1. Business Ethics and the Accounting Department August 23, 2013 Hawaii Society of CPAsDonny C. Shimamoto, CPA/CITP, CGMA Managing Director, IntrapriseTechKnowlogies LLCv1.1-CPABased on information and data from: Managing Responsible Business: A global survey on business ethics, CGMA, 2012

2. Speaker Biography Donny C. Shimamoto, CPA/CITP, CGMADonny is the founder of IntrapriseTechKnowlogies LLC, an CPA firm focused on organizational development and advisory services for the middle market. An active CPA, Certified IT Professional (CITP), and Chartered Global Management Accountant (CGMA), Donny helps many organizations by bridging accounting and IT to: strengthen organizational governance and risk management, improve business processes through IT, and increase the effectiveness of decision making through business intelligence. Donny also serves as an outsourced IT Audit Partner and advisor for smaller regional/local firms and internal audit departments who lack inhouse IT management and IT audit expertise; Helping with IT risk assessments, and enabling increased staff proficiency with IT tools supporting internal operations and client engagements. Donny received was recognized as one of 25 Top Thought Leaders in Public Accounting by CPA Practice Advisor in 2012 & 2013, received the 2009-2010 Presidents Award from the Hawaii Society of CPAs, was named to CPA Technology Advisors 40 Under 40 list in 2007 & 2009 and was also a Hawaii Top High Tech Leader in 2004 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 3. Business Ethics and the Acct Dept Ethical drivers in the new economy Four business challenges related to ethics 1. 2.Ethical dilemmas and pressures4.3Accounting for Ethics3.Ethical CultureBusiness issuesRole of the accountant in ethics management 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 4. Ethical Drivers in the New Economy Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Business scandals highlight the impact and cost of not behaving ethically Public distrust and protest against corporate and government misdemeanors Occupy Wall Street and Indias Anna HazareBusiness failures and scandalsIncreased government action 2011 UK Bribery ActU.S. Foreign Corrupt Practices Act 4Increased U.S. Justice Department investigations 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 5. Ethical Drivers in the New Economy Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Growing awareness of ethics & governance Adoption of codes of conductEthics/governance-related legislation Definition and enforcement of ethics-related business policies and proceduresLeadership, ethics, and organization culture Leaders must behave openly and transparently 5Set by tone at top whether senior management, branch managers, team leaders Demonstrated both internally and externally 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 6. Ethical Drivers in the New Economy Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Doing business ethically is not just something which is handled by someone in compliance or legal, it should be a part of the way everybody works within an organization. Philippa Foster Back OBE, Director, Institute of Business EthicsCreating a sustainable environment for ethical behavior requires: Embedding business ethics throughout the org 6Clear leadership supportTrue organizational culture change 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 7. Four Business Challenges Related To Ethics Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Four business challenges to focus on: 1.Ethical Culture framework and architecture, roles & responsibilities, codes of conduct, other polices & procedures2.Accounting for Ethics information that is collected, analyzed, reviewed, and used3.Ethical Dilemmas and Pressures threats and challenges (i.e. risks) to ethical behavior4.Business Issues information security, bribery, social pressure on business, etc.Addressing these challenges are key to the sustainable success of the organization! 7 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 8. Business Challenge #1 Ethical Culture Elements of Ethical Culture Codes, policies, training, and hotlines Responsibility for ethical standards Collection and use of ethics information8 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 9. Challenge #1: Ethical Culture Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Code of Ethics & Statements of Ethics 80% of respondents orgs have code of ethics Up from 72% in 2008Increased efforts for U.S. ethical awareness (Source: Ethics Resource Center research findings, via CIMA) 942% of employees reported increased efforts by their companies to raise awareness 1/3 of employees say management now watches them more closely 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 10. Challenge #1: Ethical Culture Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Does your organization provide a code of ethics or similar document to guide staff about ethical standards in their work?10 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 11. Challenge #1: Ethical Culture Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Who is responsible for Ethical Standards? CFO/Finance DirectorHR DirectorAudit Committee11Chief ExecutiveBoard of DirectorsInternal AuditWho should be responsible? 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 12. Challenge #1: Ethical Culture Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Who has formal responsibility for ethical standards across your organization?Traditionally held by Accountants* *Donnys Interpretation 12 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 13. Challenge #1: Ethical Culture Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Significant decline in corporate leaders responsible for ethical standards (2008 2012) 67% 60% for Board of Directors 55% 49% for Chief ExecutiveIncrease in finance-related responsibility 34% 39% for CFO/Finance Director24% 28% for Head of Internal Audit1333% 36% for Audit Committee20% 24% for Compliance Officer 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 14. Challenge #1: Ethical Culture Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012What is ethics information? Training on ethical standardsHotline for reporting ethics violationsHelpline for advice on behaving ethically14Statement of ethical values, business principles, or commitments to stakeholdersCode of ethicsPerformance incentives for ethical conductWhich of these do you have in your org? 