backOn May 16 and 17, 2024, the American Law Institute held its annual Accountants’ Liability Conference in Washington, D.C. Paul Munter, the SEC’s Chief Accountant, was the keynote speaker. In his remarks, Mr. Munter expressed his view that fostering an ethical and professional “tone at the top” is “front of mind” given the challenges that SEC staff have observed, highlighting his May 15 statement titled “Fostering a Healthy ‘Tone at the Top’ at Audit Firms” and citing a number of ways that senior leadership impact the tone at the top.
Mr. Munter cited SEC staff observations that (i) allowing individuals who have engaged in improper professional conduct to remain in positions of firm leadership despite being ineligible to practice before the SEC invites an “erosion” of professional culture and undermining of public trust; (ii) expansion into alternative practice arrangements and non-audit activities could lead to a culture shift from audit quality to “client service” and “client loyalty”; and (iii) there is a risk of “selective attrition,” meaning the retention of staff who are more comfortable with unethical behavior, while also losing and “repelling” ethical staff. Mr. Munter concluded by encouraging firms to foster a professional and ethical tone at the top, including through accounting for ethics in the firm’s processes for employee evaluations and promotions; having claw back provisions for compensation; and encouraging engagement team members to report client efforts to undermine an audit.
Other speakers at the conference included staff from the SEC and PCAOB discussing trends and priorities in their offices. More information about the conference can be found here.