Conflicts of Interest arise when a person finds himself performing two social roles at the same time bringing conflicting benefits or credibility. Professional accountants are required to adhere to the basic principle to identify, assess and address threats. Conflicts of interest create threats to the pursuit of a denial policy and may pose threats to enforcement and other basic principles.
Identification of Conflicts
A professional accountant will take appropriate steps to identify situations that may create a conflict of interest, and therefore be a threat to the pursuit of one or more basic goals. Such measures will include identifying:
- The nature of the relevant interests and the relationship between the parties involved; and
- Function and its meaning in relevant organizations.
A professional accountant will remain vigilant about changes over time in the nature of activities, interests and relationships that may create conflicts of interest while performing professional work.
Threats Made in Conflicts of Interest
An action that could eliminate the threats posed by a conflict of interest is a withdrawal from the decision-making process related to the issue that creates a conflict of interest.
Examples of actions that can serve as a protection against threats to conflict of interest include:
- Reorganizing or separating certain responsibilities and functions.
- Obtaining appropriate oversight, for example, to operate under the supervision of the presiding or non-executive director.
Disclosure and Consent
It is usually necessary to:
- Identify the nature of the conflict of interest and how any threats created were addressed to the relevant parties, including appropriate standards within the hiring party involved in the dispute; and
- Obtain approval from the relevant parties for the auditor to act as an expert activity where protection is used to deal with the threat.
If such disclosure or acknowledgment is not in writing, a professional accountant is encouraged to write down:
- Circumstances that create conflicts of interest;
- Security measures used to deal with threats where they are; and
- Permission obtained.
Source: ICAI Code of Ethics, Revised 2019