Ethics in accounting: Can firms restore public trust?

Over the past five years, accounting firms have faced penalties exceeding $100 million globally for lapses tied to ethical breaches, according to a report by the International Ethics Standards Board for Accountants (IESBA). These fines highlight systemic issues in leadership, governance, and culture that have eroded public trust.

The report, informed by input from regulators, professional organisations, and firms, reveals that governance weaknesses and poorly aligned incentives are at the heart of these failings.

With nearly half of consulted stakeholders representing oversight bodies, the findings point to an industry at a crossroads. Can accounting firms evolve their cultures and structures to meet the growing demand for accountability, or will they continue to risk their reputation and public trust?

Leadership: Setting the Tone at the Top

“Tone at the top” is more than a cliché—it is the foundation upon which an ethical culture is built. Firm leaders have a pivotal role in shaping behaviour across all levels of their organisations. Leadership must not only espouse ethical values but demonstrate them through actions.

As the report notes, “leaders who prioritise ethical values in their strategies, decisions, and communications exemplify those values” and inspire ethical behaviour throughout their firms.

The data speaks volumes: firms that emphasise ethical leadership experience fewer incidences of unethical conduct. In jurisdictions such as the UK and Japan, mandatory inclusion of Independent Non-Executives (INEs) in governance structures has bolstered accountability. The UK Financial Reporting Council’s Audit Firm Governance Code, for instance, mandates that INEs challenge leadership decisions, ensuring a firm’s strategy aligns with public interest.

Yet, global adoption of such measures remains inconsistent, leaving gaps in ethical oversight.

Governance: A Fragile Foundation

Significant gaps in governance, particularly in firms operating across diverse regulatory environments, continue to undermine trust. Global networks face the challenge of enforcing consistent ethical standards while managing localised commercial pressures.

One recurring issue is the lack of clarity around accountability. Inadequate monitoring of ethical performance at the affiliate level has resulted in breaches that ripple across entire networks. This tension is particularly acute in firms with multidisciplinary service lines, such as consulting and advisory, where public interest objectives often take a back seat to revenue growth.

Mandatory transparency reports in jurisdictions like the UK and EU provide a pathway for addressing these gaps. By requiring firms to disclose governance frameworks, ethical policies, and responses to breaches, these reports offer clients, regulators, and the public a clearer view of a firm’s ethical standing. However, transparency alone cannot substitute for robust internal governance systems. Firms must implement independent assessments and centralised oversight to ensure that governance structures are not only in place but actively enforced.

Incentives: Aligning Rewards with Responsibility

Incentives are among the most influential yet overlooked drivers of ethical behaviour. Poorly designed performance metrics—ones that emphasise financial results while neglecting ethical outcomes—create environments where misconduct is not only tolerated but sometimes encouraged.

A recalibration of these systems is essential. Ethical benchmarks, such as adherence to codes of conduct, client feedback, and participation in ethics training programmes, must carry equal weight to financial targets in employee evaluations. Importantly, firms must also enforce meaningful consequences for breaches, ensuring that unethical behaviour is met with tangible repercussions.

Transparency in incentive structures is another critical area of focus. In the UK, firms that openly disclose how they evaluate and reward ethical performance are setting an example for the industry. Such transparency not only fosters trust but also reinforces the message that ethical behaviour is integral to organisational success.

An Opportunity for Transformation

Leadership must take ownership of ethical culture, governance systems must evolve to meet the complexities of global operations, and incentives must reward integrity over short-term gains.

For firms willing to embrace these changes, the potential benefits are substantial. Ethical resilience not only mitigates risk but positions firms as leaders in an increasingly sceptical world.