Independence Day

Why should we accountants and auditors think about independence? There is an urgent need, because ethical questions are “back on the scene”, which could not be solved technically. It seems as if the figures themselves have become unstable, because they have no true ethical basis.

There are several standard scripts on how accountants and auditors talk about ethics. First, there are our 12 standard hours in continuous professional education in ethics. The accounting profession wishes to train members ethically. There is the standard “Sunday speech”, in which members of the profession claim that “we are held to a higher standard”. This sounds somehow elevating, although it is a question of whether it is fully ethical to claim to be ethical. There is also the cynical talk about ethics, which I heard recently from an audit professor in a lecture: “Independence is the core value of the profession, but of course“, he said, and then he looked through his fingers, “true independence is an illusion!” A lecture in ambiguity. Last but not least there is the intimate talk of professionals who confess to each other (in the evening, in a bar, during a business trip) that they have doubts, that they have a bad conscience, that they sleep badly, because of the permanent and increasing ethical challenges. All these modes of talking about ethics I will not address here.

Instead, I would like to use a mode that I would call the general narrative of the profession. It goes like this: once upon a time – flash, thunder, smoke –the independent subject appeared, who was able to decide what is right and what is wrong. In free association, it interacted with other free subjects, and as a result of this interaction, numeric values appeared, and these numeric values are verifiable in ever higher developing third party confirmations.  This verification through an independent third party we call auditing. It makes that our figures are a true representation – so goes the saying – of reality.

As you can see from this narrative, there should be a clear and unbroken line from an ethical value (independence) to numeric values. This sounds prudent. If things would be like this, then our accounting languages, our national GAAPs, would converge. We would overcome our national accounting systems. Who can withstand the language of prudence? If things would be like this, ever higher constructions of third party verification would develop, voluntarily, automatically, and our normatives would become more perfect, more exact, and thus ad infinitum. Unfortunately, this is not the case.

My thesis is that there is no unbroken line from the core ethical value “independence” to our normatives. There is and must be a disruption. If you look carefully, you will see this gap; but I must warn you: our normatives do a lot, in order to paste the crack. The easiest way how you can see the disruption is if you look on the two terms “independence” and “Generally Accepted Accounting Principles”. Then you ask yourself: “If I am independent, how can I then accept GAAP?” I mean, if you are independent, you must critically review these standards, and then, maybe, maybe not, you accept them. General acceptance does not fit into the concept of independence.

Or you could say: our house of GAAP is solid, with a good fundament, it has been stable already for decades and regularly renewed and maintained. Your interpretation of independence, as suggested above, is somehow too radical. Can we not somehow define “independence” with a standard, so that it fits to GAAP?

And indeed this is what happens. There is a popular narrative path from normatives to ethics, in which the normatives try to dominate the ethics. The results are “independence standards” or “codes of ethics”. As you can see, this is now the other way round: while in our original narrative, the movement was from ethical values to numeric values, now the crowd plods in the other direction, from normatives towards ethics. In the same way, as we determine a new accounting standard, we try to find unified ethical value: there should be a defined process, with approved commissions, and these pundits will know what true ethical values are! Normatives always appear as thick files. This is because they try to paste the crack that exists between pure ethics and normatives.

A pure ethical moment is a moment when the initiator puts himself or herself radically at risk: he or she does what he or she must do, usually because of a higher calling, not out of selfish reasons. For example, citizens risk their lives on the barricades for the sake of the republic; settlers risk their lives for the sake of independence from the colonial power. It is the purity of this action (there is no exchange operation at work), which makes the value believable. There is also no third party confirmation of this initial moment. There is even no process in place. Pure ethics must be free from normatives, in order to find a resonance . In other words, “independence” exists, but in a much more radical way than our Sunday speakers can imagine. The initial ethical move is radically opposed to normatives, and it is completely illogical, why this moment should appear. It is impossible but constitutive.

Groups create values, and values define a group, and the core value of every group is – independence from others. The accounting profession is no exception. With this we have an understanding of the basic paradox of ethical life. But there is one more development, which we should have in view: what happens if globalization is complete, if there are no others?

