The AICPA is providing updated guidance for CPAs working in both public and private businesses in its code on potential conflicts of interest.
Any profession is susceptible to conflicts of interest, and CPA firms are not an exception. Although the AICPA has always acknowledged that conflicts of interest could occur in the accounting profession, the exact definition of a conflict of interest had not been established. They have taken steps to remedy this, offering a revised code on potential conflicts that includes expanded guidance for both private and public practice CPAs.
Three key areas make up the current AICPA framework:
- Conflict Identification – Ideally, this should be done before accepting a new client. This includes considering the nature of the services the client is interested in, all parties involved, and whether accepting will result in a conflict with other clients or within the firm itself.
- Conflict Assessment – After a conflict has been identified, it’s crucial to take the necessary precautions to assess the conflict and determine whether the right safeguards can be put in place to help lessen any potential threat. It is necessary to lessen or eliminate a threat if it is judged to be likely. This can be accomplished in a number of ways, such as using confidentiality agreements, restricting firmwide access to sensitive information, appointing a neutral third party to supervise the engagement, or rejecting the offer.
- Think about disclosure and consent-related issues – If a conflict exists, you must disclose specifics about the potential conflict and the potential nature of the issues. It is up to the client to decide whether to proceed with the engagement after being informed. Written authorization must be given to the business. It’s crucial that any requested services not be provided if the client neither agrees nor objects.
Unfortunately, a conflict of interest may not always be obvious prior to an engagement. If so, the conflict must be resolved by either terminating the current agreement or changing the situation that gave rise to it.
Here are a few examples of possible conflicts of interest that might necessitate further research:
- A client approaches you for advice on a new investment opportunity. They are looking for a new start-up venture that fits their investment goals and interests. The only problem is that you were an early investor in that same startup.
- You’ve had a married couple as clients for years, and you’ve done everything from asset valuation to financial planning for them. Now that the Smiths are divorcing, both of them want you to keep providing the same services.
- Two different clients are interested in purchasing the same company.
- A current client comes to you and asks you to conduct a forensic investigation into a business they think is engaging in criminal activity. The only problem is that the company they want to investigate happens to be one of your clients.
- For many years, you have provided financial services to a small partnership and its two partners. Even though the partnership is about to be dissolved, each partner wants you to continue providing your current level of service.
Not every one of these circumstances indicates that you should refuse to serve the client in question or even that there is a conflict of interest. However, in each of the aforementioned scenarios, you must conduct an investigation and inform your clients of any potential conflicts.
Be proactive in identifying potential risks and mitigating those risks in order to lessen the hazard that conflicts of interest can present to your company. And while some conflicts can be controlled by putting suitable safeguards in place, other conflicts might present too great of a risk to handle. However, the right choice can only be made by being mindful of these dangers and taking the necessary steps.
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