10. Professional Independence and Client-centred Conflicts of Interest Flashcards
What are conflicts of interest?
- compromises conduct/services
- when personal and professional interests clash
- difficulty in exercising sound, independent and objective judgement
What is client-centered conflict?
Between client and professional e.g. compromise professional conduct for self interest
What is employer-centered conflict?
Between employer and stakeholder e.g. liberal interpretation of accounting standards
Essential element of fiduciary relationship
- 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
Essential element of proper exercise of duty
- conflict impairs exercise of duty
- divided loyalties, obligations and interests
- judgement compromised
Essential element of self interest
- personal benefit
- interests of related parties
Essential element of real or imaginary
- actual conflict not necessary
- perceived conflict sufficient
Consequences of conflict
- 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
How does screening resolve conflict?
- identifies relationships and financial interests
- situations that could be a conflict
- knowing ones client
How does the test of trust resolve conflict?
- ask would others trust my judgement?
- personal interests can cloud objectivity
- can lead to unnoticed conflicts
How do strategies resolve conflict?
- Disclose - inform, get consent, peer review
- Remove - avoid, replace and resign
- Advice - guidance and counselling
When changing engaged professionals…
- 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
What if specialist assistance is needed?
- 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
When commissions are involved
- 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
What is tax minimisation?
Legitimate arrangement to reduce amount of tax through various arrangements
What is tax evasion?
- 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
What is tax avoidance?
- 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
Taxpayer ethics for the professional is…
- 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
What are contingent fees?
- fees that depend on the outcome
- motivation is to maximise return
- improper
