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Ethics: Conflicts of interest guidance

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It is almost impossible to define a 'conflict of interest', but the Code of Ethics for Professional Accountants (APES 110) specifically discusses conflicts of interest at Section 220 by providing examples and identifying potential threats to the fundamental principles (integrity, objectivity, confidentiality, professional behaviour and competence and due care) that may be created. For example, a threat to objectivity may be created when a member competes directly with a client or has a joint venture arrangement with a major competitor of a client. 
 
The conflict may arise between the accountant and a client or potentially between clients themselves. For example, a threat to objectivity or confidentiality may be created when a member performs services for clients whose interests are in conflict or who are in a commercial or marital dispute. 
 
An important step in preventing a conflict in the future is to ensure that we look ahead to try to anticipate potential future conflicts. 
 
Looking ahead 
The initial meeting (see chapter 4 of the Quality Control Guide) with a client is often a good place to establish whether the new client has any relationships with existing clients:

  • Does the client compete with any existing clients?
  • Will members be exposed to commercially sensitive information?
  • Are clients entering into a new venture for which the member will/will not act?
  • Will members act for all parties in a partnership or joint venture?
Clearly establishing and documenting these facts may identify potential future conflicts. Incorporating concise conflict resolution procedures in the venture participants’ written agreements may also help avoid future issues for the member and the venture participants.  
 
An annual review of continuing engagements can also assist in establishing potential conflicts. Such significant changes in circumstances as: the expansion of business activities that compete with other clients; the proposed sell-off of long held family businesses, or clients divorcing where they have complex or substantial assets, can often generate conflicts of interests for consideration. 
 
Written disclosure 
Ideally any decisions made within a firm as to whether a conflict exists should be in writing, so that, if questioned in the future as to why a particular action was taken, the action can be justified. Written disclosure should also be made to any clients involved in a potential conflict so that they may make informed decisions. Where the firm has sought the consent of a client to act for both parties, and this has been refused, the firm must not continue to act for one of the parties in the matter that has given rise to the conflict of interest. 
 
Paragraph 220.4 discusses possible safeguards that may be implemented where a conflict between clients arises:
  • Using different partners and staff for different engagements
  • Having policies and procedures to prevent access to information (e.g. strict physical separation of teams, confidential and secure data filing)
  • Clear guidelines for engagement members on issues of security and confidentiality
  • The use of confidentiality agreements signed by employees and partners of the firm.
Please note 
Members are not precluded from advising clients in the same industry where those clients compete in the ordinary course of business, provided appropriate safeguards are implemented. 
 
Members are required to exercise considerable professional judgment in assessing conflicts and must be constantly aware of changes in their own and their clients’ circumstances. APES 110 should be the first point of reference, when exercising professional judgment. Remember also that members can talk confidentially to someone who knows, by contacting the Chartered Accountants Advisory Group (CAAG), which is made up of highly experienced Chartered Accountants. At times, it is important to have someone to turn to who is experienced in the accounting profession, who understands the issues and is able to provide empathy, advice and support for those challenging situations.  
 
To speak to a CAAG counsellor, please contact the General Manager at local Institute state offices (CAAG counsellors cannot address technical or legal matters).  
 
Relevant links: 
 
Last updated: 5 November 2007