Auditors wrestle with making ethics add up

Lord Woolf’s announcement that BAE Systems should ensure its ethical business
conduct should be included in audit reports poses something of a problem.

Ethical assurance is a great buzzword, and something everyone wants to talk
about. But what exactly is an ethical audit, and what would it look like?

Ethics manager at the ICAEW Anne Davis says: ‘It’s an evolving area. Some
companies may use surveys as part of getting assurances, or their internal or
external auditors or a mixture of all three.’

She adds: ‘The difficulty with ethics is that it’s quite subjective and
values can be interpreted in different manners according to cultural

It would certainly seem to very different from the world of checking numbers,
receipts and
bank accounts.

James Barber, accounting and auditing director at ICAS, says that the
starting point is to have a ‘code’ which an auditor can test.

‘Companies need to ensure the code they have set will not waver in approach.
If you are trading with a country where corruption and bribery are commonplace
you need to ensure that the standards you have set have remained. You need an
independent audit which will assess the organisation as a whole,’ he says.

At present accountancy firms have yet to be approached to conduct external
audits on whether a company is meeting its ethical standards.

Steve Maslin, head of professional affairs at Grant Thornton, said it was
unclear whether there would be a role for audit firms to ensure a company’s
ethical policies were being adhered to.

However, David Phillips, head of corporate reporting at PwC, who helped
produce the Institute of Business Ethics’s Living up to our values paper in
December 2006, believes auditors have a role to play.

‘If I was running a company I would periodically think I would like to get an
independent view on how real are the culture and values of the organisation. Is
what we have set as our baseline, for example our code of conduct, for our
standards actually happening on the ground?’ says Phillips.

He adds that a good auditor should look at more than just numbers and be
aware of the ‘front end’ of the valuation process.

What an external auditor could look for in an ethical audit:

? Unambiguous methods of assessing the integrity of clients and suppliers

? Clear measures for everyone to understand the law and ethical environment
of the jurisdiction they are doing business with and that they are appropriately
applying these laws;

? If money is going out of a company’s bank account is it going to the
appropriate people and do they know who is it going to and that they are the
right recipients?

? Whether the whistle blowing scheme is working

? Evidence that senior management is reinforcing words with concrete actions

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