ICAS issues guidance on conflict of interest
Ann Buttery reports on ICAS’ new conflict of interest guidance.
With the increased focus on recent corporate failures, more public scrutiny is being placed on accountancy firms and their perceived ability to “manage” any conflict of interest that may exist in the work they are undertaking or intending to undertake.
In order for there to be confidence and trust in the accountancy profession with regard to conflict of interest, ICAS believes a fresh approach is required.
The provisions within the ICAS Code of Ethics are still appropriate. However, ICAS believes that greater emphasis needs to be placed on ethical and public interest aspects, such that the question becomes whether the firm or member “should” undertake an engagement which involves a conflict of interest as opposed to “could”.
The new conflict of interest guidance provides details of best practice for firms on how to apply the existing provisions on conflict of interest within the ICAS Code of Ethics when assessing whether to accept an appointment.
In developing the guidance, the advice of a QC (not an opinion) was sought to understand the current legal position in relation to conflict of interest. The QC advised that the courts have not stated in any case decided to date that a conflict of interest, per se, implies a breach of professional duty. There is no rule of law that prohibits a firm from undertaking an engagement solely on the grounds that there is a conflict of interest.
In the absence of a rule of law, the provisions within the ICAS Code of Ethics (both the extant version and the restructured version to be adopted in 2020) therefore remain appropriate, and it is for individual firms to decide their approach to conflict of interest.
Current best practice
Firms have advised that, previously, they have tended to focus on whether they “could” accept an engagement involving conflict of interest (i.e. whether the firm is capable and can manage any conflicts that exist). However, in response to recent developments, when they are considering whether to accept an appointment, the perceived reputational impact/consequences of doing so, as well as any public interest implications, are now playing a far more significant part in the decision-making process. The key determinant is now whether the firm “should” accept an appointment, as opposed to whether the firm “could” accept it.
A firm may take the position that where it identifies a conflict of interest it will not act for one or more parties or decline the engagement altogether. A firm may also take the view that it will accept or continue an engagement where an identified conflict can be properly managed with appropriate safeguards in accordance with the relevant Codes of Ethics and established case law.
The ICAS Ethics Board’s guidance paper “The Ethical Journey: The Right, the Good and the Virtuous” (published November 2017) promotes consideration of the reputational aspects of an action as part of the ethical decision-making process to ensure that the most appropriate ethical action is ultimately taken. Following the “right, good and virtuous” model, a firm considering whether it “should” undertake an engagement which involves a conflict of interest, and having regard to reputational risk in particular, is considered to be a more appropriate approach.
It is therefore recommended that ICAS firms and members adopt this approach as best practice when assessing whether to accept an appointment.