Conflicts of Interest Classes 12, 13, and 14
Professionals whose training and culture promote the core value of impartiality are most likely to become what?
indignant/offended at the mere suggestion that financial or personal interests could contaminate their work. Their professional pride makes them see themselves as being above such matters.
Managing Conflicts of Interest pages 240-241
Common conflict check techniques to track and monitor possible conflicts of interest: 1. Establishing databases for all clients 2. Creating strict controls over access to client files and protocols for who may access information 3. Creating information barriers, or virtual walls, that filter emails from reaching unauthorized parties who otherwise might have a conflict of interest 4. Educating staff members about the need to avoid conflict of interest 5. Developing reward systems that provide staff members with incentives to report potential conflicts of interest 6. Developing a systematic review process for accepting new clients that includes an evaluation of actual and potential conflicts of interest
Identifying Conflicts of Interest Integrity and Objectivity Rule:
Accountants "shall maintain objectivity and integrity [and] shall be free of conflicts of interest" in performing professional services, whether they work in public accounting, government, or industry.
Our need to avoid dissonance assures us that we have only the best and most honorable of motives.
All of us are as unaware of our blind spots as fish are unaware of the water they swim in, but those who swim in the waters of privilege have a particular motivation to remain oblivious - all of us are blind to whatever privileges life has handed us.
The Broad Prohibition Against Conflicts of Interest: When must accountants avoid Conflicts of Interest?
An accountant's duty of objectivity applies to the performance of any professional service.
Behavioral Aspects of Conflict of Interest Disclosures pages 237-238, HTD 88-92
Behavioral - When someone discloses a conflict of interest thus saying there could be potential bias, it makes sense that the other person will make a more informed decision but that's not the case. Two reasons for challenging the supposed benefits of fuller and more transparent disclosures: 1. When adviser discloses self-interest bias, person might discount the person's recommendations. Example: Disclose self-interest (if you buy this specific product I get 10% back but it is 10/10 great) 2. Self-interested advisers who disclose potential bias often feel less inhibited/less reserved thereafter about exaggerating their claims; consistent with the well-known concept of moral licensing - occurs when people who have performed a good deed, such as honestly disclosing conflict of interest, feel entitled to engage in a bad deed. Disclosed conflicts of interest may lead to heightened scrutiny of an adviser's reliability, the magnitude of the mental discount applied usually is insufficient to fully correct for the degree of exaggeration present HTD - Best way to deal with conflict of interest? - Full disclosure - sunshine policy. However, not necessarily the case and can make things worse. Basically an experiment - estimator got more money the closer they got to the amount of money in jar. Adviser with conflict of interest would get more if the estimator overestimated. Adviser wouldn't do an extreme $$ because the estimator would be skeptical. What if disclosed conflict of interest - The adviser would still suggest a higher amount but the estimator would discount disclosure creates even greater bias in advice - estimator made less adviser made more
TED Talk video: Dan Ariely, Beware Conflicts of Interest https://www.youtube.com/watch?v=n8Y8FK8gonc&list=PLs7otDhXYK-ssM2Zg9ghLtZJRWPSpOwSq
Burned victim (non-symmetric) Treatment to provide black dots on side of face to make symmetrical. Doctor tried to guilt trip him in doing it by reasoning about getting the ladies. So Dan asked the deputy why the guilt trip - because they did 2 treatments already and need a third to write about. So then Dan compared to his own experience - he ran tests in his lab where he had one group he expected to do really well and another group to do poorly. That's what happened except one person was suppose to do really well but performed terribly and ruined the mean for the sample. Apparently, the guy was old and drunk and wanted easy cash so Dan thought perfect we can throw him out since no one wants a drunken guy and that would mean the mean would be perfect. BUT then he thought would we have thought differently if he was in the different group - would we have even noticed him. Life, we encounter people who inherently biased, sometimes we are too blinded by our own incentives
The Road to St. Andrews MWM pages 45-51
Ethical breaches typically start with "accepting lunch with a lobbyist" and then devolve "one step at a time". Once you accept that first small inducement and justify it that way, you have started your slide down the pyramid. Think of an equivalent to "lunch with a lobbyist" for (1) audit practice, (2) tax practice and (3) corporate accounting.
Conflicts of Interest Versus the Duty of Confidentiality pages 239-240
Example: major CPA firm audited two audit clients who did business with each other. CPA firm found that 1 company defrauded the other company by charging grossly inflated prices for certain asset sales. Should it violate the duty of confidentiality of the 1 company or be quiet. CPA was quiet but court found CPA was wrong and awarded the other company money in damages Another example: CPA audited a payroll processing firm and a client company that used the payroll firm. CPA found that payroll was suffering severe cash flow problems so warned clients about risks of depositing money to them. Payroll firm became illiquid and unable to operate. Court ruled duty of confidentiality supersedes duty of loyally protect
Client Waivers of Conflicts of Interest: When a conflict of interest potentially exists, an accountant may utilize either of two forms of disclosure.
