Cover storyStavros Thomadakis

Stavros Thomadakis is emeritus professor

of financial economics at the University of

Athens. For many years, he directed the university’s graduate

finance programme on applied accounting

and auditing

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SETTING A HIGHER

BARStavros Thomadakis, Chair of the International Ethics Standards Board for Accountants (IESBA), tells George W. Russell about his priorities, the challenge of technology, and the lessons to be learned from the crisis in his Greek homelandPhotography by Jeff Singer

S tavros Thomadakis doesn’t have to look far to see how relevant ethics are to

national economies. The veteran Greek policymaker, Chair of the IESBA since January 2015, believes that his homeland’s on-going finan-cial crisis is a lesson for the world.

Now based at the IESBA head-quarters in New York, Thomadakis says he has been appalled by the events that have unfolded since the beginning of the global financial meltdown in 2008. “Greece has undergone a crisis caused by over-indebtedness and fiscal mismatch.”

“I think there’s a big lesson from Greece in that transparency and fiscal accountability in the public sector are very important – maybe even more so than in the private sector,” he concludes.

The IESBA chief says elected officials and public servants need to be made accountable for the way they spend taxpayers’ money and how they manage economies. “We talk about public interest, but if there’s something in the public interest, it’s that.”

As IESBA chair, Thomadakis is an important player in the debate over setting ethics for accountants in the post-global financial crisis environment. “I believe that within the public sector we should have the same high levels of ethics and accountability as those we’re trying to promote in the private sector.”

Strong accounting standards can underpin a healthy ethical environment, he says. “I’m very supportive of International Public Sector Accounting Standards. And if you have such a set of standards, they will help promote ethical behaviour, which is also very much needed within the public sector.”

To be sure, some recent head-lines at home and abroad – from clinical drug trials to construction bid rigging, and academic integrity failures to sports doping – make it appear that the world is facing an overall ethical crisis.

But Thomadakis cautions against over-reaction. “The way I see things, we are not in a particularly unethical era, but the world is emerging from a global financial crisis and a reces-

sion and, in times of crisis, ethical conduct comes under greater stress,” he explains. “I must say the media always has an appetite for the sala-cious, which includes both financial and other types of unethical activi-ties,” he adds.

Fortunately, he says, there is more scrutiny in times of apparent upheaval. “What the general public needs to understand is that scandals and unethical behaviour come from a minority of the population of accountants and we are trying to make them an even smaller minor-ity and hopefully eliminate them altogether.”

Ordering the outputThomadakis, who succeeded the late Jörgen Holmquist, is no stranger to the ethics organization. From 2005 to 2011, he was the first chair of the Public Interest Oversight Board, which oversees the activities of three of the independent standard setting bodies supported by the International Federation of Accoun-tants, such as IESBA.

“Our principal role is that we’re

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Cover storyStavros Thomadakis

the independent international stan-dard setting board and we work to set clear, high-quality, global stan-dards that can be applied in every jurisdiction around the world,” Thomadakis says.

IESBA’s centrepiece is its Code of Ethics for Professional Accoun-tants (the Code), adopted or other-wise used in more than 100 juris-dictions. “Part of our central role is that we engage with stakeholders to promote adoption of the Code, as well as effective and consistent implementation,” he adds.

As chair, Thomadakis sees his main role as leading IESBA’s activities. “That means a lot of coordination, a lot of synthesis, a lot of consultation, and I would say the management of timely production and delivery of our outputs.”

That output is the product of the IESBA Strategy and Work Plan, 2014-2018. “We’re right in the middle of that,” he says, adding that as chair, his goal is to try to achieve the work plan’s objectives. “It’s quite a big list of things.”

One of the biggest items on the list was IESBA’s new standard, Responding to Non-Compliance with Laws and Regulations.

Known as NOCLAR, this standard has stirred controversy over the six years since a project to develop it was first approved. The standard represents the first time the Code has allowed professional accountants to bypass the funda-

mental ethical principle of confi-dentiality. “This is a standard that needs the auditor or other accoun-tant to respond to non-compliance with laws and regulations up to the point of disclosing it to a relevant authority in the appropriate circum-stances,” Thomadakis explains.

“This new standard is expected to have a strong effect and sig-nificant repercussions in the public interest,” he says, “not only in the sense that it will stimulate disclo-sure of non-compliance to public authorities, but also in preventing it because clients or employers will know that auditors and other professional accountants have a responsibility to respond.”

NOCLAR, says Thomadakis, is uncharted territory for IESBA. “This is a ground-breaking standard,” he acknowledges. “We are planning to provide implementation and support tools in the form of questions and answers, video presentations, inter-views and explanations, so users will have a lot of assistance.”

Éthique sans frontièresIn February 2012, IESBA estab-lished a working group to examine whether strengthening part C of the Code would better promote ethical behaviour by professional accoun-tants in business, who play a funda-mental role in financial reporting and facilitate effective corporate governance.

