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The Risk Management
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Provided by Aon Insurance Services
When asked about conflicts of interest, most CPAs feel confident that if faced with a conflict situation, they will recognize it and know how to handle it. However, when asked to define the term, some struggle and search for appropriate words to describe a conflict. While being able to recite a definition may not be necessary to avoid conflicts of interest, it can be helpful in dealing with possible conflict situations and in adopting appropriate risk management practices.
Defining a Conflict of Interest
Black's Law Dictionary (Bryan A. Garner, Second Pocket Edition, The West Group, 2001) provides two definitions of conflict of interest
* A real or seeming incompatibility between one's private interests and one's public or fiduciary duties; and
* A real or seeming incompatibility between the interests of two of a lawyer's clients, such that the lawyer is disqualified from representing both clients if the dual representation adversely affects either client or if the clients do not consent.
Although these definitions apply to the legal profession, they also have similarities to the duties of a CPA in the practice of public accounting. Certainly, an accountant can be faced with situations in which his or her own best interests conflict with the best interests of a client. An accountant also may be asked to provide services to two clients in a situation where the clients have competing interests that render the relationship incompatible; for instance, when both clients seek tax advice regarding a prospective transaction between them.
AICPA professional standards take a slightly different approach to describing conflicts of interest. The Code of Professional Conduct (ET Section 102.02) describes conflicts of interest as follows:
A conflict of interest may occur if a member performs a professional service for a client or employer and the member or his or her firm has a relationship with another person, entity, product, or service that could, in the member's professional judgment, be viewed by the client, employer, or other appropriate parties as impairing the member's objectivity. If the member believes that the professional service can be performed with objectivity, and the relationship is disclosed to and consent is obtained...