Telling a client you have a conflict of interest isn’t a licence to then act for your own benefit.
Conflicts of interest arise when there is a friction between professional duties and personal interests. And while the best way to deal with conflicts of interest is to avoid or even eliminate them, that’s not always possible.
The Code of Ethics for Professional Accountants provides several examples of the conflicts of interest that can arise in public practice and in business. They include providing audit and other services to the same client, making procurement decisions that will benefit a family member or a friend, and offering advice that is solely guided by the rewards the adviser is likely to receive.
A common response to managing conflicts of interest is disclosure, but does this always solve the problem? The disclosure of an actual or potential conflict of interest should flag that there’s a potential for bias or self-interest.
Yet while disclosure should increase a client or employer’s awareness of potential bias, research suggests that often it has the opposite effect. Because a disclosure has been made, it may make recipients more trusting instead of being more sceptical about the objectivity of the advice.
“If there are no safeguards, disclosure alone does not eliminate the conflict of interest.”
Disclosure may also lead to what is called moral licensing: it provides a licence to act in a self-interested manner because the client or employer knows about the conflict of interest.
So we need to be aware of the likely effects of disclosure:
Clients or employers may think that the person who has disclosed a conflict of interest will not be biased (although there is a lot of evidence to suggest this is often not the case).
Those facing the conflict of interest may feel that they are such good people for making the disclosure that they don’t need to consider the very real possibility that they’re affected by self-interest.
Importantly, the Code of Ethics for Professional Accountants does not rely only on disclosure; it also has a framework for identifying and dealing with conflicts of interest, and applying the necessary safeguards. If there are no safeguards, disclosure alone does not eliminate the conflict of interest. Disclosure is a consequence of dealing with conflicts rather than the only defence.
We need to seriously consider the potential impact of conflicts of interest in our professional lives. Even good people can be affected by self-interest – consciously but more often unconsciously – and just knowing about it may not be enough to counter its effect.
Dr Eva Tsahuridu is CPA Australia’s policy adviser, professional standards and governance.
This article is from the August issue of INTHEBLACK