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 15. Challenge #1: Ethical Culture Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Does your org provide the following?15% 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 16. Challenge #1: Ethical Culture Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 20122008 2012 saw decline in review, analysis, and monitoring activities 86% 78% senior management 68% 56% board of directorsOther users of ethics information Regulators (27% in U.S. vs. 18% globally)Investors (17% globally)16Legal department (38% in U.S. vs. 23% globally)Community or pressure groups (14% globally) 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 17. Challenge #1: Ethical Culture Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Why establish an ethical culture? Economic difficulties in developed economiesIncreasingly competitive business environment Rapid growth in emerging economiesElements of Ethical Culture Responsibility for ethical standards17Codes, policies, training, and hotlines Collection and use of ethics information 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 18. Business Challenge #2 Accounting for Ethics 18Why Account for Ethics? Managing Ethical Performance Reporting Ethics Information Challenges with Accounting for Ethics Collecting Ethics Information 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 19. Challenge #2: Accounting for Ethics Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Why do we need to account for ethics? 2011 AIRMIC study of 18 major corporate crises where lack of ethics was the major causes of the crisis Yet risks related to failures of ethos, culture, and behavior tended to go unrecognizedGrowing importance of integrated reporting More consumers and investors considering ethics and social responsibility in their decisions75% of leading CEOs recognize need to put more emphasis on measuring and demonstrating non-financial value of the business53% of S&P 500 companies in 2012 utilizing integrated reporting, up from 19-20% in 2010?**Source: Governance & Accountability Institutes report: 2012 Corporate Environmental, Social and Governance / Sustainability / Responsibility Reporting Does It Matter?, via AICPA Insights, 6/4/2013 19 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 20. Challenge #2: Accounting for Ethics Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Ethical performance can be managed and monitored by collecting ethics information Ethics compliance metrics & measurementsEthics actions/incidents informationRisk analyses related to ethicsSupplier (& customer) due diligenceOverall increase in collection & reporting 2030% 36% Collection of ethics information 35% 40% Reporting on ethical info and corporate social responsibility 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 21. Challenge #2: Accounting for Ethics Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Does your organization publically report on ethical performance / corporate social responsibility (CSR)?21 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 22. Challenge #2: Accounting for Ethics Donnys InterpretationChallenges with accounting for ethics Ethics information reporting frequently sourced and reported outside of the finance function Corporate responsibility teamsHuman resourcesMarketing22Lack of systems supporting collection of dataReporting may not be formal or systematic Lack of standards for measurement/reportingYes, managing ethical behavior is part of the business (financial) reporting function! 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 23. Challenge #2: Accounting for Ethics Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Does your organization collect management information on ethics?23 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 24. Challenge #2: Accounting for Ethics Donnys InterpretationIf were going to be collecting data and reporting on ethics, then we need internal controls over that function. As with any internal control you have to: 24Identify metrics to measure behavior consistent with the stated ethics-related policyMonitor compliance and progress toward ethics-related control objectivesYes, managing ethical behavior is part of the internal control environment! 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 25. Challenge #2: Accounting for Ethics Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 201225Is there benefit from collecting management information on ethics?Donnys Advice: Make Accounting for Ethics part of your Accounting Department responsibilities! 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 26. Business Challenge #3Ethical Dilemmas & Pressures 26Pressure to Act Unethically Experiences of Ethical Lapses Reporting Ethical Misconduct Ethics Risk Management 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 27. Challenge #3: Ethical Dilemmas and Pressures Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Despite public demand for increased ethical behavior, there is also increasing Pressure to Act Unethically28% 35% Always or sometimes feel under pressure to compromise their organizations standards of ethical conduct27 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 28. Challenge #3: Ethical Dilemmas and Pressures Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 201228Pressure to Act Unethically varies by country 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 29. Challenge #3: Ethical Dilemmas and Pressures Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 201229Pressure to Act Unethically is also impacted by economic upturn or downturn 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 30. Challenge #3: Ethical Dilemmas and Pressures Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012So where are people feeling the pressure to act unethically?Core Accounting Function (high risk for Accountants)* 30*Donnys InterpretationAccounting Involved Function (moderate risk for Accountants)* 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 31. Challenge #3: Ethical Dilemmas and