Accountants as whistleblowers: a key role

India’s accountancy body is set to offer new guidelines for auditors to disclose fraud and other wrongdoing identified in the course of their work at private companies. The Institute of Chartered Accountants of India (ICAI) is responding to new legislation that places a huge amount of responsibility on accountants to act as whistleblowers.

"This is for the first time that such responsibility of reporting on frauds directly to the central government has been given to the statutory auditors, in addition to their other existing reporting requirements to the shareholders." ICAI president K Raghu told International Accounting Bulletin (IAB).

Auditors in India must report suspected fraud by employees to the authorities within 60 days. But other countries are increasingly encouraging accountants to blow the whistle, too.

In the US the Sarbanes-Oxley Act of 2002, which was enacted following Enron’s collapse, offers protection to whistleblowers. A Supreme Court ruling in March this year extended this to the employees of privately held contractors and subcontractors who do work for public companies. It means accountants providing services to publicly-listed companies - such as audit work - are covered.

Under the US Securities and Exchange Commission rules accountants and auditors may be able to use information to blow the whistle on a client or employer and get a monetary award. Bradley Birkenfeld, a former UBS employee who blew the whistle on the bank’s efforts to promote tax evasion received a $104 million payoff after his information led to the recovery of more than $5 billion in tax.

Around 50 countries have some kind of whistleblower protection in place, yet even then it can be tough to decide to flag wrongdoing.

“If an accountant comes across material that causes concern, he has a dilemma because he needs to be able to accommodate his own professional obligations with those of his obligations to his employer,’ says John Davies, head of technical at the Association of Chartered Certified Accountants.

ACCA’s report, Setting high professional standards for public services around the world, stresses the “critical role” accountants have in building public trust by “championing the cause of developing anti-corruption procedures and cultures”.

Gillian Fawcett, ACCA’s head of public sector, says: “It is critical that finance professionals feel able to speak out about genuine concerns that fraud behaviour or corrupt practices are taking place without fear of serious repercussions for them.”