Two Firms Launch New Ethics Programs

BKD, Moss Adams aim to ensure high ethical tone throughout firms.

oss Adams LLP in Seattle and BKD LLP in Springfield, Missouri, are striking out for a new frontier in CPA firm management—formal ethics oversight. Their approaches differ—Moss Adams hired a single individual to act as an independent ethics officer, and BKD formed an advisory council of independent experts. But the aim is the same: to ensure the high ethical tone at the top of the firms is filtering through the organizations to clients and the public.

Robert L. Bunting, Moss Adams chairman and incoming AICPA chairman of the board, and William E. Fingland Jr., BKD managing partner, were at the AICPA’s New York offices for an Institute strategic planning committee meeting. The two firms, which are among the ten largest in the United States, had just issued a press release on their newly instituted oversight programs, and the Journal of Accountancy wanted to learn more about what prompted them to take this step and how they envisioned the process working.

Rick Telberg, editor at large, led the discussion with Bunting and Fingland. Here are the highlights of the interview:

JofA: Why introduce a formal ethics oversight function just now?

Fingland: The profession is under tremendous scrutiny and oversight. So this is just an evolution in a series of steps to do things the right way and find the processes that help us focus on doing just that.

Bunting: It’s one thing to talk about integrity; it’s another for people to believe leaders practice integrity and to buy into the idea that ethics in business and the integrity of business are quintessential success factors.

JofA: Are CPAs uniquely positioned at this point in history to be the ethical guides to corporate America?

Bunting: Yes, CPAs have the opportunity to be truth-givers, to be the honest broker.

Fingland: The CPA can set the example that integrity is not just about doing the right thing—it is about developing processes that help you get to the right answer.

JofA: You’ve each chosen different routes on how to approach this within your firms. Let’s compare and contrast.

Bunting: We agreed in principle and on the overall objective, which is to have an independent process to look inside our organizations and give us feedback on whether the tone we try to set at the top filters all the way through the organization.

Fingland: Absolutely.

Bunting: And having established that objective, we both agreed there probably was more than one way we could accomplish that.

JofA: At Moss Adams you went with a single individual.

Bunting: We wanted a lead person who could use his or her own staff to do research and surveys. And we saw this person as akin to an ethics partner, who would identify projects such as staff surveys, interviewing our director of auditing and accounting, interviewing our tax people and participating in certain committees—for example, our governance and compensation committees.

Fingland: I don’t think the differences in our approaches should in any way be seen as a difference in what we’re trying to accomplish. Because the BKD and Moss Adams firms are similar, we compare notes and evaluate best practices. The important thing is that this is very new ground for CPA firms to venture into.

JofA: How do your partners like it?

Bunting: One of the things that really struck me when I broached the idea with our board members was that they were enthusiastic about it right from the start. It clicked with everybody.

JofA: Bill, how did you present it to the board?

Fingland: I wrote a memo—a white paper—and we spent a couple of meetings talking about the particulars of our approach. We almost immediately concluded the overall concept was a great one.

JofA: I assume both firms already had internal quality control functions set up. Does this take the place of that?

Bunting: No. We have partners in charge of that. But the opportunity to complement the firm’s quality control partners with our public interest observer, and to have a place where employees and other partners can speak without having that “partner-employee” relationship, is an important safeguard to add to what we’re doing in quality control. It doesn’t replace it.

Fingland: I agree. The critical thing is you’re not trying to replace any of the traditional quality control or client acceptance or risk management processes. Instead, what you’re trying to do is make them more objective. You want someone completely independent.

