Conflict of Interests and Unethical Behavior LESSON 9

Conflict of Interest

It involves a conflict between the public duty and the private interest of a public official, in which the official’s private-capacity interest could improperly influence the performance of their official duties and responsibilities.

Difference between CPA Firms and Other Professionals

CPA firms are engaged and paid by the company issuing the financial statements.

Primary beneficiaries of the audit are statement users.

Special Need for Ethical Conduct in Professions

Our society has attached a special meaning to the term “professional”

Professionals are expected to conduct themselves at a higher level than most other members of society.

Ethical Issue

• Is it ethical for the staff person to work hours and not record them as hours worked in this situation?

1. Who is affected?

2. How are they affected?

• What alternatives does the staff person have?

Relevant Facts

• A staff person has been informed that he will work hours without recording them as hours worked.

• Firm policy prohibits this practice.

  • Another staff person has stated that this is common practice in the firm.

Resolving Ethical Dilemmas

1. Obtain the relevant facts.

2. Identify the ethical issues from the facts.

3. Determine who is affected.

4. Identify the alternatives available to the person who must resolve the dilemma.

5. Identify the likely consequence of each alternative.

   1. Decide the appropriate action.

Rationalizing Unethical Behavior

• Everybody does it

• If it’s legal, it’s ethical

• Likelihood of discovery and consequences

Ethical Dilemmas

Is a situation a person faces in which a decision must be made about appropriate behavior.

Why People Act Unethically

• The person’s ethical standards are different from those of society.

• The person chooses to act selfishly.

Needs for Ethics

• Ethical behavior is necessary for a society to function in an orderly manner.

• This in the society is sufficiently important that many commonly held ethical values are incorporated into laws.

Section 210.1

Professional accountants are required to comply with the fundamental principles and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats.

Section 210.2

A conflict of interest creates threats to compliance with the principle of objectivity and might create threats to compliance with the other fundamental principles.

Creation of Threats

This happens when an accountant acts for two/more parties whose interests conflict, or when the accountant's own interests conflict with the party they are working for

Section R210.4

A professional accountant shall not allow a conflict of interest to compromise professional or business judgment.

Section 210.4 A1

Examples of circumstances creating conflicts, such as holding management roles for two organizations, dissolving a partnership for both parties, preparing info for a management buy-out, or selecting a vendor/investment that financially benefits the accountant or their family.

Section R210.5

A professional accountant shall take reasonable steps to identify circumstances that might create a conflict of interest by identifying the nature of relevant interests/relationships and the activity's implication for those involved.

Section R210.6

A professional accountant shall remain alert to changes over time in the nature of the activities, interests, and relationships that might create a conflict of interest

Section 210.7 A1

In general, the more direct the connection between the professional activity and the matter on which interests conflict, the more likely the threat level is unacceptable.

Section 210.7 A2

Withdrawing from the decision-making process related to the conflicting matter is an example of an action that might eliminate threats.

Section 210.7 A3

Examples of safeguards to address threats, which include restructuring or segregating certain responsibilities and duties, or obtaining appropriate oversight.