Reflecting on Ethics

I recently had the opportunity to join the Louisville Chapter of the Institute of Management Accountants (IMA) for their presentation of Ethics Workshop: Misplaced Trust | Devastating Fraud. This intriguing workshop presented the true-life case of the Beaumont Independent School District that included a lack of controls and the embezzlement of hundreds of thousands of dollars. It was truly jaw-dropping to imagine how fraud can take place on such a scale. Throughout the workshop, we discussed the application of COSO’s Internal Control Integrated Framework in evaluating an internal control system, the importance of monitoring an organization, determination of the appropriate steps in resolving unethical issues, and recognizing the relationship between proper governance and unethical acts.

I’ve been reflecting on this workshop and the things I sometimes assume or take for granted when reviewing historical and prospective financial information. It is important to be asking ourselves and our clients several questions as we perform valuation services to reduce lapses in judgment and ethical quandaries.

Essential Questions:

  • Have we collected and has the client provided the proper due diligence? Incomplete or inadequate due diligence can lead to problems down the road. Providing a value without the proper due diligence is irresponsible at best and can lead to ethical liabilities. There is no “one size fits all” diligence process.
  • When reviewing historical financial information:
    • Do you understand any large balances or swings in balances on the balance sheet? This can include AR, AP, large unearned revenue balances, etc. Nothing is off-limits to be questioned.
    • Do you understand any large swings in Income Statement expenditures or any capital expenditures that look “odd”?
    • Have you gauged the reasonableness of Management statements and projections regarding the business? What resources have you employed to test reasonableness compared to peers and industry?
  • Have you complied with and disclosed which business valuation standards are being followed in the analysis?
  • Have you identified and addressed conflicts of interest or possible opportunities for bias?
  • Is the valuation team performing the valuation competent in the subject matter? If expertise is lacking, what resources have you brought in to the process to ensure the analysis is sound?

Asking these important questions will result in better client relationships, better understanding of the businesses and industries we are valuing, and an overall robust valuation analysis and report. There are a lot of proverbial tires to kick, but if you fail to kick all of them, you may fall flat.

Again, thank you to the event hosts: Louisville Chapter IMA and the Accounting & Finance Club at IU Southeast. Additional thanks to the presenters: Ginger White, CMA, SCCA, BB, MBB and the Chair of IMA Global Board of Directors as well as Lisa Book, CMA, CFM, CSCA, MBA and a Member of the IMA Global Board of Directors.

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