Conflict of Interest

A professional accountant in business may face conflict of interest situations when undertaking professional activities. Conflict of interest refers to a situation where the private interest of a professional accountant competes or conflicts with the interest of the employing organisation. It creates self-interest threat to objectivity and may create threats to other fundamental principles. Examples of situations in which conflict of interest may arise include:

• serving in a governance capacity in the company that is approving certain investments which will increase the value of the personal investment portfolio of the professional accountant or an immediate family member; and
• being responsible for selecting a vendor for the company when an immediate family member or a close friend of the professional accountant could benefit financially from the transaction.

Mishandling of conflicts of interest may lead to criminal acts such as fraud against the company, corruption or submission of false documents to deceive the principal. Professional accountants should therefore identify and evaluate the threats and relationships that might create a conflict of interest and implement safeguards, when necessary, to eliminate or reduce any threats in compliance with the fundamental principles to an acceptable level. They should exercise professional judgment and be alert to all interests and relationships that a reasonable and informed third party, weighing all the specific facts and circumstances available to the professional accountant at the time, would be likely to conclude that they might compromise compliance with the fundamental principles.

The fundamental rule should be to avoid any conflict of interest, and if it cannot be avoided, the concerned professional accountant, irrespective of the rank, should declare the conflict to the approving authority of the company. Following such declaration, the approving authority should take appropriate action to resolve the conflict, such as withdrawing the concerned member from performing the task and putting the matter to the vote.

A company should establish a clear mechanism for its directors and employees to manage conflicts of interest. For example, appointment letters, employment contracts and/or the company's code of conduct should specify the policies concerning handling conflicts of interest.

For more information about handling conflicts of interest by professional accountants in business, please refer to section 210 of Chapter A of the COE.