Introduction (310.1 to 310.3)
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Professional accountants are required to comply with the fundamental principles and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats.

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A conflict of interest creates threats to compliance with the principle of objectivity and might create threats to compliance with the other fundamental principles. Such threats might be created when:

  • A professional accountant provides a professional service related to a particular matter for two or more clients whose interests with respect to that matter are in conflict; or

  • The interests of a professional accountant with respect to a particular matter and the interests of the client for whom the accountant provides a professional service related to that matter are in conflict.

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This section sets out specific requirements and application material relevant to applying the conceptual framework to conflicts of interest. When a professional accountant provides an audit, review or other assurance service, independence is also required in accordance with International Independence Standards.

Requirements and Application Material

General (R310.4 to 310.4 A1)
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A professional accountant shall not allow a conflict of interest to compromise professional or business judgment.

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310.4 A1

Examples of circumstances that might create a conflict of interest include:

  • Providing a transaction advisory service to a client seeking to acquire an audit client, where the firm has obtained confidential information during the course of the audit that might be relevant to the transaction.

  • Providing advice to two clients at the same time where the clients are competing to acquire the same company and the advice might be relevant to the parties' competitive positions.

  • Providing services to a seller and a buyer in relation to the same transaction.

  • Preparing valuations of assets for two parties who are in an adversarial position with respect to the assets.

  • Representing two clients in the same matter who are in a legal dispute with each other, such as during divorce proceedings, or the dissolution of a partnership.

  • In relation to a license agreement, providing an assurance report for a licensor on the royalties due while advising the licensee on the amounts payable.

  • Advising a client to invest in a business in which, for example, the spouse of the professional accountant has a financial interest.

  • Providing strategic advice to a client on its competitive position while having a joint venture or similar interest with a major competitor of the client.

  • Advising a client on acquiring a business which the firm is also interested in acquiring.

  • Advising a client on buying a product or service while having a royalty or commission agreement with a potential seller of that product or service.

Conflict Identification (R310.5 to 310.7 A1)
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Before accepting a new client relationship, engagement, or business relationship, a professional accountant shall take reasonable steps to identify circumstances that might create a conflict of interest, and therefore a threat to compliance with one or more of the fundamental principles. Such steps shall include identifying:

  • The nature of the relevant interests and relationships between the parties involved; and

  • The service and its implication for relevant parties.

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310.5 A1

An effective conflict identification process assists a professional accountant when taking reasonable steps to identify interests and relationships that might create an actual or potential conflict of interest, both before determining whether to accept an engagement and throughout the engagement. Such a process includes considering matters identified by external parties, for example clients or potential clients. The earlier an actual or potential conflict of interest is identified, the greater the likelihood of the accountant being able to address threats created by the conflict of interest.

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310.5 A2

An effective process to identify actual or potential conflicts of interest will take into account factors such as:

  • The nature of the professional services provided.

  • The size of the firm.

  • The size and nature of the client base.

  • The structure of the firm, for example, the number and geographic location of offices.

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310.5 A3

More information on client acceptance is set out in Section 320, Professional Appointments.

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A professional accountant shall remain alert to changes over time in the nature of services, interests and relationships that might create a conflict of interest while performing an engagement.

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310.6 A1

The nature of services, interests and relationships might change during the engagement. This is particularly true when a professional accountant is asked to conduct an engagement in a situation that might become adversarial, even though the parties who engage the accountant initially might not be involved in a dispute.

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If the firm is a member of a network, a professional accountant shall consider conflicts of interest that the accountant has reason to believe might exist or arise due to interests and relationships of a network firm.

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310.7 A1

Factors to consider when identifying interests and relationships involving a network firm include:

  • The nature of the professional services provided.

  • The clients served by the network.

  • The geographic locations of all relevant parties.

Threats Created by Conflicts of Interest (310.8 A1 to 310.8 A3)
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310.8 A1

In general, the more direct the connection between the professional service and the matter on which the parties' interests conflict, the more likely the level of the threat is not at an acceptable level.

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310.8 A2

Factors that are relevant in evaluating the level of a threat created by a conflict of interest include measures that prevent unauthorized disclosure of confidential information when performing professional services related to a particular matter for two or more clients whose interests with respect to that matter are in conflict. These measures include:

  • The existence of separate practice areas for specialty functions within the firm, which might act as a barrier to the passing of confidential client information between practice areas.

  • Policies and procedures to limit access to client files.

  • Confidentiality agreements signed by personnel and partners of the firm.

  • Separation of confidential information physically and electronically.

  • Specific and dedicated training and communication.

