10. Professional Independence and Client-centred Conflicts of Interest

Question 1

What are conflicts of interest?

Answer 1

• compromises conduct/services
• when personal and professional interests clash
• difficulty in exercising sound, independent and objective judgement

Question 2

What is client-centered conflict?

Answer 2

Between client and professional e.g. compromise professional conduct for self interest

Question 3

What is employer-centered conflict?

Answer 3

Between employer and stakeholder e.g. liberal interpretation of accounting standards

Question 4

Essential element of fiduciary relationship

Answer 4

• professional in position of trust and confidence, relied on for expert judgement and expertise
• act in best interests of client and society
• service with integrity and objectivity

Question 5

Essential element of proper exercise of duty

Answer 5

• conflict impairs exercise of duty
• divided loyalties, obligations and interests
• judgement compromised

Question 6

Essential element of self interest

Answer 6

• personal benefit

- interests of related parties

Question 7

Essential element of real or imaginary

Answer 7

• actual conflict not necessary

- perceived conflict sufficient

Question 8

Consequences of conflict

Answer 8

• favours self interest
• ignores fiduciary duties
• behaviour benefits some but not others
• danger of damaging reputation and credibility of professionals and individuals
• undermine trust of clients and public

Question 9

How does screening resolve conflict?

Answer 9

• identifies relationships and financial interests
• situations that could be a conflict
• knowing ones client

Question 10

How does the test of trust resolve conflict?

Answer 10

• ask would others trust my judgement?
• personal interests can cloud objectivity
• can lead to unnoticed conflicts

Question 11

How do strategies resolve conflict?

Answer 11

1. Disclose - inform, get consent, peer review
2. Remove - avoid, replace and resign
3. Advice - guidance and counselling

Question 12

When changing engaged professionals…

Answer 12

• respect client’s wishes
• client’s have right to choose and change (freedom)
• cannot restrict freedom
• owing fees not a bar to changing
• transfer file promptly
• formally communicate with engaged professional with permission as a safeguard

Question 13

What if specialist assistance is needed?

Answer 13

• decline work if don’t have required knowledge
• consider briefing out
• briefee must comply with instructions, scope of work, supporting existing client relationship and not criticise

Question 14

When commissions are involved

Answer 14

• may lead to commission bias
• commissions lead to self interest
• must disclose, secret commissions prohibited
• general prohibition on ‘soft dollar benefits’
• written disclosure of: product or service, identity of third party, business relationship, describe commission and value

Question 15

What is tax minimisation?

Answer 15

Legitimate arrangement to reduce amount of tax through various arrangements

Question 16

What is tax evasion?

Answer 16

• to escape tax liability
• deliberate falsification of information
• deceit by illegal means
• intentionally or accidentally
• professional must not be involved
• if discovers evasion, withdraw services

Question 17

What is tax avoidance?

Answer 17

• to reduce tax liability
• arrangements that comply with the letter of the law but not the spirit of the law
• legal but unethical
• loophole
• professional can advise on arrangements and repercussions but not be involved

Question 18

Taxpayer ethics for the professional is…

Answer 18

• obligation that tax paid is not more than necessary
• err on side of taxpayer where there is uncertainty provided that there are supporting documents
• duty to taxpayer, government and public
• exploiter and enforcer
• degree of exploitation depends on integrity

Question 19

What are contingent fees?

Answer 19

• fees that depend on the outcome
• motivation is to maximise return
• improper