Who bears moral responsibility for organisations?

Who bears the moral responsibility for organisations? The organisation itself,or the people who act on its behalf?

Moral responsibility at work is hard to assign among participants. Decisions are often collective and labour is divided. Roles are prescribed and so are goals and systems. When we work in an organisation, we attribute some responsibility to it. But is the organisation responsible for its actions? Or is it that only human beings can have moral responsibility?

The concept of moral agency is fundamental to holding someone responsible for their moral behaviour. A moral agent is someone who has the capacity to act, is rational, and is subject to ethical rules – so they can be held responsible for their actions through moral evaluation.

Yet while as human beings we are all persons, we are not all moral agents. Children and people who suffer from mental disabilities may have the capacity to act, but may not be held morally responsible for their actions.

Organisations, some argue, are a kind of moral agent because they have decision-making structures, intentions and character, and therefore are capable of intentional actions. These actions are not necessarily reducible to the contributions made by individual persons. It is not easy, nor always possible, to assign organisational actions to specific individuals.

Others see the organisation as capable of action and, therefore, liable to moral evaluation. But they do not go as far as accepting the organisation is a moral agent. So while we may assess the ethicality of corporate action, we cannot attribute moral responsibility to the entity.

Yet others argue that organisations cannot be moral agents. They are only structures coordinating the moral action of human beings, but are not in themselves moral agents. Therefore, we cannot hold organisations morally responsible for what individuals do on their behalf. 

While we wait for the debate about the moral status of organisations to resolve, we can accept that organisations create an environment in which we make decisions and undertake actions. This environment affects what we decide and do.

There is much focus on the culture of an entity. This is based on the understanding that the environment the entity creates affects the behaviour of its people. If we want to understand why people behave the way they do at work, we might get deeper insights by looking at the environment in which they work and live rather than simply looking at the individuals.

But we must also remember: As individuals who are moral agents, we remain morally responsible for what we do, even if our work environment or anyone else exerts an influence on us, or if other moral agents are involved.

What happens in public practice?

Interestingly, in APES 110 Code of Ethics for Professional Accountants and other Accounting Professional and Ethical Standards, a member in public practice is defined as “a Member, irrespective of functional classification (e.g. audit, tax or consulting) in a Firm that provides Professional Services”.

However, this term is not used only for human members as “the term is also used to refer to a Firm of Members in Public Practice and means a practice entity and a participant in that practice entity as defined by the applicable professional body”.

The Code further defines a firm as:

  • A sole practitioner, partnership, corporation or other entity of professional accountants
  • An entity that controls such parties, through ownership, management or other means
  • An entity controlled by such parties, through ownership, management or other means
  • An auditor-general’s office or department

Further, independence in appearance is defined in the Code of Ethics as “the avoidance of facts and circumstances that are so significant that a reasonable and informed third party would be likely to conclude, weighing all the specific facts and circumstances, that a Firm’s, or a member of the Audit or Assurance Team’s, integrity, objectivity or professional scepticism has been compromised”.

So it seems that the Code and the other Accounting Professional and Ethical Standards create requirements for public practitioners and for public practice firms.

But the Code also seems to attribute responsibility for compliance with its framework and principles to professional accountants and firms. Firms, teams and individual members
have to ensure that they comply with the professional and ethical requirements of
the accounting profession.

“As individuals who are moral agents, we remain morally responsible for what we do …” 

Firm-specific standards

While most Accounting Professional and Ethical Standards that apply to public practitioners create obligations for individuals, teams and firms, there are two that focus on the firm: APES 320 Quality Control for Firms and APES 325 Risk Management for Firms.

APES 320 requires a firm to “establish and maintain a system of quality control designed to provide it with Reasonable Assurance that the Firm and its Personnel comply with Professional Standards and applicable legal and regulatory requirements, and that reports issued by the Firm or Engagement Partners are appropriate in the circumstances”.

The standard requires a firm to establish and maintain a system of quality control that includes policies and procedures for:

  1. Leadership responsibilities for quality within the firm
  2. Relevant ethical requirements
  3. Acceptance and continuance of client relationships and specific engagements
  4. Human resources
  5. Engagement performance
  6. Monitoring

However, ultimate responsibility for a firm’s quality control system is attributed to its CEO (or equivalent) or, if appropriate, the firm’s managing board of partners (or equivalent).

So while the standard is focusing on firm-level responsibilities, it requires the leadership of a firm to ensure that the firm fulfils these obligations. 

The revised APES 320 became effective from 1 April 2016.

APES 325 Risk Management for Firms

APES 325 requires a firm to “establish and maintain a Risk Management Framework taking into consideration its public interest obligations”. The effectiveness of the risk management framework must be evaluated periodically.

The risk management framework must include policies and procedures that identify, assess and manage key organisational risks, such as:

  • Governance risks
  • Business continuity risks (including succession planning)
  • Business risks
  • Financial risks
  • Regulatory risks
  • Technology risks
  • Human resources risks
  • Stakeholder risks

As is the case with APES 320, APES 325 Risk Management for Firms also assigns ultimate responsibility for a firm’s risk management framework to its chief executive officer (or equivalent) or, if appropriate, the firm’s managing board of partners (or equivalent).

The revised APES 325 became effective from 1 January 2016.

Good guidance

Setting ethical standards

APES for CPA Australia Members
  • APES 110 Code of Ethics for Professional Accountants
  • APES 205 Conformity with Accounting Standards
  • APES 210 Conformity with Auditing and Assurance Standards
  • APES 215 Forensic Accounting Services
  • APES 220 Taxation Services
  • APES 225 Valuation Services
  • APES 230 Financial Planning Services
  • APES GN 20 Scope and Extent of Work for Valuation Services
APES for Members in Public Practice

  • APES 305 Terms of Engagement
  • APES 310 Dealing with Client Monies
  • APES 315 Compilation of Financial Information
  • APES 320 Quality Control for Firms
  • APES 325 Risk Management for Firms
  • APES 330 Insolvency Services
  • APES 345 Reporting on Prospective Financial Information Prepared in Connection with a Disclosure Document
  • APES 350 Participation by Members in Public Practice in Due Diligence Committees in Connection with a 

Public Document
  • APES GN 30 Outsourced Services
Members in Business

  • APES GN 40 Ethical Conflicts in the Workplace – Considerations for Members in Business

cpaaustralia.com.au/apes

Read next: The very real challenge of unethical business practices


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April 2019
April 2019

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