Public accountants play a crucial role in maintaining the integrity and trustworthiness of their clients’ financial reporting. However, they often face ethical dilemmas when confronted with conflicting interests or client requests that could compromise their professional integrity.
Here are some ethical areas to bear in mind for your accounting career and why they are important throughout all public accounting jobs.
Common Concerns and Keeping it Straight
Here is an overview of a few common concerns you may have when starting or switching public accounting jobs. To summarize, when starting a new job with an employer, ask if they have a code of ethics for the firm. Also, be mindful of common public accounting professional responsibility standards.
Independence and Objectivity
Maintaining independence and objectivity is paramount for accountants. They must avoid any situations or engagements that could compromise their ability to provide unbiased and objective advice. Lack of independence, whether perceived or actual, can undermine the credibility of financial reporting. Accountants should remain vigilant and disclose any potential independence issues to ensure transparency and uphold professional integrity.
Most commonly, when the accountant is the outsourced accounting advisor for the client, conducting the audit of financial statements is a breach of independence. The audit team cannot audit their firm’s own accounting work. It is important for the firm to identify clear lines of independence between its advisory role with the client and the audit team’s role.
Conflicts of Interest
Public accountants encounter conflicts of interest when their personal or financial relationships compromise their objectivity or professional judgment. It is essential to identify and address these conflicts to uphold professional ethics. Here are a few examples:
Family or Personal Relationships: If a public accountant has a close relationship with a client, such as a family member or a close friend, it may create biases that could cloud their judgement. In another scenario, the accountant’s family may receive services from the client. In such cases, the accountant should consider recusing themselves from the engagement or involving additional oversight to maintain objectivity.
Financial Interests: Holding financial interests, such as investments or stock ownership, in a client’s company can create conflicts of interest. Accountants should disclose such interests and, in some cases, pass the client on to a colleague or refer them to another firm in the interest of the client.
In complex situations or when facing conflicting interests, accountants should seek guidance from colleagues, professional bodies or legal experts. These consultations can provide valuable insights and help resolve ethical dilemmas while safeguarding the accountant’s professional integrity.
Confidentiality and Privacy
Accountants have access to sensitive financial and personal information about their clients and their clients’ clients. It is crucial for them to maintain strict confidentiality and privacy standards to protect the trust and confidentiality of this information. Sharing or misusing confidential information can lead to legal and ethical consequences.
Accountants should adhere to established confidentiality guidelines and professional standards to safeguard client data and maintain trust.
Professional Competence and Due Care
Accountants have a responsibility to maintain their professional competence and continuously enhance their knowledge and skills. Staying updated with changes in accounting standards, laws, regulations and industry practices is essential. Failing to provide accurate and reliable information due to a lack of competence can result in serious financial and reputational repercussions.
Accountants must invest in continuing professional development, but also exercise due care in their work to ensure the highest quality of services for clients.
Examples: High-Risk Deductions and Client Requests
Public accountants may face situations where clients request deductions or reporting that the accountants consider too high-risk or potentially fraudulent. Here are steps to approach this ethical dilemma:
- Assess Professional Responsibility: Accountants must prioritize their professional responsibility to maintain the integrity of financial reporting. They should assess whether the requested deduction or reporting aligns with applicable accounting standards, laws and regulations. If there are concerns about the legitimacy or riskiness of the client request, the accountant should communicate their reservations to the client. The client may decide to move forward regardless of the guidance. At that point, the accountant may decide to no longer serve that client due to their ethical concerns.
- Educate and Advise Clients: It is crucial for accountants to educate clients about the implications and potential risks associated with high-risk deductions or questionable reporting. They should explain the impact on financial statements, compliance and potential legal consequences. By providing comprehensive advice, accountants can guide clients toward making informed decisions while adhering to ethical guidelines.
- Document Communication: To mitigate risks and maintain transparency, accountants should document all communication and discussions related to high-risk deductions or reporting. This documentation serves as evidence of the accountant’s efforts to address ethical concerns.
Another thing to consider is the verbiage included in contracts or marketing. For example, don’t use words like “ensure” or “assure” because you don’t want to promise something you may not be able to deliver. Accountants can advise clients through their knowledge and other resources, but they can’t promise a certain result, like reaching a revenue goal or receiving $10 billion when they sell their business.
At the end of the day, professional reputations are on the line. Sometimes accountants get blamed or sued for things outside of their professional control or their best recommendations, but if you are true to the trade and are honestly working toward the best interest of your clients, you can uphold the standards of the profession and its good reputation.
For a concrete list of the public accounting profession’s code of conduct, visit the AICPA.
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