It’s a typical Monday morning and you’re working through your inbox.
After a couple of routine emails you open one from a client asking you to represent their accounts department during some legal proceedings against another company for breach of contract. As you read further it becomes apparent that the company your client is taking to court is also one of your clients and you instantly realise this is going to put you in a difficult position. To make matters more complicated, you notice a little further down your inbox list, an email from the client being pursued for breach also asking for your representation. At this point, your Monday is no longer typical as you find yourself in a situation which has the potential to give rise to a conflict of interest.
AAT’s Code of Professional Ethics contains a section on conflicts of interest which is designed to help AAT members decide what to do when there is a conflict between their own interests and those of a client or as in the example above, between the interests of two clients. The Code also contains a conceptual framework that requires its members to uphold five fundamental principles, review situations to see if they pose any threats to those principles and if they do, apply suitable safeguards to either eliminate the threats or reduce them to an acceptable level.
Combining the application of the framework’s principles-threats-safeguards model, with the guidance on conflicts of interest will enable members to make the best ethical choices in difficult situations.
Each conflict of interest that arises will be different. This potentially vast range of circumstances has resulted in AAT adopting a principles-based code rather than a rules-based one. This means each situation needs to be analysed individually, and that the resulting actions will vary.
Let’s analyse Monday’s events and see what action, if any, should be taken.
Is there a conflict of interest?
Specifically, are your interests at odds with the interests of your client or is there a conflict between the interests of two of your clients?
The answer in this case is yes. Therefore, the conceptual framework requires you to go on and ask yourself: does the situation in any way threaten your professional behaviour, professional competence and due care, confidentiality, integrity or objectivity?
In our scenario both the fundamental principles of confidentiality and objectivity are at risk. You will have access to confidential information about both clients, which could be used to the advantage of the other if it were to be disclosed. You also have to act in the best interest of each client and not compromise your professional judgement, in order to maintain your objectivity. In these new circumstances this would become very challenging as they are on opposite sides of a legal dispute.
As threats to the fundamental principles exist, the next step is to use the guidance about conflicts of interest in the Code, along with your professional judgement and decide what safeguards are needed.
The first thing to do is escalate the matter and tell your manager. Your firm can decide how they would like to handle the situation. Let’s suppose both clients are long standing and are good accounts that the company would like to keep. In this case, the appropriate safeguard is to inform each client of the conflict of interest and see if they would consent for your company to act for both parties, assuming sufficient safeguards are put in place.
Asking for consent doesn’t mean that clients will always offer it. If it is withheld you could try increasing the safeguards to secure consent but if that doesn’t work then you may end up declining an offer or terminating a relationship with a client. Let’s say in our scenario both clients give their consent.
Now you have to check whether the safeguard of consent eliminates all the threats or reduces them to acceptable levels.
If the answer is yes, then you are in a position to start work and monitor the situation periodically.
However, if the answer is no then you must evaluate the situation further and see if there are any additional safeguards that could be implemented.
Whilst obtaining consent from both the clients involved is paramount, in this case it would not be sufficient in itself to eliminate the threats to the principles of confidentiality or objectivity. Therefore further safeguards would be needed.
- Assign totally separate engagement teams to each client, reporting to different managers
- Ensure those teams are physically separated within the company’s premises
- Draw up clear codes of conduct for team members regarding security and confidentiality
- Ensure the data relating to each client is filed confidentially and securely within the company with access restricted to the relevant team.
You have to double check whether all the safeguards now eliminate the threats or reduce them to acceptable levels. If the answer is yes, then you are in a position to start work and monitor the situation periodically.
However, if the answer is still no then you must evaluate again and consider removing yourself from the situation as the ultimate safeguard to eliminate threats to the fundamental principles created by the conflict of interest.
Monday’s situation has been resolved though. By applying the conceptual framework in conjunction with AAT’s guidance about what to do in a situation that poses a conflict of interest, the safeguard of consent and the additional measures reduce the threats to confidentiality and objectivity to acceptable levels.
Gill Myers is a self-employed accounts consultant. She has taught AAT qualifications since 2005 and written numerous articles and e-learning resources.