Everyday Ethics: Going into business with a client

As told to Susan Muldowney

Question: I have had a good relationship with one of my clients for many years. Recently, I helped them launch a new business. The client has asked if I would like to go into business with them. What are the ethical concerns that need to be managed? 

Answer: This is not an uncommon dilemma for accountants, but it is one that requires careful ethical consideration. There are quite a few red flags to look out for in this case, and I couch my response entirely in terms of the APES 110 Code of Ethics for Professional Accountants. 

APES 110 sets out the fundamental principles of ethics for professional accountants – integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

Compliance with the Code’s principles may be threatened by a range of factors, such as close association, conflicting duties between engagements and direct or indirect financial interest.

In the scenario you have outlined, the first ethical issue to consider is obviously conflict of interest, and accountants must avoid even the perception of a conflict of interest. 

You have to ask, “What does my client want from me?” For example, they might want you to join them in business because you get along well, but it is more likely that they want you because of your professional knowledge.

You have gained some of that knowledge through your own hard work, but some has been gained through your engagement with your current professional practice.

If you work with a range of clients in your current practice, you have an obligation to promote their best interests, but there is a danger that, if you go into business with one client, you may disclose information that is against the interests of the others.

There is also a significant self-interest threat, which must be eliminated to comply with APES 110, so you would need to remove yourself from the situation. 

Inducement is another threat, because if you are going into business with a client, you want that business to succeed, and this may threaten your confidentiality about your previous client’s business.

There are other points to consider. Are you expecting to go into business with this client and retain your employment with the accounting firm? If the answer is yes, how can you work at a professional standard when your focus and obligations are split? 

If you resign from your professional practice and move to your client’s business, you still have the same obligations and threats to your sense of confidentiality. Even if you are heading up a completely different area of your client’s business, a conflict of interest, self-interest threat or inducement threat may arise if there is pressure to “spill the beans” about your former clients. 

The important thing to remember is that your obligations under APES 110 are attached to you, not to your professional role, so, even if you resign from one job and move into the other, you still must manage your ethical obligations.