First, accountants commonly include General Disclosures in their engagement agreements. A General Disclosure typically states that it is common for an accountant to serve numerous clients, including some who may be competitors, suppliers, or customers. This type of disclosure is generic in nature and is made without reference to any anticipated or pending conflict of interest. Second, an accountant might make a Specific Disclosure about a particular situation that already has arisen. This type of disclosure should be sufficiently detailed about relevant threats and safeguards to allow a client to make an informed decision about whether to give its express consent. After being informed about an accountant's conflict of interest, a client may choose to give its consent. This consent may be provided orally or in writing. If consent is given orally, though, an accountant should document the client's consent in its records.
Resisting Temptation: How does the author suggest we resist the temptation to violate ethical duties?
First, by recognizing how automatic response systems control our actions, we can begin to tame their impulses. We likewise can resist the temptation to violate ethical duties by consciously focusing on our self-image, reputation, and long-run career goals. Second, we should avoid making critical, conflict-filled decisions during period of Cognitive Overload. Cognitive overload arises when people have so much analytical information occupying their minds that their calculating, effortful System 2 brain function becomes too clogged up to override reflexive System 1 impulses to grab instant gains.
In evaluating client Conflicts of Interest, the concept of a Conflict is defined expansively.
It includes actual conflicts, perceived conflicts, and even potentially opposing goals that have not yet arisen. An accountant must avoid not only actual conflicts of interest, but also the appearance of a conflict of interest. A conflict of interest presently exists if it is reasonably foreseeable that parties' interests will diverge in the future. When the presence of a conflict of interest is evaluated, people tend to think of an interest as referring to a financial stake in the outcome of a matter. However, the notion of an interest extends well beyond a monetary goal or desire. e.g., an interest might be a personal allegiance to a family member or friend e.g., an interest might be an accountant's goal of promoting the goals of a particular charitable, civic, or social cause
When one firm member has a Conflict of Interest involving a client, are others within the firm ordinarily precluded/prevented from serving the client?
No, as long as the firm establishes adequate safeguards. Typically, this is accomplished by erecting/creating preventive barriers that segregate client information from flowing between the disqualified member and others within the firm.
Does an accountant's obligation to protect employer interests end upon accepting employment elsewhere?
No. Even after quitting one job, accountants may not share or utilize a prior employer's confidential information at their new place of employment.
Naïve realism
Our conviction that we perceive objects and events clearly "as they are". We assume that other reasonable people see things the same way we do. If they disagree with us, they obviously aren't seeing clearly.
Conflicts of Interest https://www.youtube.com/watch?v=xnRpMQvW_ow
People look at results instead of progress Sometime individuals have incentives that conflict with their professional responsibilities Conflicts of interest are pervasive in markets and in society Example - boyfriend/editor for paper Eliminating conflicts of interest is one of the simplest and most effective ways to reduce unethical behavior
When is Client Consent not permitted to waive accountant Conflict of Interest?
Private citizens may not consent to overlook a conflict of interest that could adversely harm the interests of the general public. e.g., in an audit engagement, the investing public has a compelling public interest in an auditor maintaining objectivity and professional skepticism. As a result, a client may not consent to an auditor's conflict of interest if this conflict compromises the auditor's independence.
The Broad Prohibition Against Conflicts of Interest In evaluating client Conflicts of Interest
The concept of a Client is defined expansively.
Conflict of interest rules apply to who?
To all accountants, regardless of whether they work in public practice, industry, or government. In the latter situations, accountants must protect their employers' interests because the employer is considered to be the client.
Conflicts of Interest in the Accounting Profession: When does an Accountant-Client Conflict arise?
When professionals' personal goals diverge from their client obligations.
Identifying Conflicts of Interest: When is a Conflict of Interest present?
When a person is tempted to neglect or subordinate/lower in importance duties owed to others for personal gain.
Conflicts of Interest in the Accounting Profession When does a Dual-Client Conflict arise?
When an accountant provides professional services to two or more clients who have opposing interests. e.g., representing buyer and seller, lender and borrower, licensor and licensee, corporation and its shareholders, business co-owners, business competitors, or multiple family members
Can workplace Conflicts of Interest arise in the budgeting process?
Yes. Conflicts of interest particularly thrive in the workplace when ambiguous facts and judgment calls have to be made, such as in the budgeting process. e.g., by skewing departmental profit forecasts, cost accountants can help protect a friend's job in a struggling business segment, even though an accountant's primary duty is to prepare truthful and objective projections
Can workplace Conflicts of Interest arise when employees compete against their employer or provide assistance to competitors?
Yes. Employees must carefully protect company trade secrets, policies, and procedures from being disclosed to competitors.
Being given a gift evokes what?
an implicit desire to reciprocate.