The Code of Ethics and the development of the auditing profession in Greece, the period 1992–2002

Abstract

Various forms of Codes of Ethics have played major roles in the advancement of the accountancy profession in the Anglo-American context. Responding to various legitimation challenges, accountants have drawn upon their ethical arrangements to reinforce claims to “credibility” and “independence” from clients. By doing so, they have sought to persuade social institutions of their “professionalism” and secure the privileges of self-governance and the monopoly of auditing practice. Though the literature has illuminated the role of ethical pronouncements in the ascendancy of the Anglo-American profession, little effort has been made to explore their impact upon the profession in emerging contexts. The case of Greece in the period 1992–2002, for instance, provides an interesting setting of an emerging economy in which to study professional ethics, as the local institute of auditing was restructured according to the Anglo-American professional paradigm following which it faced certain legitimation challenges. This paper investigates the broader background of threats to the Greek auditing profession in the period 1992–2002 and explores whether local auditors relied upon their Code of Ethics and compliance processes to re-establish the image of their institute as a “credible” body. It draws upon the imperialism of influence framework to demonstrate that, within increasingly internationalised contexts, the local accountancy profession tends to resort to professional ethics to confer legitimacy upon its activities and to safeguard its self-governing status.

Keywords:

• Audit profession
• Legitimation challenge
• Code of Ethics
• Emerging economy
• Imperialism of influence
• Westernisation

Notes

1 In this paper, the term Anglo-American accountancy model is used to refer to accounting concepts and practices influenced by the British and American tradition as well as to the mode of organisation and operation of the Anglo-American profession (for details see Hanlon, 1994). However, it is acknowledged that there are differences between the British and the US accountancy practices.

2 The term emerging economies refers to transitional economies which direct their efforts towards developing a social, political and economic institutional framework conducive to capitalism, placing emphasis upon the construction of capital markets (Saudagaran & Diga, 1997). Though the importance of emerging economies, like Greece, has recently grown, as a result of their participation in supranational institutions and organisations, their role in the context of global capitalism is far less influential in comparison to that of the dominant advanced capitalist countries (such as the US, UK, Japan, Germany and France).

3 The profession was established in 1955 as a state regulated institute. It remained under state supervision until the early 1990s, when it was transformed into a self-governing organisation (see Section 3 for its organisational features, for details see Caramanis, 1996, 1999, 2002).

4 Although other journals could also be drawn upon to illuminate conventional approaches, this paper has focused on The Accountant and the Journal of Accountancy as they offer accessible historical records incorporating discussions on professional ethics in the UK and the US dating back to the second half of the 19th century.

5 Similar tactics have been employed by the CPA Australia (see for instance the Speech by David Baulch at the CPA Lawyers Association of the Philippines Conference, held in Manila in February 2004; for the responses of the profession in New Zealand in the aftermath of the Enron collapse see Parker, 2005, pp. 385–386).

6 As expressed through its Directives, the policy of the European Union is indicative of its intention to standardise accountancy.

7 In 1959, Greece asked for negotiations to be opened with the European Economic Community. Greece became an associate member in 1961. In the late 1970s, Greece intensified the efforts to become a full member of the EEC. The accession of Greece into the EEC was signed in 1979 and took effect in 1981.

8 After the signing of the Maastricht Treaty in 1992, in order for a member to participate in the third stage of the European Monetary Union the following criteria had to be accomplished: (a) its inflation and the nominal long-term interest rate should not exceed by more than 1.5% and 2% the average inflation and interest rate of the three best performing members; (b) its public debt and deficit should not exceed the reference value of 60% and 3% of GDP, respectively; (c) its exchange rate should remain within the normal EMS bands for at least 2 years before the examination (Michalopoulos, 1996, p. 73).

