Decision Tree Helps CPAs Avoid Conflict-of-Interest Problems

Source: Of Mutual Interest

Most professional service providers are ethically bound to avoid “conflicts of interest.” But that term has different meanings for different professions. Lawyers, for example, act as their clients' advocates and, therefore, are generally prohibited from representing parties with conflicting interests.

For CPAs, on the other hand, the conflict-of-interest rules focus on relationships – with people, entities, products, or services – that create a perceived impairment of objectivity. Even if there's a conflict, however, CPAs can still perform professional services if they believe they can do so objectively and if they disclose the relationship and obtain a waiver from the client.

Unfortunately, the rules leave several questions unanswered, including:

• Are conflicts based on the perceptions of particular clients or of a hypothetical “reasonable client”?
• Is the CPA's belief based on his or her personal judgment, or should an unbiased colleague be consulted?
• In obtaining a waiver, what must be disclosed (and to whom), and how can information be disclosed without violating confidentiality rules?
• What is required for a valid waiver?

The author provides a simple decision tree and worksheet CPAs can use to decide whether a potential engagement presents an irreconcilable conflict of interest. He also provides a model conflict-of-interest disclosure and waiver form.

For the complete article, read “Conflicts of interest: Once through the murky waters.”

From Of Mutual Interest, CPA Mutual Insurance Company of America, www.cpamutual.com, September 2010.