Tax practice management: CPA conflicts of interest.

• Author: Holub, Steven F.

CPAS GENERALLY FEEL THAT THEY UNDERstand the meaning of conflict of interest, but when asked to define the concept they often become less certain. The term "conflict of interest" refers to a situation in which two or more parties have a competing personal or financial interest that would make it difficult for the CPA to fulfill his or her duties fairly. For example, two clients may ask a CPA to provide services in a situation where the clients have competing interests that render the relationship incompatible. There are numerous occasions when a CPA might encounter a conflict, from providing advice on partnership issues to individual partners of a partnership client to representing a husband and wife for years and then trying to provide advice to both of them in a divorce proceeding. In these types of situations, the CPA will likely have a conflict that prevents him or her from fairly representing all the parties.

[ILLUSTRATION OMITTED]

The AICPA Code of Professional Conduct is clear: "In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others" (Code of Professional Conduct Rule 102).

CPAs' relationships with clients can change over time, and they must realize that they may have to withdraw from an engagement if a conflict develops. This dynamic reinforces why members in public practice must always maintain their objectivity and independence and should continually assess client relationships and their responsibility to those relationships, as well as to all parties in those relationships.

CPAs may find this dilemma more difficult when dealing with a client that pays a large fee. However, they must always take the cashflow out of the equation when assessing conflict of interest relationships.

A CPA may seek consent from clients to represent both parties when there is a conflict, as long as both parties are aware of the conflict and agree to waive their concerns (and the accountant believes that he or she can perform the service with objectivity). If the parties refuse to consent, the CPA cannot continue to represent one of the parties in the matter that has given rise to the conflict, and he or she may be proscribed from representing either party if the prior representation of both parties results in a conflict in representing either party.

Conflicts of interest may arise...