Safeguards and conflicts of interest

Mark Allison By Mark Allison, Executive Director, Education

1 February 2016

In this article, Executive Director, Education, Mark Allison takes a look at safeguards and conflicts of interest.

In the previous article, I discussed the difficulties of identifying conflicts of interest in the context of the Code of Ethics.

Finding a course of action

Once the accountant has evaluated any threats, actual or perceived, a course of action will follow. In many cases this will not lead to a withdrawal from the activity but will instead lead to safeguards being put in place. If this path is followed, the accountant “shall” ensure these safeguards are adequate. If the safeguards themselves are inadequate then prima facie the conflict of interest will not have been managed and the Code of Ethics will have been breached.

The first safeguard to apply will be to notify the client of the nature of the conflict and to gain their approval to continue to act. Where the accountant or firm is acting for both clients in for instance, a prospective joint venture, a purchase/sale transaction or tendering for a new audit, then notifying all relevant parties will be appropriate. Asking for consent to continue to act may also be considered.

Safeguards may be essential

It is unlikely, however, that notification alone will be sufficient and generally further safeguards will need to be set up. It is common to see separate engagement teams, restricted access to information, security protocols and both personal and corporate confidentiality agreements in place. And of course, at a personal level, the breach of a confidentiality agreement would be evidence of a breach of one of the five fundamental principles in the Code of Ethics.

Conflicts of interest at an individual level are often represented by partners and senior staff in an accounting firm having an apparent direct or indirect benefit from business relationships.  However, at a corporate and multinational level, similar conflicts of interest can exist.

Sweet results for research backers

In November 2015, The Times newspaper ran a front page story that Coca-Cola had “poured millions of pounds into British Scientific research to counter claims that its drinks helped to cause obesity”. Similar stories were published in August in the New York Times where Coca-Cola admitted that it invested more than $78 million in US research involving more than 100 researchers.

Coca-Cola has set up its corporate responsibility statements, charitable trusts and social enterprise activities in a very enlightened way. However, an article published in the journal PLOS Medicine in 2013 concluded that studies funded by drinks companies and the sugar industry are five times more likely than other studies to find no link between sugary drinks and weight gain!

But breakthroughs cost money

Studies in the pharmaceutical world show that many of the product and research developments in the last 50 years have had an uncomfortable link between researchers, the medical profession and the pharmaceutical industry. It is easy to write headlines suggesting that this relationship is at best uneasy, and at worst potentially misrepresentative.

However, the pharmaceutical industry needs to work closely with the medical and scientific industry to test and confirm the benefits or otherwise of its new products. Without such close relationships, would some of the developments in modern medicine have been made as quickly and, therefore, to the benefit of the public generally?

Is there an alternative for medical and scientific research other than to have it conducted in universities sponsored by government, industry and charities - many of whom may be deemed to have a conflict of interest?

Is disclosure enough?

Back at the level of the individual, results from experiments in behavioural psychology indicate that even subtle acts of giving from one person may trigger an unconscious payback from another. Eminent psychologists have concluded that disclosure, although giving a moral licence to the individual, may not eliminate the conflict of interest.

The ICAS Code of Ethics uses disclosure as a primary action. Is this really a high enough bar?  My advice is to follow the Code, take guidance from those around you in your organisation but keep your mind open to the question of “is this action sufficient?”  Maybe even a free pen will affect your unconscious behaviour and damage your objectivity.


  • CA Student blog

Previous Page