Chapter 7 - Ethical Conflict And Reporting Unethical Behaviour Flashcards
Ethical conflict
Ethical conflict between interests of different clients - success of one client will have a negative effect on another client that works in the same sector.
The are two potential problems which the accountant may face:
The accountant may provide services and give professional advice to one client where they know that this will have an adverse effect on another of their clients (objectivity)
Information gained about one client could potentially be beneficial to another and vice versa (confidentiality)
The risk associated with these issues can be reduced by using different members of staff to work on the client assignments. However if this safeguard does not reduce the threat then the accountant should not continue with the appointments.
If a significant conflict of interest is identified between clients the accountant should ensure that the clients involved are fully informed of the circumstances.
Conflict of loyalties for an accountant
Loyalty is defined as being firm and not changing in your support for a person or an organisation or your belief in your principles.
Conflict of loyalties - employed accountants are expected to be loyal to their employer but they also owe a duty of loyalty to the accounting profession. There is potential for conflict here. Because of the responsibility to their employer an accountant may be put under pressure not to comply with the fundamental ethical principles. They may face pressure to:
Break the law
Breach rules and standards of their profession
Be part of a plan for unethical or illegal earnings
Possible action that the accountant could take in these situations are:
The accountant should try hard to persuade the employer not to continue with the unlawful activity and rectify the situation as soon as possible
If there is a difference of opinion between the accountant and the employer regarding an accounting or ethical matter, this should be resolved with involvement of more senior staff
If the accountant considers all possible alternatives and the issue isn’t solved they will have to offer to resign.
Ethical conflict resolution
If the organisation that the accountant works for has a formal conflict resolution process the best approach may be to use this. Alternatively the accountant may initially try to resolve the conflict informally.
In either case when attempting to resolve the conflict the accountant should consider each of the following points:
The relevant facts relating to the conflict
Assess all the ethical issues involved
The fundamental principles that are involved in the ethical conflict
Seek advice from others
Whether there are established internal procedures to do with the conflict
Failure to resolve an issue
If an ethical conflict cannot be resolved a professional accountant may consider obtaining professional advice from their professional accounting body or taking legal advice. This would have to be done on a confidential basis and to ensure that there was no breach of confidentiality.
Organisational and professional values
Organisations should also comply with the spirit of the regulations. To do this many organisations will have their own code of conduct. There are a number of key organisational values that should be included in a businesses code of conduct. These include:
Being transparent with colleagues, customers and suppliers
Reporting financial and regulatory information clearly and on time
Being open and honest by identifying when it is appropriate to accept and give gifts and hospitality
Paying suppliers a fair price and on time
Providing fair treatment, decent wages and good working conditions for employees
Appropriate use of social media
Conflict with personal values
There may be occasions where the key personal values of an individual within the organisation may conflict with the values of the organisation itself. In these circumstances it is important that the individual makes their feelings know and discusses the conflict with management in the business using the conflict resolution process.
Non compliance with organisational and professional values
Being transparent with colleagues, customers and suppliers - put customers off trading with that business in the future
Reporting financial and regulatory information clearly and on time - failure to produce accurate and timely financial information may lead to poor decisions being made by the management of the business. Failure to produce financial statements on time can also lead to the business being fined
Being open and honest by identifying when it is appropriate to accept and give gifts and hospitality - a business that gives gifts or hospitality to customers could be seen as trying to influence the customers decisions or even bribe the customer. This can lead to adversely affecting the image of the business and potentially lead to accusations of unethical business dealings
Paying suppliers a fair price and on time - adversely affect the relationship with a supplier if this is not followed
Providing fair treatment, decent wages and good working conditions - if this is not followed this can lead to high staff turnover and can lead to low employee morale resulting in reduced quality of work.
Organisational values and codes of practice are not legally enforceable but if a business fails to comply with regulations they can be subject to fines.
Whistleblowing
This can be defined as a person who tells someone in authority about misconduct, alleged dishonesty or illegal activity that has or may occur in the organisation.
The allegations of misconduct made by a whistleblower can be made internally within the organisation or externally to regulators or to the police.
Internal whistleblowing - reporting misconduct on the part of a colleague to someone more senior in the organisation
External whistleblowing - if the issue is not being addressed internally they should report it to an appropriate regulator such as the financial reporting council.
Professional liability
Liability can arise from criminal acts, breach of contract in the supply or services, breach of trust, professional negligence and fraud.
Negligence is a breach of a duty of care that is implied in a particular situation or relationship. Professional negligence may occur if a client suffers a financial loss that can be proved is the fault of the accountant.
Minimising the risk of professional negligence
Accountant should ensure before taking on an assignment the exact duties to be included in the assignment are written down and agreed by both the accountant and the client
If further duties are added to an assignment then the accountant should ensure that these are also written down and agree by both parties
If the accountant prepares financial statements for a client they must clearly mark on the documents that they are confidential
Professional indemnity insurance
This type of insurance is taken out by an accountant as cover against legal liability to compensate a third party who has sustained injury, loss or damage through a breach in the accountants duty of care.
