Ethical dilemma 11: We're all in this together

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In 2008, ICAS Research published the report "What do you do now? Ethical Issues Encountered by Chartered Accountants" by Dr David Molyneaux containing 28 true life case studies of ethical dilemmas faced by accountants either in practice or business.

In recognition of this work, in 2009 the ICAS Technical Policy Board then published "Shades of Grey" containing a further series of case studies, one of which is reproduced below.

The views expressed in these respective case studies are those of the Ethics Committee and do not necessarily represent the views of the Council of ICAS.

This case study gives general guidance only and should not be relied on as appropriate or comprehensive in respect of any particular set of circumstances. It is recommended that users consider seeking their own professional advice.

The authors or the publisher can accept no responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication.


You enjoy your role as Financial Controller of Little Boxes plc - a public company and a large national developer for whom you have worked for five years now. You have worked your way up through the organisation and are hopeful of a board appointment in the future.

You certainly have been accepted as "one of the team" and the board members turn to you for advice on financial and commercial matters on a regular basis, as your boss, the Financial Director, spends a lot of time out the office with the Chief Executive. This has led to the development of close relationships with most of the senior team.

The Chairman of Little Boxes plc, Sir Peter, formerly held high profile roles in the City and has been a very good appointment for Little Boxes. One of his interests is Corporate Governance and he has set very high standards for Little Boxes. You have done much of that work and enjoy a good relationship with Sir Peter.

The statement on standards of behaviour in business that you developed under Sir Peter's guidance is something you are particularly proud of - although it did cause a bit of a stir when it was unveiled, especially the part on entertaining. You have taken a lot of good-natured banter from your colleagues on this subject.

Today you are signing-off a payment run and settle down to do some sample checking. You spot a payment to Plumbrong Ltd and decide to examine the back-up paperwork. This company does a lot of Little Boxes' work on their new-build houses.

They have also recently done work on the extension you had built on your family home. The work on the extension was arranged and managed by your colleague, Bill, the Construction Director of Little Boxes and you have been delighted with the work - the price was a very good one, even if it has somewhat stretched your finances.

To safeguard yourself you even had the Internal Audit manager check Plumbrong's invoice to ensure that the rates you were charged for labour and materials bore comparison with the rates that the company pays. This had also been helpful to you in another way because, as Plumbrong had insisted on billing Little Boxes, all you had seen was an overall charge for "Work done on Extension" on a Little Boxes' recharge invoice raised by the Construction Director.

As it happens, the invoices making up the payment to Plumbrong are for another piece of "private work" - this time for the Construction Director himself. With the papers is a copy of the recharge by Little Boxes to your colleague together with evidence of his payment.

However, you are slightly puzzled as the Plumbrong invoices contain no mention of several items that you know were included from your last visit to his house - such as the Jacuzzi, the high-tech shower fittings and the digital musical system.

Worried on his behalf you ask for the other Plumbrong invoices for this job, only to be told there are none. Shortly thereafter you are also told that a call has been made to Plumbrong who confirm that there is nothing further outstanding.

While you are pondering this, the Construction Director, Bill, arrives in your office. He asks what your query is on his extension as he has heard from his contact at Plumbrong that questions have been asked. You explain and tell him that you are concerned and wish to protect him.

He looks embarrassed and explains to you that he has known the owner of Plumbrong Ltd for many years and that the Jacuzzi, shower attachments and the music system are a gift. He also hastens to reassure you that as he has no part in the tendering procedures (which take place every twelve months), no undue influence is involved.

You gently explain both the ethical issues involved, and the conflict with the company's statement on standards of behaviour in business.

Bill looks even more embarrassed and points out that you have also benefited from this largesse. However, he had deliberately not told you so that you would not be compromised because you manage and supervise the annual tender process. In fact, Bill added that several of your colleagues have, over the years, knowingly benefited from a similar arrangement, including the Chairman, Sir Peter.

Bill leaves you to think this over. Personally, this is both a financial and professional embarrassment - you would find it hard to find the cash at the moment, and it may be difficult for others to accept you were ignorant of the position.

It also potentially threatens your relationships with your colleagues. With the Chairman, it will be a particularly difficult matter to raise, given his stance on business behaviour. In addition the tendering process appears to have been unaffected to date given your own involvement. You ponder the implications.

What do you do now?

Scenario Analysis

What are the readily identifiable ethical issues for your decision?  

For you personally

  • Can you retain your integrity by putting in place additional internal controls and ignoring the transactions that have taken place to date?
  • If you decide that you cannot merely do this, and need to inform the board of what has been happening - what are the likely implications for you?
  • Have other members of the board benefited from such transactions?
  • Is there a need for you to undertake a detailed review to determine the extent of these transactions or can you rely on what the Production Director has told you?
  • Are there any tax implications for you?

For the Company  

Is there a supportive environment for open discussion of practical dilemmas without a recriminatory, or 'blame', culture?  

  • Does the company's statement on standards of behaviour in business deal with how any breaches will be dealt with?
  • How can the company ensure that the risk of any future such transactions being entered into is minimised?
  • Are there any tax implications for the company?

Who are the key parties who can influence, or will be affected by, your decision?

  • You
  • The Production Director
  • The Chairman
  • The other directors
  • The shareholders
  • The directors of Plumbrong Ltd
  • Potentially HMRC

What fundamental ethical principles for accountants are most applicable and is there an apparent conflict between them?  


How can you retain your integrity in this situation?

You have not knowingly received a benefit from a supplier. Several other board members have also allegedly received similar benefits.

Although no-one appears to have suffered as a result of these alleged benefits having been received - the tender process has not been distorted - can you merely keep quiet about what the Production Director has told you and install further internal controls to reduce the risk of such transactions being entered into in the future?  


To what extent are you balancing your own (albeit unwitting) involvement and the need for the board to be made aware of these transactions?

Professional competence and due care




Professional behaviour

Whilst some of these transactions might have taken place prior to the company's statement on standards of behaviour in business being implemented, certain directors, including yourself, appear to have personally benefited from the close relationship with one of your major suppliers. You were obviously unaware of this issue but now that you are, is there any alternative course of action other than full disclosure to the board of directors?  

Is there any further information (including legal obligations) or discussion that might be relevant?  

  • Is this an isolated case or have transactions of a similar type taken place with other suppliers?
  • Does your company provide similar benefits to directors of customers/suppliers?

Is there a conflict between the 'Guardian' and 'Commercial' strands of an accountant's responsibilities?  

It would appear not in this scenario. In this scenario the issue is that directors appear to have been receiving personal benefits from a major supplier

Based on the information available, is there scope for an imaginative solution?


Are there any other comments?  

Has any thought been given to the potential tax consequences of such ransactions?


  • Ethical dilemmas

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