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310.8 A3

Examples of actions that might be safeguards to address threats created by a conflict of interest include:

  • Having separate engagement teams who are provided with clear policies and procedures on maintaining confidentiality.

  • Having an appropriate reviewer, who is not involved in providing the service or otherwise affected by the conflict, review the work performed to assess whether the key judgments and conclusions are appropriate.

Disclosure and Consent (R310.9 to R310.10)
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A professional accountant shall exercise professional judgment to determine whether the nature and significance of a conflict of interest are such that specific disclosure and explicit consent are necessary when addressing the threat created by the conflict of interest.

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310.9 A1

Factors to consider when determining whether specific disclosure and explicit consent are necessary include:

  • The circumstances creating the conflict of interest.

  • The parties that might be affected.

  • The nature of the issues that might arise.

  • The potential for the particular matter to develop in an unexpected manner.

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310.9 A2

Disclosure and consent might take different forms, for example:

  • General disclosure to clients of circumstances where, as is common commercial practice, the professional accountant does not provide professional services exclusively to any one client (for example, in a particular professional service and market sector). This enables the client to provide general consent accordingly. For example, an accountant might make general disclosure in the standard terms and conditions for the engagement.

  • Specific disclosure to affected clients of the circumstances of the particular conflict in sufficient detail to enable the client to make an informed decision about the matter and to provide explicit consent accordingly. Such disclosure might include a detailed presentation of the circumstances and a comprehensive explanation of any planned safeguards and the risks involved.

  • Consent might be implied by clients' conduct in circumstances where the professional accountant has sufficient evidence to conclude that clients know the circumstances at the outset and have accepted the conflict of interest if they do not raise an objection to the existence of the conflict.

  • Non-Authoritative Guidance
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310.9 A3

It is generally necessary:

  • To disclose the nature of the conflict of interest and how any threats created were addressed to clients affected by a conflict of interest; and

  • To obtain consent of the affected clients to perform the professional services when safeguards are applied to address the threat.

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310.9 A4

If such disclosure or consent is not in writing, the professional accountant is encouraged to document:

  • The nature of the circumstances giving rise to the conflict of interest;

  • The safeguards applied to address the threats when applicable; and

  • The consent obtained.

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If a professional accountant has determined that explicit consent is necessary in accordance with paragraph R310.9 and the client has refused to provide consent, the accountant shall either:

  • End or decline to perform professional services that would result in the conflict of interest; or

  • End relevant relationships or dispose of relevant interests to eliminate the threat or reduce it to an acceptable level.

Confidentiality (R310.11 to 310.12 A1)
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A professional accountant shall remain alert to the principle of confidentiality, including when making disclosures or sharing information within the firm or network and seeking guidance from third parties.

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310.11 A1

Subsection 114 sets out requirements and application material relevant to situations that might create a threat to compliance with the principle of confidentiality.

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When making specific disclosure for the purpose of obtaining explicit consent would result in a breach of confidentiality, and such consent cannot therefore be obtained, the firm shall only accept or continue an engagement if:

  • The firm does not act in an advocacy role for one client in an adversarial position against another client in the same matter;

  • Specific measures are in place to prevent disclosure of confidential information between the engagement teams serving the two clients; and

  • The firm is satisfied that a reasonable and informed third party would be likely to conclude that it is appropriate for the firm to accept or continue the engagement because a restriction on the firm's ability to provide the professional service would produce a disproportionate adverse outcome for the clients or other relevant third parties.

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310.12 A1

A breach of confidentiality might arise, for example, when seeking consent to perform:

  • A transaction-related service for a client in a hostile takeover of another client of the firm.

  • A forensic investigation for a client regarding a suspected fraud, where the firm has confidential information from its work for another client who might be involved in the fraud.

Documentation (R310.13)
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In the circumstances set out in paragraph R310.12, the professional accountant shall document:

  • The nature of the circumstances, including the role that the accountant is to undertake;

  • The specific measures in place to prevent disclosure of information between the engagement teams serving the two clients; and

  • Why it is appropriate to accept or continue the engagement.

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This version includes content that has been approved by the IESBA but is either not yet effective or has been superseded by a newer version. You are able to return to the extant version at any time by clicking on “Return to Extant Version” in the black bar at the top of any page.

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June 2021

You are now leaving the extant Code to view another version that contains passages that have either been superseded or that have been issued but are not yet effective.

This version of the eCode incorporates changes to Part 4B.

Part 4B relating to independence for assurance practitioners with respect to underlying subject matter covering periods is effective for periods beginning on or after June 15, 2021; otherwise, it is effective as of June 15, 2021. Early adoption is permitted.

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