“We are doing some work in revising this part of the Code and renewing it,” says Thomadakis, “dealing precisely with the respon-sibilities and behaviour of accoun-tants, especially those in high corporate positions. I do believe that tone at the top is very important in shaping corporate culture and behaviour and critical to the effec-tive implementation of our Code of Ethics.”

Non-accountants who are in corporate leadership positions are, of course, outside the remit of the Code, but Thomadakis believes that should not be an obstacle. “There is a role that professional accountants in busi-ness can play to influence the culture where they work,” he says. “Corpo-rate culture and ethical behaviour are very highly interlinked.”

Good corporate culture, he adds, knows no national boundaries. “We at the ethics board, and I personally share this view, believe that the fun-damental ethical principles reflect universal ethical values.”

Thomadakis concedes, how-ever, that the circumstances

IESBA Strategy and Work Plan,

2014-2018, lays out four

interconnected strategic themes

that articulate the board’s vision over the medium to longer term:

maintaining a high quality Code of Ethics

for Professional Accountants

for application by professional

accountants globally;

promoting and facilitating

the adoption and effective

implementation of the Code;

evolving the Code for continued relevance in a

changing global environment; and

increasing engagement and cooperation with key stakeholders.

“ There is a role that professional accountants in business can play to influence the culture where they work.”

The IESBA Code of Ethics for Professional Accountants establishes principles of ethics for the

2.8million

professional accountants – whether in public practice, in business, education, or the public sector – who are

members of IFAC member bodies.

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“ Like most things in life, good friends sometimes agree to disagree so obviously in terms of that type of process it can be time consuming.”

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Cover storyStavros Thomadakis

under which the IESBA principles are applied might differ between countries. “We have to be sensitive to national conditions and pecu-liarities in the manner of applica-tion,” he says.

He accepts that global har-monization of ethics standards is difficult. “As a result of the global financial crisis, we have a lot of diversity that was created in the world,” he says. “Various national jurisdictions took their own initiatives, promulgating various standards. But even in jurisdic-tions that have promulgated their own standards, the Code can act in a complementary fashion with national standards. This is a com-plicated job and we’re doing a lot of outreach in order to achieve this.”

Thomadakis says he will continue to engage with global stakeholders during his three-year term. “My role is also to represent IESBA to mould deeper understand-ing by stakeholders, and the public at large, of our strategy, activities and our mission, and to develop and maintain effective relationships with regulators, preparers of finan-cial statements, the investor and corporate governance communities, jurisdictional standard setters, such as the Hong Kong Institute of CPAs, and the accounting profession.”

Overall, he is optimistic about IESBA’s potential global influence. “Standards do support a high level of ethical conduct,” he maintains. “They do have a strong effect and make a lot of difference in harmo-

nizing behaviour across jurisdic-tions around the world, which is in itself important.”

Technological challengesLooking to the future, Thomadakis is keen to clear the current slate so the board can prepare for the next IESBA strategic work plan for 2019-2023. “Besides restructuring NOCLAR and part C of the Code to enhance its usability and under-standability, we have two other projects,” he explains.

“One is what we call long association, dealing with partner rotation rules that we are trying to enhance and strengthen in order to deflect the threat to independence that comes from familiarity.”

The other priority is impor-tant work on what are called the safeguards that apply in every audit engagement. “This is in order to maintain the independence of the auditor and the compliance of the auditor with our fundamental principles,” he adds.

The net result, Thomadakis points out, will be almost a new Code of Ethics. “Our primary objective is to continue to work on raising awareness of the Code and building trust, which is a very important public interest tool,” he says. “I see IESBA’s role, and my role, as keeping a very open mind in dialogue with the various com-munities of stakeholders.”

The use of technology is wide-spread in auditing and account-ing. Standard setters are therefore

increasing their emphasis on new technology. “Digitalized processes must be scrutinized, lest they are built in with unethical responses,” he warns. “In preparing for our next strategic plan, we will engage in a lot of international discussion about strategic priorities, which will, as well as issues of technol-ogy, include globalization, regula-tory diversity and harmonization.”

“ Standards do support a high level of ethical conduct. They do have a strong effect and make a lot of difference in harmonizing behaviour across jurisdictions around the world.”

Thomadakis was the first chair of the Public Interest Oversight Board (2005-2011), which oversees the activities of the IESBA and other standard setters

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From an academic standpoint – Thomadakis is emeritus profes-sor of financial economics at the University of Athens and for many years directed the university’s graduate finance programme on applied accounting and auditing – he is counting on the new genera-tion to promote ethics. “This is where we should exercise thought leadership,” he observes.

“The good thing about the Code is that it is principles-based, so it applies in all operating environ-ments and I am very hopeful that the new generation of accountants, which will be using a lot more digital technology, will at the same time combine ethics and digital technology in better fashion.”

Thomadakis believes the next generation of CPAs will look at

the Code not as a burden but as a goal. “I and my colleagues at the ethics board hope they will approach the accounting profes-sion knowing that it is being held up to higher standards of ethics,” he says. “This new generation has greater ethical aspirations, and ethics will become a mag-net for good young people to join the profession.”

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