Putting ethical values at the heart of audit firm culture

07 December 2021

Tags: Ethical Values

This essay, written by Prof. Chris Cowton and Dr Ian Peters, was recently published by the Financial Reporting Council in its Collection of Perspectives. It's focused on audit firm culture, but many of the points are relevant to any organisation. And it might provide food for thought as you engage with your own auditors.

A professional foundation

In considering how to strengthen the culture of audit firms, an excellent starting point is to remember that auditing is a ‘profession’. It is a word that is often used quite loosely in everyday life, but researchers usually highlight several characteristics to distinguish ‘true’ professions from other occupational groups:

  1. There is an extensive set of specialist skills based on a theoretical kind of knowledge base...
  2.  which involves a long period of training, formal certification of competence and, perhaps, some form of licence to practise, …
  3. and the application of which requires the use of judgement in a wide range of circumstances.
  4. There is independence and self-regulation, with control over the expert knowledge base, setting of entry standards and criteria for membership, and responsibility for the disciplining of members.
  5. There is often a high level of personal, social and financial reward, but…
  6. a profession is expected to go beyond self-interest and serve the public interest, a key tool for which is adherence to…
  7. a code of ethics, which demands more than ordinary morality and the law.

Two strands can be seen in this list. First, there are references to things like expertise and skills, which might be summed up as competence. Second, there are the elements that relate to ethics and the public interest. This might be summed up by the word, integrity. Woven together, the two strands make for a powerful combination, ensuring that expertise is employed appropriately and not used for undue advantage (or ‘conspiracy against the laity’, as George Bernard Shaw’s famous phrase has it).

Culture and values

Although ‘embedded’ accountants, who are employed by commercial and other organisations, are also expected to live up to this agenda, those who work in ‘professional’ audit firms would seem to have a particularly strong responsibility – and opportunity – to do so. However, high-profile corporate collapses and an apparent erosion of confidence in auditing suggest that the professional agenda does not translate straightforwardly into audit firm behaviour. If culture is ‘how things are done around here’, some firms seem to have a cultural problem. Culture reflects what counts and what does not really matter; which ways of working are acceptable or even celebrated, and which are taboo. Such processes of prioritisation mean that, at the heart of a firm’s culture, there is a set of core values guiding choices, even if those values are only implicit – and perhaps not even recognised.

It takes hard work on several fronts to change a dysfunctional culture, but given their importance, a good starting point is to articulate the values that the firm wants to live by. Some might reflect elements of the current culture that are worth preserving, whereas others will be more aspirational. At the IBE, we differentiate between business values and ethical values. Like the two interwoven strands of professionalism, together they can make for a powerful combination, steering an audit firm towards a sustainable future in which it is trusted by key stakeholders.

But what should those values be – especially the ethical ones, which is probably where most work needs to be done? The list of values should be consistent with the purpose and professional nature of auditing, but all firms need to think through how they intend to conduct their business. There are choices to be made. Espoused values signal commitments that the firm is making and against which its leaders are willing to be held accountable. This should be more than a quick exercise in writing down a few fine-sounding words.

Embedding ethical values

If a statement of values is going to make a difference to behaviour on the ground, the values need to be meaningful and relevant to employees. Involving colleagues in the process of identifying values is recommended. It is important that the values are not just named but fleshed out too. It is a good idea to elaborate them in behavioural terms so that people can see what they really mean ‘around here’.

Leadership and communication are essential. General messages are useful, but traction will only be gained when values feature in ‘normal’ communications and conversations at work, especially if senior leaders are involved. Examples of when values have made a difference should be celebrated because stories are great carriers of culture. And to really gain credibility, the values should be modelled in leaders’ behaviour; staff have a right to think, ‘don’t just tell me, show me’.

Many business values are firmly built into the way organisations are run. Ethical values can be too. For example, appraisal and bonus systems should express what it means to do a good job, where ‘good’ is not just about meeting short-term targets but reflects the firm’s espoused values.

An audit firm should also have a high-quality code of ethics at the heart of its ethics programme. Such a code should be consistent with professional ethics and build on good practice in the corporate sector. Interestingly, IBE research shows that, whereas the primary purpose of corporate codes of ethics for many years was to guide employees (which is still important), more recently it has become to shape culture. When made publicly available, a code of ethics can also play a valuable role in helping to set stakeholder expectations. Writing a good code is just a start, though; it needs to be lived and breathed.


To sum up what we have been outlining in this short essay: an excellent audit firm’s purpose is delivered through business and (especially) ethical values embedded in culture, which – supported by a firm’s own code of ethics – guides behaviour, resulting in audits that are reliably conducted with competence and integrity. Ultimately, this will restore confidence in auditing – which is what we all want.

We were pleased to contribute to this initiative - for other contributions please visit the FRC website.