calibre, decisiveness, effectiveness, judgement, and performance. The following factors can help a board optimise decision-making in the eye of a storm.Quality informationThe brutal reality of the COVID-19 crisis is that major decisions must be made in compressed time frames of days or, in extreme cases, hours. Many of these decisions have serious consequences for the organisation and its employees, customers, shareholders, and stakeholders. Board chairs have a critical role in enabling the board to overcome these compressed review/decision cycles and drive coherent and decisive decision-making.In normal times, quality information is the lifeblood of a board in terms of significant decision-making. In times of crisis, however, it is challenging for the CEO and executive team to create comprehensive board packs when you may have just 24 hours before the next virtual board meeting. In this context, quality is more important than quantity in terms of helping the board understand the logic behind significant proposals from the CEO and executive team.While not ideal, firefighting CEOs and executive teams rely heavily on gut instinct to choose from what appear to be radically different options. It is essential to provide the NEDs with your gut instincts and blunt assessment of the pros and cons of each option.Challenge, debate, and oversightWhen the stakes are high for significant board decisions, the board must maintain the highest standards of challenge, debate, and oversight. A CEO and executive team under severe pressure could undoubtedly get a big call wrong or struggle to create a coherent proposal for consideration by the board. Despite the challenging time frames for decision-making, NEDs must prepare for board meetings, ask hard questions, and add genuine value (in some cases, by identifying additional options or variations/combinations of options that will help the executive team see the wood from the trees).The board chair has a vital role in balancing the level of challenge, debate, and oversight with supporting the CEO and executive team. Genuine board diversity has been a very positive strength for boards as the broader range of thinking styles has enabled greater left-field thinking and more creative problem-solving, while significantly reducing the potential for group-think. At such a crucial time, shareholders, employees and stakeholders rely heavily on NEDs to provide such critical challenge, debate, and oversight to reach the best decisions.The trust equationThe COVID-19 crisis is testing the bonds in many board teams. In such fraught times, tensions can morph into damaging conflict, which boards can do without. While some high-performing board teams have managed this challenge in their stride, this crisis has also galvanised many board teams around a common purpose.A crisis of this magnitude shines a bright light on the ‘trust equation’ of a board. It can be challenging in such a volatile landscape, with so much uncertainty in each sector, to make concrete decisions. Decisiveness, however, is nevertheless a vital trait for a board in crisis management situations, and it is much more effective when the trust quotient is high. In order to strengthen trust, boards can extend a greater degree of latitude than normal to the CEO and executive team, enabling them to provide timely, insightful updates back to the board on the progress of major decision implementation.Changing courseOne of the most challenging aspects of the crisis for many company boards has been facing up to the requirement in specific sectors to make significant changes to the company’s business model and strategy. For companies that had a dominant market position for many years, it can be challenging to face up to the reality that the market has changed, customer requirements have changed, and in some cases, barriers to entry have been lowered with disruptive new technologies.'Independence of mind' is a critical quality in a NED whereby the board director who is not involved day-to-day is able to step back, take a cold, objective view on the organisation’s position, assess the options and implications of a major proposal being put forward by the CEO and provide a sound independent judgement. In this scenario, where an organisation is facing severe challenges to its existing strategy and business model, independence of mind in the NEDs plays a critical role as it can help the board and executive team face up to and address severe challenges to the existing strategy. Some boards might hope that everything will go back to normal but, for most sectors, things will never be the same. As a result, the organisations that adapt will stand a much higher chance of thriving in the years ahead. Throughout the crisis, I have seen several progressive NEDs utilise this time as an opportunity to evolve the overall mindset and level of ambition in the organisation. NEDs are ideally placed to catalyse this evolving growth mindset as in the majority of cases, the CEO and executive team are in firefighting mode and struggle to have the bandwidth to think strategically and grasp the growth opportunities that the organisation could be presented with.External expertiseWe are in uncharted waters in terms of crisis management. As a board gears up to make big decisions, it is vital that, where appropriate, key shareholders and stakeholders are consulted. They will be forced to live with the consequences of the board’s decisions for years to come.Besides the fact that this is the right thing to do, engagement builds support and is formally required in some instances. It will