This is our current phase, and this is what is happening: it seems that our technical elites have no understanding of ethical life. They imagine that there is a continuum from human rights to stable currencies, as shown above. They think that a next higher organizational development should develop automatically. They wonder why there is no voluntary convergence. They wonder why they bump their heads on the ceiling – should not be there an unlimited growth perspectives for normatives? Why is there such a surprise? Because they forgot that ethics are radically different from normatives.

Let us take International Financial Reporting Standards. The IFAC tries to construct an international language as a cultural neutral language. While US GAAP, for instance, breathes the spirit and the strictness of the pilgrim fathers, IFRS could not risk making a reference to the Bible, or to the Koran or to “The Capital” – this would be politically incorrect. But this does not work: accounting as a global lingua franca, in which we could determine, peacefully, who owes what to whom, cannot be created as a purely technical language, in a culturally neutral way. Our numerical values are not culturally neutral; they only exist as the result of a pure ethical moment. To say that our numeric values are true and objective, because they are verified through comprehensive normative procedures underestimates the power of ethics, which still operates in the background.

Ethics show themselves in the cracks of our normality, sometimes unspecifically and chaotically, for instance, as resistance against transnational institutions (the EU, the IMF) or agreements (TTIP or CETA for example), as a protest against an untrue representation, as a nostalgia of a lost values, or as an attempt to regain control.

Did you notice that the International Financial Reporting Standards do not include a single line about non-profit accounting? A numeric language without social backup is not only fragile – it simply has no chance.

At the same time, national accounting systems ignore globalized figures, because they define independence nationally. This must end up in an untrue representation. Let us be very clear in this respect: Mutual dependence in this world is not a feedback function that can be switched off by re-activating a button in your national profile. There is no button “Reset original values”. Mutual dependence is real and irreversible because we have a track record in nature: Other figures accumulated over the decades, which were never debited and credited, precisely because of our limited horizons.

One light blow of nature, for instance an unusually hot artic summer, which results in a slowdown of the Gulf Steam or a rise of the sea level of 3 cm, superstorms on the Atlantic, a jump in ocean acidification and record droughts on the Indian subcontinent, and our perspective of numeric growth collapses. The only problem is: in such a situation, it is important to account. It is important to count the remaining resources in order to distribute them in a more or less just way.

So this is the situation: The way back into the national cosy accounting environment is closed; the perspective of consensual, automatic and neutral normative solutions collapsed a week ago (the Sun called it “Independence Day”).

The perspective of voluntary conversion collapsed, precisely because of a misunderstanding of the interrelation between ethics and normatives. There is, definitely, no normative substitute for a pure ethical decision.


What does that mean for the accounting profession? Now we must take a deep breath: it is time for a pure ethical moment. As we have seen above, a pure ethical moment means that we radically question our own set-up. For accountants this means that we should question the way we account. It means that we should set up the profession as a true transnational profession, and not as a pale superstructure. It means that we should make it an ethical requirement to reflect the reality with all its facets in the figures, and not only those values, which were true in the boundaries of our limited national horizons.

Is this not too much for a small profession? Please keep in mind, that the modern states are a result of a process in which urban professionals claimed that they could sharper account than clumsy knights in their armor. And it is not exaggerated to state that this last change (the beginning of modern civil society) started as a discussion of ethical values, as a question of conscience. For the moment being, in July 2016, our figures are still stable. But if (in a few months or so: Please, no panic!) you see that our figures are no longer a true representation of the reality, then, I think, it is the duty of every accountant to rethink our basic assumptions.

Autonomy means that a group is aware of its dependence and is willing to make compromises with existing structures. At the same time, autonomy means that the terms of interrelation will be made explicit. It means that tacitly accepted principles will be revised. Thus I think it is time for the accounting profession, to declare its autonomy from both national accounting bodies and alleged cultural neutral superstructures. It is time to build a true transnational profession.

Frank Fabel, Chairman Empacta e.V. Please be invited to E16:

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