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Conflicts of Interest

November 22, 2012

Tax Question:

Why should I be concerned about conflicts of interest?

Facts:

A conflict of interest arises when our professional judgment or actions could be influenced by motivations that are in conflict with the interests of a client. In other words, it is doing something that either benefit ourselves or a third party at the expense of the client we are engaged by. This conflict does not have to be actual, it could just be perceived.

Discussion:

As accountants, we are awarded a great deal of trust by clients to act in their best interests. We perform our duties to the best of our abilities for the benefit of the client within the regulatory framework that our profession operates. However, there are circumstances where either we cannot act in our client’s best interests or could end up acting for alternative interests either unknowingly or unintentionally. There are several situations where a conflict of interest can arise. Some examples are:

  1. We have two or more competitors as clients. In this situation when we become aware of the conflict, usually when we are being engaged, we make it known and then based on feedback from the clients involved we either proceed or do not proceed.
  2. The owners of a company could be in a shareholder dispute. A common one is when a couple is getting divorced. This can make it difficult to act in the best interests of the company. In such circumstances, we can only act for one or the other shareholder on personal matters, not both. So sometimes we end up only doing the company accounts because this is not in conflict with either shareholder or we end up doing only one shareholder’s personal accounts and the accounts of the company and disclosing carefully all shareholder transactions to all shareholders.
 

At all times we strive for confidentiality. However, if we are dealing with owners who have conflicting motivations, we may struggle in servicing the company and/or the owners without breaching confidentiality. When this happens we often end up having an all-owner meeting to present the issues and those issues might include our continuing engagement as accountants. When we cannot have all-owner meetings we seek written acknowledgment of all of our advice and adjustments to company accounting records.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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