At a glance
As told by Susan Muldowney
Question: “As a consultant, I have commercial partnerships that I believe offer excellent value to my clients. If I feel my client could benefit, I introduce the client, declare the commercial relationship and then leave it to the client to assess the value and choose whether to buy or not. Am I handling this appropriately, so it is not a conflict of interest?”
Answer: It is extremely common for accountants to encounter conflicts of interest. These may be actual conflicts, which can arise when there is a direct conflict between an accountant’s responsibilities and their personal interests, or a potential conflict of interest, which may arise in the future.
Either way, it is essential to manage them appropriately.
In this case, it is not enough to declare the conflict of interest to your client. You need to go further than this.
Accountants have a responsibility to act in the public interest, which is reflected in APES 110 Code of Ethics for Professional Accountants (“the Code”). The Code is based on the International Code of Ethics for Professional Accountants, which is issued by the International Ethics Standards Board for Accountants. The Code applies to all CPA Australia members.
The Code has five fundamental principles that establish the expected standards of behaviour: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.
A conflict of interest mainly affects the principle of objectivity, which refers to exercising professional judgement without being compromised by influence, bias or conflict of interest.
In this case, if you went ahead and provided the advice and did not take any action to mitigate the threat to an acceptable level, then you would almost certainly be violating the principle of objectivity.
You may also be violating the principle of professional behaviour, because it may be deemed unprofessional to simply declare a conflict of interest and do nothing about it.
To comply with the Code, accountants must take action to mitigate the threat to any of the fundamental principles.
In this case, you are declaring a commercial relationship and leaving it to the client to assess the value. One way to reduce the threat to objectivity and of non-compliance with the Code could be to arrange for an independent assessment to determine the true value of the commercial offering that you are making to the client.
You might say, “Here is an opportunity for you. I believe it is worth A$1 million, but please note that I have a conflict of interest, as I have a commercial arrangement with this party, so I will arrange for an independent party to provide a valuation”.
Many accountants may have the perspective that, providing they declare a conflict of interest, they have removed the threat. In this case, you may genuinely want to help your client by introducing them to a commercial opportunity, and you may have their best interests in mind.
Certainly, you do need to declare a conflict of interest, but you are also required to take action to reduce the threat to an acceptable level.