also provide valuable feedback that, in specific scenarios, may be incorporated into the board’s thought processes.It is also vital that, where needed, external expertise is sought to assist with significant decisions. This might be an existing advisory partner who understands the organisation and sector, or an independent sector expert who could provide an objective assessment of the options.Avoid ‘all-in’ decisionsI play chess at a competitive level, and one of the things you learn as you get more experienced is to avoid, wherever possible, making very committal decisions. This is particularly important when the chessboard is ‘on fire’ with severe complications, and it is simply not possible to calculate the variations. Instead, you seek to stay in the game and get through the next few moves. As the board position becomes clearer, you then make a more committal decision as you execute your plan.The COVID-19 crisis is changing by the hour. As governments struggle to balance the resumption of normal life with the associated public health risks, it is tough for the majority of boards to accurately predict how their sector will look in three months, not to mention one year from now. In some cases, companies are being forced to consider severe changes to their business model. Boards should avoid making premature decisions based on assumptions about how the COVID-19 crisis will influence customer behaviours, business models, and the overall business landscape. Like a game of chess, boards would be wise to develop a range of scenarios linked to the public health and associated economic impacts with appropriate trigger points.Understand the broader impactsAt the start of the year, many boards had made significant progress in increasing their focus on environment, social and governance (ESG) goals, employee engagement, and ‘doing the right thing’ in terms of focusing on the long-term, sustainable wellbeing of the organisation. This has since been severely tested in how boards signed-off on significant decisions impacting their employees, customers, and stakeholders.In some cases, the COVID-19 crisis is undermining much of the significant progress made with decisions favouring short-term shareholder interests at the expense of employees, other stakeholders, and the long-term sustainability of the organisation. Throughout the world, employees have demonstrated incredibly strong commitment and understanding to their organisations and customers. How boards respond to this commitment says a lot about the character, culture, integrity, and values of an organisation. It is encouraging to see a significant number of institutional investors highlight the importance of this for their portfolio of listed companies. In many respects, we saw ESG at its very best in the first few months of the crisis with so many employees and organisations stepping up to help society in its time of need.I strongly believe that the organisations that commit long-term to the core ESG principles of sustainability, partnering with their employees, going the extra mile for their customers and “doing the right thing to ensure the longer-term interests of the organisation” will be the organisations that flourish and thrive going into this uncertain future. The board has a critical leadership role in this. We are moving into an era where progressive boards are evolving into a far more thoughtful balancing of the interests of shareholders, employees and stakeholders. The COVID-19 crisis has crystallised the importance of this multi-stakeholder engagement model and is now firmly in the mindset of customers, prospective employees, partners and investors when they consider engaging with organisations.ConclusionSeven months on, boards continue to grapple with COVID-19 and struggle to make some of the most significant decisions ever made in the history of their organisation. Even the strongest, most high-performing boards struggle to get this right, so for any board members struggling right now, you are not alone.This is a time for board teams to pull together and work closely with the CEO and executive team. Through challenge and debate, you will collectively make the best decisions possible and help your employees, shareholders, and stakeholders envision a path to better days ahead.Key takeaways for boards and non-executive directorsAt a time of such crisis and volatility, it is vital for the board to regularly discuss what is happening with your customers, how the crisis is impacting them, how their requirements are changing both short-,  medium-and longer-term and how the organisation needs to adapt to support your customers.It has never been more vital for the executive reporting to the board to be high-quality, succinct and utilising executive summaries to enable the board members to prepare effectively for the board meeting and assist in the creation of a meeting that can focus on strategic and “move-the-needle” type discussions.Balance cost-cutting, productivity and risk mitigation with supporting innovation-led growth and strategy and business model shifts where needed.Be aware that boards are moving to agile approaches to strategy and budgeting using scenario planning and triggers that work better in situations of high uncertainty such as the ongoing COVID-19 crisis.Organisations, as they facing their greatest crisis, have never had such a strong requirement for board members to demonstrate a great work ethic and commitment to the board and organisation.Kieran Moynihan is Managing Partner at Board Excellence, which supports boards in Ireland, the UK and mainland Europe.