9 SOL stands for the Greek initials ΣΟΛ: Σώμα Ορκωτών Λоγιστών (Body of Sworn-In Accountants).

10 SOE stands for the Greek initials of ΣΟΕ: Σώμα Ορκωτών Ελεγκτών (Body of Sworn-in Auditors). SOE was later renamed into SOEL (Σώμα Ορκωτών Ελεγκτών Λоγιστών), Body of Sworn-in Auditors Accountants. The purpose of the auditing profession, as prescribed by the Presidential Decree 226/1992, was to conduct the statutory audits of public organisations, banks, insurance companies, investment and finance companies, joint stock companies and joint stock companies listed on the Stock Exchange (Article 3, paragraph 1, Presidential Decree 226/1992). SOE was also responsible for providing expert opinion on administrative and accountancy issues ordered by state departments or courts (Article 3, paragraph 2, Presidential Decree 226/1992).

11 The Scientific Council consisted of five members of SOE or academics in the field of accounting or auditing (Article 6, PD 226/92, Government Gazette, Α′120, Article 6, paragraph 4). The Scientific Council dealt with the issuance of guidelines, standards and codes of professional ethics which, however, had to be approved by the Board of Supervisors (Article 6, paragraph 4, PD 226/92).

12 The Disciplinary Council comprised a judge, a member of the Board of Supervisors and a member of the General Assembly (Article 20, PD 226/92). The Council dealt with cases of professional negligence, unprofessional conduct, deviation from the Law and other regulatory provisions (Article 20, paragraph 2, β′,γ′, PD 226/92).

13 SELE are the initials for the Greek acronym ΣΕΛΕ (Σύλλоγоς Εγκεκριμένων Λоγιστών Ελεγκτών) Association of Certified Accountants and Auditors of Greece. SELE had been instituted by and comprised members of multinational audit firms which had practised in Greece since the late 1970s. Members of SELE conducted 90% of the non-obligatory audits carried out in Greece. Most of the audits conducted by members of SELE concerned subsidiaries and were performed at the request of the parent company, foreign investors or credit institutions (SELE, 1982a; Ethnos, 20/5/1982). One of the primary aims of SELE had been to get access to the market for statutory audits which had been monopolised by SOL before 1992. It mobilised political support and finally succeeded in the early 1990s.

14 The member asked to remain anonymous.

15 The member asked to remain anonymous.

16 Although the draft was a literal translation, Professional Competency from section A and the contents of section C of the IFAC code were omitted. According to two members of the Scientific Council Sofianos (interview, 1999) and Protopsaltis (interview, 2002), the Scientific Council did not incorporate rules and issues relating to professional competence into the Code of Ethics as this had been dealt with in the Presidential Decree 226/1992 article 20 paragraph 2. They also explained that section C which referred to “Employed Professional Accountants” was not applicable as SOE exclusively comprised auditors.

17 This member of the Board of Supervisors asked to remain anonymous.

18 It is interesting that pronouncements such as “there is a public interest responsibility on the accountancy profession … the public interest is defined as the collective well being of the community of people and institutions the professional accountant serves” (IFAC, 1996, p. 457), are fundamental in the Code of the IFAC. However, such references were not included in the 1997 Code of Ethics.

19 This member of the Board of Supervisors asked to remain anonymous.

20 Although, the Presidential Decree 226 enacted in 1992 prescribed that: “disciplinary action can be exercised when the Board of Supervisors judges that a Chartered Accountant has committed a disciplinary offence” (Presidential Decree 226/1992, Disciplinary Process, pp. 8–9), the Code expanded this by obliging auditors and third parties to report any violation to the Board of Supervisors. Non-adherence to and violations of the 1997 Professional Ethics Regulation would be investigated and dealt with by the Board of Supervisors. This organ would screen the cases and decide whether referral to the Disciplinary Council would be necessary (SOE, 1999, Article 10, p. 220; Legal Adviser, Kalogeras, interview, 2003; member of the Disciplinary Council, Aggelidis, interview, 2003, trans.).

21 It seems that Markopoulos’ statement is characterised by exaggeration in comparison to the information provided by the Book of Disciplinary Decisions and other commentators.