Originally published in SCACPA's CPA Report magazine
Practicing public accounting in accordance with the Code of Professional Conduct can often be a difficult task. Not because of any interest in doing wrong or taking an easier path; but rather, because there are times when it is difficult to know what others will consider to be the appropriate action.
In addition to the concept of independence, the Code of Professional Conduct states “A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities.” Just what does that mean? According to the code, a conflict of interest is a relationship, interest, or other situation with a person, entity, product, or service that impairs a member’s objectivity, either in fact or appearance. This potential impairment of objectivity must be evaluated on several levels, with differing results based on those evaluations.
If the CPA feels that a conflict exists, he/she must take action to remove the conflict or decline to perform the services.
If the CPA feels he/she can be objective, the consideration is then whether others could view the circumstances as a conflict. If, in the CPA’s judgment, the circumstances would be considered by others to impair objectivity, the CPA should disclose the relevant information (subject to confidentiality standards) to the appropriate persons and consider a written acknowledgment and release of/consent to any conflicts.
If unable to obtain the consents, the CPA should not provide the services.
Consider two common scenarios related to objectivity:
1. Bob Goodguy, CPA, has provided tax service to a married couple for five years. Now in the process of a divorce, both parties have asked Bob to consult with them on the financial aspects.
2. Jane Friend, CPA , received a personal gift from the chief financial officer of one of her audit clients.
Bob would be permitted to provide services to both under the Code with proper disclosure and consent from each spouse. However, he should assess his ability to do so since advice to one spouse may adversely affect the other spouse. Bob may also want to seek advice from his professional liability carrier before agreeing to dual representation.
Jane could accept a gift from the CFO if it was “reasonable “ in the circumstances. Considerations would include 1) nature of the gift, 2) the occasion 3) the value of the gift, and 4) the history of other gifts. If the circumstances appeared to be an attempt to influence Jane’s decisions, Jane’s objectivity could be questioned (“in appearance”).
Remember, as CPAs we must maintain an objective state of mind in our client relationships, and make sure that others feel that we are free of conflicts of interest. Doing so will go a long way in protecting our relationships with our clients and in protecting our assets from legal claims.Et