What’s the Scenario?
Emma, a CIMA-qualified Finance Director, works for a large advertising firm that is currently struggling financially. The company has a substantial unpaid tax liability to HMRC. The CEO, who is eager to sell the business, pressures Emma to present a more favourable financial position. While he does not explicitly tell her to omit or downplay the tax liability, he does suggest that the final draft of the report should, if possible, avoid including anything that might deter potential buyers, as there are a few lined up.
Emma and several other executives, including the CEO, hold shares in the company. If the sale goes through, they all stand to gain a significant financial windfall. Emma is conflicted—if she complies, she might secure a large personal profit, but if she refuses, she could face professional repercussions, including being sidelined or even let go from her position.
Response and Guidance:
Emma must consider her ethical and professional responsibilities under the CIMA Code of Ethics. The Fundamental Principle of Integrity (R111.1) demands that Emma must be straightforward and honest. Presenting false or misleading financial information would undoubtedly violate this requirement. Section R111.2 of the CIMA Code of Ethics explicitly prohibits members from knowingly providing information that could mislead or omit material facts. Downplaying the company’s tax liability would most certainly mislead potential buyers and be a breach of this provision.
The Fundamental Principle of Objectivity requires professional accountants to avoid bias, conflicts of interest, or undue influence (R112.1). The fact that Emma, and some of her colleagues, could be due a significant personal gain from the proceeds of sale provides grounds for her objectivity to be clouded.
It must be said that Emma will need to make sure that she and the company comply with relevant laws and regulations, including accurate tax reporting to HMRC. Misrepresenting the financial health of the company could be considered fraudulent reporting, which could carry stiff legal penalties. Further, CIMA members are expected to avoid any conduct that might discredit the profession (R115.1). Submitting a misleading financial report would almost certainly have the impact of casting a negative light on not just herself as a professional accountant, but on the wider profession.
In these circumstances, it is important to recognise the reality of the pressure Emma would be feeling. It is not always easy to push back when facing pressure from senior executives to stretch or obfuscate the truth. That is why it is important to think things through in a pragmatic way.
Firstly, Emma may wish to take a moment to stop, pause and think. Not just about the immediate ask, but also about the wider ramifications. If she did what the CEO has asked, how would it look, to close friends and loved ones, if it got out that she was complicit in this behaviour? If she did manipulate the report and it became public knowledge, how would the press report on it? Coming under that level of scrutiny would most certainly be unwelcome.
Managing upwards is a useful skill for all people in the workplace. Being able to speak with the CEO and explain the broader ramifications of complying with his request in a manner that resonates could be beneficial to Emma in these circumstances. Emma could remind him that she is employed for her expertise as a CIMA Management Accountant and that same expertise is part of the basis for suggesting a different approach. She could remind him of past examples where businesses have taken the suggested approach and ended up in serious legal and financial trouble, emphasising the risks of prosecution and the harm of reputational damage. Emma could propose a plan to deal with the debt, in order to make the company more valuable in the long term. She could suggest discussing options for restructuring operations or contacting HMRC to work out a payment plan that would not jeopardise the company. This is where Emma’s skill as a Management Accountant could start to show. Rather than just walking away in the first instance, she has the potential to impact the company in a positive way.
It is easy for some people to hear about companies engaging in business worth significant amounts of money and feel detached from the reality of the damage financial crime can inflict. But losses resulting from financial crime can have devastating effects. Businesses going bankrupt, ordinary people losing their jobs, and being unable to pay their bills or look after their loved ones. Financial crime is far from victimless.
If after pushing back, the CEO insists she prepare a misleading report, Emma should refuse to have her name listed as an author of the misleading report. She should document her advice to the CEO and her concerns surrounding the risks associated with the proposed report.
Depending on how matters play out, Emma may need to consider whether she has a duty to report concerns to HMRC or relevant regulatory bodies, as per Section 260 of the Code on responding to non-compliance with laws and regulations (NOCLAR).
Emma must prioritise her professional and ethical responsibilities over personal gain. Upholding ethical standards protects her reputation, and that of the wider profession; Ensuring that she remains compliant with the standards expected of a professional accountant, as well as her legal obligations.