A project has been launched to improve the culture and governance inside audit firms around the world, after a report concluded that some firms suffer with “widespread” unethical behaviour, “reflecting likely deficiencies in the relevant firm’s ethical culture”.

An international body has now been charged with developing standards to help firms create a culture that “promotes, supports and reinforces a high standard of ethical behaviour”.

The initiative, involving standards to be developed by the IESBA, the International Ethics Standards Board for Accountants, comes after a number of high-profile cases of ethics failure at audit firms in the US, the UK, South Africa and Australia.

Gabriela Figueiredo Dias, chair of IESBA, says her organisation will work on a “global framework” for ethics, with events in New York, Melbourne, Brussels and Kuala Lumpur to gather views on the new standards.

“It is our strong conviction,” says Figueiredo Dias, “that this framework will enable firms to be highly ethical firms, consistently, strengthening their resilience against risks of unethical behaviour, maintaining a good reputation and ensuring their long-term sustainability to serve clients, investors, other stakeholders and the public interest.”

Regulators step in

In recent years, scandal has been hanging over Big Audit over incidences of students cheating in their accountancy exams. Regulators in the US have fined EY $100m in relation to exam cheating, while KPMG has received fines both in the US and in the Netherlands. Similar fines have been levied in Canada and India.

In the UK, the Financial Reporting Council was so concerned by the episode it wrote to firms seeking assurance about the “specific controls” firms use to ensure cheating does not take place.

UK watchdogs have, however, fined KPMG millions in the UK for breaches of “integrity” over its response to routine inspections of its audit work on Carillion, Regenersis and Silentnight.

In Australia, PwC became embroiled in a scandal when a partner working for the country’s Treasury shared confidential information on tax policy with fellow partners. The affair cost the jobs of several partners.

In a separate report this week, IESBA concludes “unethical” behaviour can damage the reputation of firms and the accountancy profession more broadly. It added that prioritising and incentivising ethical values “empowers firms to act as ethical firms, mitigates the risk of unethical behaviour, enhances a firm’s reputation, reinforces the profession’s role to act in the public interest and builds public trust.”

The underlining lynchpin issues are leadership and culture, according to IESBA.

New standards will set a “global baseline” for the way firms establish a culture and governance framework and will lean on the importance of leadership, a firm-wide governance framework, accountability mechanisms, independent non-executives, performance management and transparency about ethical performance.