Pressures Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 201231Increasing pressure has also resulted in an increase in the witnessing of ethical lapses 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 32. Challenge #3: Ethical Dilemmas and Pressures Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012After witnessing ethical lapses, did people report ethical lapses? Yes, 69% reported it! Of the 69% reporting lapses: 26% feared they could be regarded as troublemakers Half felt satisfied about the way the ethical concern was handled; 13% neutralWhy didnt people report it? 3237% perceived that reporting wouldnt make a difference 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 33. Challenge #3: Ethical Dilemmas and Pressures Donnys InterpretationThe accumulation of ethics information (incl. report of lapses) can be reported on: Internal management reports / scorecardsIntegrated corporate reporting E.g. Corporate Responsibility Report, Corporate Social Responsibility ReportReporting enables an organization to 33Manage its performance on ethical issues Determine the extent to which it is aligning its behavior with its stated ethical values and commitments 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 34. Challenge #3: Ethical Dilemmas and Pressures Donnys InterpretationEthical Dilemmas and Pressures drives the need for Ethics Risk Management Identify situations that have a stronger inherent risk for unethical conduct Implement controls to prevent or detect violations of ethical standards Ethical dilemmas, pressures, and business issuesSee Accounting for Ethics sectionMonitor the operating effectiveness of the controls and report on outcomes 34internal and/or on a corporate responsibility report Consider conducting assurance activities on the rpt 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 35. Business Challenge #4 Business Issues 35Business Issues with Ethical Impact Issue Highlight: Information Security Issue Highlight: Environmental 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 36. Challenge #4: Business Issues Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012A variety of business issues have an impact on ethical behavior and management CGMA 2011/12CIMA 2008IBE 2010Security of information91%93% (1)78% (4)Safety and security88%81% (2)74% (6)Bribery78%75% (6)83% (1)Discrimination75%81% (2)83% (2)Conflicts of interest74%76% (5)70% (7)Environmental73%77% (4)76% (5)Supply chain72%69% (7)70% (8)Human rights64%55% (12)50% (10)Responsible marketing64%63% (9)52% (9)Whistle-blowing63%62% (10)83% (3)Fairness of remuneration55%65% (8)48% (11)Work/life balance53%59% (11)37% (12)Business Issue36 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 37. Challenge #4: Business Issues Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Issue Highlight: Security of Information Increasing volume of sensitive dataGrowing threat of cyber crimeAccelerating technological advancesIncreasing risk of fraudImpact on Accountants Greater access to confidential data than others 37Role as guardian of informationResponsible for information integrity 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 38. Challenge #4: Business Issues Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Issue Highlight: Environmental Many trying to reduce impact on environmentIncreased attention on resource utilization and climate change Growth of sustainable procurement policiesImpact on Accountants(*Donnys Interpretation) 38How to measure and report on environmental impact and sustainability? Development, implementation and monitoring of sustainable procurement policies 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 39. Challenge #4: Business Issues Donnys InterpretationOrgs of all sizes are dealing with Business Issues related to ethical management Donnys Advice: 39There are accounting and reporting impacts and implications that have to be considered in addressing these issues. Consider the how the Accounting Department can help guide the organization in addressing these issues (or at least how the issues are being measured and reported on). 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 40. Role of the Accountant in Ethics Management 40Responsibilities of the Accountant Opportunities for Accountants 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 41. Responsibilities of the Accountant Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Accountants play a key role in managing the ethical performance of the organization41 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 42. Responsibilities of the Accountant Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 201242In which ways do you contribute to management of ethical performance? 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 43. Opportunities for the Accountant Adapted from: Managing Responsible Business: A global survey on business ethics, CIMA, 2012Low involvement of accountants in: 17% Collecting ethical management information19% Reporting ethical performance against goals 17% Analyzing ethical management informationDonnys Advice: Explore outside of finance Help ensure the accuracy, completeness, etc. of reporting on ethics information 43Help ensure the integrity of the collection of ethical management informationHelp analyze the impact of actions (or inaction) toward ethical performance goals 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 44. Business Ethics and the Acct Dept Increasing public focus on Business Ethics presents some distinct challenges for all organizations regardless of size or location Accountants can play a key role by 44Helping to establish an ethical culture Accounting for ethics Guiding ethics-related risk mgmt activities Guiding the addressing of business issuesCall to Action: Write down one way you can improve the ethical management environment at your organization. Go back and DO IT! 2013 IntrapriseTechKnowlogies LLC. All Rights Reserved. 45. Thank you for your attention and participation! Any Questions? Donny C. Shimamoto, CPA/CITP, CGMA IntrapriseTechKnowlogies LLC email: donny808@cpa.com voice: (808) 735-8324 twitter: @donnyitkSee also: CGMA Report: Managing Responsible Business: A global survey on business ethics, 2012 CGMA Tool: Ethical management reflection checklist and worksheet