Engagement Letter From Independent Observer to Moss Adams
Scope of Representation

You are retaining us to serve as an independent observer of your governance processes to assist you in evaluating various aspects of your efforts to build legal, safe and ethical standards for your partners, managers and other employees. The scope of our representation will be limited to the following activities:

  1. Attending a familiarization and orientation meeting with Robert Bunting and Rick Anderson to learn how the Moss Adams’ Executive Committee (“EC”) functions and understand the “safer place” initiative. This step will include a review of the EC team agreements, the allocation of CEO, COO responsibilities, and “The Competitive Edge,” among other documents;
  2. Attending and participating in the majority of the EC meetings;
  3. Meeting with the directors of tax and assurance to understand Moss Adams’ client acceptance and continuance processes and values;
  4. Interviewing members of the CG peer review team to gain insights as to how Moss Adams compares to other firms it may select in terms of its approach to risk management and integrity;
  5. Interviewing up to a dozen partners (perhaps in connection with the tax and assurance conferences to save on time and travel) across the spectrum of risk profiles identified in Moss Adams’ recent risk assessment to gain a perspective on how well its message has been communicated and received by its partners;
  6. Possibly conducting similar interviews with managers and senior managers to gain their insights regarding how they see the leadership giving effect to Moss Adams’ stated principles;
  7. Meeting or discussing with persons in similar positions with other accounting firms selected by Moss Adams (if such persons exist); and
  8. Presenting confidential findings and recommendations to the EC and possibly to partners or other groups.

By way of further clarification, this letter will confirm that you have specifically not asked that we provide assistance with any of the following:

  1. Investigating any potential issues of illegal or unethical behavior discovered in the course of this representation;
  2. Advising as to issues of compliance with any accounting or other rules or requirements whether promulgated by the SEC, FASB or other governing authority; or
  3. Providing legal advice on issues discussed at EC meetings except as they may directly relate to issues of ethics or except as they may be specifically and expressly requested of us during or in connection with such meetings.

While either party can terminate our representation at any time, we anticipate that the term of this arrangement will commence on December 1, 2003, and continue through November 30, 2004. At that point we understand that we will discuss the basis, if any, on which it may prove desirable to continue the relationship.

JofA: How has the community of clients, prospects and the public reacted to what you’re doing?

Fingland: The reaction to the public interest council has been surprisingly positive because it allows us to talk about something that is unique to BKD and differentiates us in the marketplace from other firms that might also provide a good quality audit or other kind of product to the client.

Bunting: The average business doesn’t know we’re overseen by state boards of accountancy, by the PCAOB, by the AICPA and all the other regulators that look at our work. So when you publicly announce that you’re going to have this independent person look at your practices and give you feedback on them, it has a pretty big impact on how the firm is viewed.

JofA: So what exactly will this public interest council at BKD and this independent observer at Moss Adams be doing with their time?

Fingland: The council’s first step is to go to our offices and talk with partners and staff at all levels about BKD, about our values and about the tone at the top. That will be done in the next 30 days.

The chairman of the council—who, by the way, was elected by the council members, not appointed by BKD—will be talking with me on a regular basis, and the members will continue to interact with me. But, equally important, they also will interact with other people in our organization one on one. They will work with the partners in charge of each of our practice units. They will work with the other quality control people in our central administrative firms. I want them to have the ability to “enter” our organization at any level they want as directly as they want to do it.

JofA: At Moss Adams, how does the process work?

Bunting: Our independent observer attends all our board meetings and has been doing so for about eight months. He has an engagement letter [see extract below] and a work plan that addresses our objectives without telling him specifically with whom he should talk. But we want him to interact with our whole quality control infrastructure. We want him to talk to rank-and-file partners at practice offices, and we want him to interview staff at all levels.

JofA: What resources and recourses do these entities have?

Fingland: Well, they have the resources of their staffs. One of the members, for instance, is a managing partner of a large regional law firm, so he has the resources of the firm to tap into. Another is a professor at a university, so he has those resources.

We have a budget in the six figures, but beyond that, we are so new to the process that I can’t tell you whether that budget is going to be way too much or too little. We’ll have to wait until we see the council’s work plan and can make assessments of what the actual budget needs to be.

JofA: Are the council members independent in the way a CPA would understand independence?

Fingland: I would hope that they would be considered independent—they’re not employees. When you look at their past efforts and what they have been involved with, you would have to sense they are independent. We handled their compensation by providing the council with all the budgeted dollars; they will decide how to allocate those among the three of them. BKD is not making that decision.

