A conflict of interest—like matters of bias and undue influence—can impact a registrant’s objectivity and can compromise a registrant’s professional or business judgment. Therefore, registrants must always be mindful of conflicts of interest and the potential for them to arise.
The CPA Alberta Rules of Professional Conduct define a “conflict of interest” as an interest, restriction or relationship that, in respect of the provision of any professional service, would be seen by a reasonable observer to influence a registrant’s judgment or objectivity in the provision of the professional service.
A conflict of interest can arise at any time. As soon as a conflict of interest arises, the burden falls on the registrant—as the professional with an obligation to manage the client relationship—to deal with it.
In recent years, the Complaints Inquiry Committee (CIC) has seen a greater incidence of accountants failing to manage (or failing to appropriately manage) conflicts of interest after they arise. In fact, in the last few years there have been five referrals of unprofessional conduct made by the CIC related to breaches of Rule 210 that have resulted in findings of unprofessional conduct. Two of these matters related to business that the registrant conducted outside of their practice of professional accounting. The other three related to conflicts that arose between clients—primarily due to marital separation or the breakdown of business relationships among shareholders—that were not managed appropriately by the professional accounting practitioner. Read more about these specific cases in the following Conduct Case Summaries on the CPA Alberta website:
- April 2021 to August 2021 Conduct Case Summaries;
- September 2020 to December 2020 Conduct Case Summaries; and
- December 2019 to March 2020 Conduct Case Summaries.
It is, therefore, an appropriate time for a refresher on the obligations that registrants have under the Rules of Professional Conduct (Rules).
Conflicts of interest are dealt with primarily in Rule 210. However, it is within the Preamble to the Rules that the issue is first introduced. There, in the discussion of the fundamental principle of objectivity, registrants are provided with the following:
“The profession employs the criterion of whether a reasonable observer would conclude that a specified situation or circumstance posed an unacceptable threat to a member’s objectivity and professional judgment… The reasonable observer should be regarded as a hypothetical individual who has knowledge of the facts which the member knew or ought to have known and applies judgment objectively with integrity and due care.”
This “reasonable observer” standard indicates that a registrant must manage a conflict of interest, even if it is merely a perceived—and not an actual—conflict.
Cue Rule 210.
Rule 210.1 requires that a registrant determine, in relation to a particular matter before agreeing to undertake or continuing to provide any professional service, whether a conflict of interest may exist, as contemplated by Rule 210.2.
Rule 210.2(a) prohibits a registrant from continuing to provide any professional service to a client or employer in circumstances where there is a conflict of interest between: the interest of the registrant and that of the client or employer; the interests of two or more clients or employers; or, the interests of the client or employer and those of a third party, where the interest of the third party and the registrant are aligned.
Rule 210.2(b) extends that prohibition to a situation where the interest of a former client or employer creates a conflict of interest in respect of a proposed or current professional service.
Rule 210.3 requires that, where a previously unidentified conflict of interest arises, a registrant must decline to provide, or withdraw from providing, all of the affected professional services, unless these three conditions are satisfied (or unless the affected parties’ conduct implies their consent to the registrant continuing to act):
- The registrant can rely on conflict management techniques that are generally accepted and doing so will not breach the terms of any agreement to provide services or any duty to another client;
- The registrant must inform each affected party of the existence of the conflict of interest and the techniques that will be used to manage it; and
- The registrant must obtain the consent of each affected party to continue the professional services engagement.
Rule 210.4 sets out what must be documented if a registrant has determined that the professional services in respect of a conflict of interest exists may be undertaken.
Rule 210 also offers considerable Guidance, including guidance about: identifying conflicts of interest; conflicts of interest in a professional or public accounting or related business or practice; conflicts of interest in employment situations; commonly accepted practices; management of conflicts of interest; conflicts of interest encountered by type of professional service area (e.g. assurance, taxation, consulting, merger/acquisition, not-for-profit organizations, forensic accounting and litigation support, valuations, insolvency, etc); and, the step-by-step process for dealing with .
This has not been an exhaustive discussion of the Rules dealing with conflicts of interest. Registrants are urged to refer to the Rules—available on CPA Alberta’s website under “Protecting the Public”—to remind themselves of their obligations. Further questions can be directed to a CPA Alberta Practice Advisor (conduct@cpaalberta.ca).
