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At a glance
As told to Nicola Heath
Question: “A long-standing client has asked me to ‘smooth out’ some revenue recognition to align with investor expectations. It is not outright fraud, but it stretches the interpretation of accounting standards.
If I push back, I risk losing the client. If I comply, I compromise my integrity. How do I balance professional loyalty with ethical compliance — especially when the grey area is commercially beneficial?”
Answer: This type of question is a reasonably common one. Whether you are an auditor, an accountant or a tax advisor, you are always going to face situations where your client’s interests clash with the rules — but you cannot just do what the client tells you.
Fundamentally, as professional accountants, our job is to act in the client’s best interest as long as we are not in breach of our legal, ethical and professional duties.
In a situation where there is client pressure, it is important to consider the accounting standards not just in form, but also the substance or the spirit of the standards, and that is what we need to comply with.
As a professional accountant, you need to uphold the five fundamental principles laid out in the APES 110 Code of Ethics for Professional Accountants (the Code): integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
According to the Code’s conceptual framework, an accountant is required to identify any threat to complying with these principles and act to eliminate it.
In this case, there is a threat of losing the client, which you could call a self-interest or intimidation threat. To adequately address it, your option is either to counsel the client on the correct course of action, or if the client persists, decline the engagement.
Of course, it is always easy to solve hypothetical ethical dilemmas but, as you mention, there is often a grey area, where an act might be permissible, but it is not right.
Situations that are black and white are more straightforward — we know what is reprehensible and we know what is admirable — but those grey areas between are where complexity comes in.
We all hold biases that can cloud our judgement. To behave ethically, we need to be aware of these biases and be able to mitigate them.
Client pressure can sometimes be hard to resist, particularly when it is a longstanding association. But it is important to be wary of what we refer to as incrementalism, otherwise known as the “slippery slope”, when a seemingly minor infraction leads to bigger misdemeanours.
A client might pressure you to bend a rule now, but their next request may be more consequential until it starts to become outright fraud. A client who insists on doing the wrong thing is a client you can probably do without.
It makes no sense from either an ethical or an economic perspective to continue the professional relationship due to the risk posed to the business by breaking the rules.
When we find ourselves in ethically murky situations, we often try to justify our actions — what we call rationalisation bias. To keep this bias in check, it is useful to develop the habit of applying ethical frameworks to everyday situations to build our ethical muscle memory.
There is always going to be tension that exists between self-interest and ethics. Walking away from a client might have a big impact on a practice but having that ethical muscle memory where you are continually asking yourself the right questions and thinking critically can help in this type of morally challenging situation.
Self-serving bias is normal. Every day we try to do the best thing for ourselves, for our family or for our practice. But we need to make sure we are not doing this at the expense of others. Examining a situation from different perspectives, not just our own, can help to develop moral humility.
Loyalty is, of course, very important. If you want to build a practice, you need to show your client that you are looking after them and servicing them well.
But we have to draw the line between servicing our clients and exercising our professional judgement, remaining professionally objective and on the right side of the law, the standards, and ethical and professional codes of conduct.