JofA: Does the council have the power to go public—to resign, for example, with a press release?

Fingland: They clearly have the power to resign, and I suppose they could issue a press release. But the material they will be looking at is confidential. What we’re looking for is what is down there that otherwise isn’t bubbling up.

Bunting: We have a slightly different situation. Because our independent observer is the dean of a business school and a professor, he wanted the right to publish some of his observations and experiences resulting from the process. We gave him that right with the proviso that he not name names so no one would feel a potential embarrassment might interfere with his or her ability to be forthcoming.

JofA: How do you deal with the issue of liability? Do they have something similar to directors and officers (D&O) insurance?

Fingland: The council members are named on our insurance policies.

JofA: Do the council members and the observer meet the clients?

Fingland: Interestingly enough, the council members asked at their first meeting whether they would have the authority to go talk to a client post-engagement—and we said, “Sure.” They need to understand how we conducted ourselves in the field and how we interacted on ethical decision processes, so it’s important they have the ability to talk to a client.

JofA: Is it the same with the independent observer?

Bunting: We don’t have any prohibition or any intent to prohibit him from talking to clients.

JofA: Are you setting, in effect, a new standard for other CPA firms?

Fingland: I’m not trying to set any standard for other firms beyond talking about the tone at the top in my organization.

Bunting: The lion’s share of all firms practice with integrity. They believe in ethics. They understand the value proposition of the “trusted adviser.”

And there are many things firms can do to get the message out. One is the AICPA’s “ambassador” program; another is its financial literacy program. These are just two out of a thousand things firms and practitioners can do to help refocus the public and their own firms on the value proposition that says our technical skill sets are only a small part of what we deliver to the market. When we practice those skills ethically, that’s where our value proposition has substance.

JofA: What kind of questions should CPA firms ask when they hear about this initiative?

Fingland: “What are we doing to achieve the same kinds of objectives that are in place for the council and the observer?” It is about making sure that not only do we have the focus at the right spot, but we also focus in a way that helps the processes drive the right decisions each and every day.

Bunting: Actually it’s what firms don’t ask that I think is important, and that’s what I talk about, namely, don’t do this primarily for PR because once the buzz is over you will still have the process to go through. Don’t do it for marketing. Do it for yourself, your firm.

JofA: What would you like to see come out of these initiatives for your firms, your clients, the public and the profession? How will the world be a different or a better place because of this effort?

Bunting: I would like the marketplace to at least validate the idea that firms that proactively communicate about ethics inside their organizations and outside are valued, because I believe that will send the message to our profession that it’s not just about commercialism. It’s about a total value proposition—technical skills and innovation. But overriding it all are these ideals of “integrity” and “ethical behavior.”

Fingland: I hope, as time progresses, our people in BKD will go out and say, “I work for a firm with high integrity, that sets standards, that puts its money where its mouth is, that walks the talk.” I hope the public interest council would be just one of many things that help them as employees develop that sense of pride in the organization.

Bunting: It’s not about whether you hire a public interest panel or an outside observer. It’s about whether you can say to yourself and to outsiders, “There are many things we are doing differently that make us a better, safer place for you to do business.”

RICK TELBERG is editor at large and director of online content for the AICPA and his views, as expressed in this article, do not necessarily reflect the views of the Institute. Official positions are determined through certain specific committee procedures, due process and deliberation.

BKD’s Public Interest Council
Mission statement: The council’s mission is to help ensure that BKD, acting of its own accord, meets its obligations and high duty to the public and its clients. The council will fulfill that charge by autonomously monitoring and evaluating the firm’s independence standards and other internal policies and procedures designed to establish and maintain the quality, objectivity, and competency of BKD’s people and services, and by examining any other matters deemed appropriate. The goal of these efforts is to assist BKD in achieving its ongoing commitment to the highest ethical, professional and business standards.

Moss Adams’ Independent Observer
Responsibilities: To be an independent observer of Moss Adams’ governance processes and to assist in evaluating various aspects of the firm’s efforts to build legal, safe and ethical standards for partners, managers and other employees.


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