More Talk, More Action: A Changing Role for Corporate Boards and CPAs

EXECUTIVE SUMMARY * THE INCREASING FOCUS ON ETHICS HAS CREATED an opportunity for CPAs to help their companies foster a corporate culture that promotes ethical decision making. It also has encouraged more boards of directors to be involved with hiring internal audit and other accounting employees with financial reporting and control responsibilities. * CPAs NEED TO CONVEY THE CONCEPT OF AN ETHICAL corporate culture to a broad range of people including the board, management and other employees. They can do this by setting the tone and delivering the message that an ethical approach to decision making is important. * CPAs SHOULD PARTICIPATE IN DEVELOPING their company's audit committee charter by offering input on internal controls and oversight of the accounting and financial reporting processes. * NPOs AND PRIVATE COMPANIES ALSO ARE REEXAMINING their approach to ethics as states consider applying elements of Sarbanes-Oxley to these entities. Even though they aren't required to do so, a number of private companies are reviewing their ethics and compliance policies, especially those looking ahead to possible public offerings or sales to public companies. ********** To secure her position as director of internal controls and audit with Comfort Systems USA Inc., CPA Melissa Frazier met with most of the executive management team as well as with members of the board of directors' audit committee. audit committee hired me, she says. Officially, I report to them, although administratively I report to the CFO. As with many internal audit directors, Frazier's role includes helping the company's accounting staff members understand how ethics apply to their day-today responsibilities. Frazier's experience with the $785 million provider of commercial and industrial heating and ventilation systems isn't unique. Industry observers agree that because of their understanding of financial reporting and their view into operations, CPAs often are in the best position to take the lead in helping their companies develop a vigorous ethical culture. Thus many corporate boards--influenced by the Sarbanes-Oxley Act of 2002--are taking a more active role in ensuring companies implement and follow sound ethics policies. Given that most ethical dilemmas in the workplace have a clear financial dimension, board members now are more involved in hiring internal audit and other accounting employees. There has been, and will continue to be, increased interaction between the audit committee and an organization's financial people, says Curtis Verschoor, professor emeritus of accounting at DePaul University in Chicago. This article will show how the focus on ethical corporate behavior is affecting accountants in businesses as well as in not-for-profit organizations (NPOs). It also will review the changing relationship between accounting staff and boards of directors and identify some best practices CPAs can follow to foster a corporate culture that promotes ethical decision making. SURVEY SAYS... A 2004 survey by the Conference Board showed CPAs how the increased focus on corporate ethics is reshaping the responsibilities of corporate boards--and CPAs--in companies around the globe. The New York-based research organization published Ethics Programs--The Role of the Board: A Global Study in February 2004. The survey examined the activities of boards of directors at 165 companies in the United States, Canada, Great Britain, India, Japan and Western Europe. (For details on survey results, see Board's Pole in Ethics, page 72.) Several factors are behind the increased board involvement in ethics programs revealed in the survey. Clearly the shift is one result of the implosions at Enron, Adelphia Communications and other companies, as well as the passage of the Sarbanes-Oxley Act. Any company listed on the New York Stock Exchange must comply with the Sarbanes-Oxley requirement that audit committees establish procedures to handle complaints concerning accounting, internal controls and auditing matters. …

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