- Entering into a business venture with a client is not against the CA ANZ Code of Ethics, but problems can arise.
- Safeguards should be implemented, such as having appropriate documentation and contracts, and offering your client the opportunity to take independent advice.
- A member’s objectivity may become clouded when it is their own money involved in an investment.
By Anthony O’Brien
It can all start out amicably enough. Rebecca Stickney, New Zealand conduct leader for Chartered Accountants Australia and New Zealand, explains: “A client may present what appears to be a good idea for a business venture or they may simply ask their accountant ‘Do you want to tip some money into this?’.”
From here, a joint venture evolves. But even though the arrangement may start out with the best of intentions, Stickney has a word of caution. “If the business goes off the rails, the client often turns around and blames their accountant,” she warns.
Kate Dixon, CA ANZ’s conduct and discipline manager in Australia, points to the risk that a member’s “objectivity can become clouded” in a joint venture. When members’ own money is at stake, it can create situations where members put their personal interests ahead of their clients’, or the perception that they have done so.
Sharing a business interest is not the problem per se. With the exception of audit matters, there is nothing in the Code of Ethics that precludes members from entering into a joint venture with a client, family members or even a close friend.
Problems come when an accounting relationship exists in tandem with a financial interest. “Conflict-of-interest management must be front of mind,” says Stickney.
Safeguards against conflicts of interest
Rebecca Stickney, NZ Conduct Leader CA ANZ
The Code of Ethics identifies threats to compliance with objectivity, and members need to have appropriate safeguards in place.
Larger and more complex firms have electronic tools to help identify real or potential conflicts of interest. Once identified, the firm will assess the conflict and determine an appropriate outcome that ensures appropriate safeguards are implemented.
These safeguards can involve members informing the relevant client in writing that they (the member) have a potential conflict of interest arising from a financial stake in the venture. The member should also consider noting that it may be in the client’s best interest to seek alternative advice. This may include accounting or legal advice.
“Members should then request written informed consent from the client before the venture is taken any further or continuing with any further accounting services,” says Stickney.
“Conflict-of-interest management must be front of mind.”
In addition, members should ensure the commercial relationship is regulated by the appropriate documentation. Depending on the circumstances, that may include a formal shareholders’ agreement, which clearly spells out what happens if things go wrong.
As an aside, the Code notes that implied consent may be acceptable in some circumstances, but Stickney warns it may be risky to rely on this: “The greater the conflict, the more imperative it is to have everything documented,” she says. “This protects both the member and the client, and removes the room for doubt.”
The other danger that can arise is where the joint venture is the initial relationship between the parties. In these circumstances, members may consider taking on an accounting role as well. While members may view this as part of their “contribution” to the joint venture, the normal rules of engagement apply. This includes the need for terms of engagement and consideration of conflicts. The principles of informed consent apply in these circumstances as well.
Sometimes a member’s financial interest in a joint venture is so significant, and the risk of conflict so great, it may be in the best interest of the member – and their client – for the member to step out of the accounting relationship and just remain with the joint venture.
Disciplinary penalties over conflicts of interest
Joint ventures with clients have generated a number of complaints in recent years, and Stickney stresses that “disciplinary outcomes can be significant if there is any suggestion that members are putting their own interests ahead of those of the client.”
Some cases have resulted in suspension, others have seen members terminated from membership.
One of the more serious instances considered by the CA disciplinary bodies involved a member who introduced clients as investors to companies in which the member had a pecuniary interest. The member didn’t disclose material information about the ventures, including their own financial interest.
In the final appeal decision, the Appeals Council noted: “There seemed to be continuing failure on (the member’s) part to recognise that (the member) was hopelessly conflicted.”
In addition to being found guilty of misconduct in a professional capacity and being removed from membership, the member was ordered to pay the full costs of appeal and $62,495 towards costs incurred by CA ANZ for the disciplinary tribunal hearing.
Other cases have resulted in the member being required to undergo further ethical training, in addition to other sanctions. Publication of the decision of the disciplinary body can also have an impact on the member.
Stickney observes: “Sometimes members set off on the wrong foot from the beginning. But there is often a progression to these things. It starts with great intentions and then goes awry.”
Ask for guidance before the joint venture starts
Kate Dixon, Australian Conduct and Discipline Manager CA ANZ
Becoming involved in a joint venture with a client will not, in itself, see a member appear before a disciplinary body. But in the complexities of the real world, members can encounter areas of uncertainty. When that happens, help is available.
Both Stickney and Dixon point out that members can contact CA ANZ for guidance. “Members can talk to their CA Advisory Group for information about their obligations,” says Stickney. “Members should also consider seeking legal advice.”
“Objectivity can become clouded.”
Need help? Call CAAG
The CA Advisory Group provides counselling and support for chartered accountants facing ethical dilemmas or weighing career decisions.
Local panels of experienced CAs offer guidance for fellow members, and can provide you with advice and support on a range of professional and ethical matters.
The CA Advisory Group service is free and all discussions are strictly confidential.
Visit: CA Advisory Group
Call: 1300 137 322
The 6 golden rules for managing conflicts of interest
- Identify perceived and actual conflicts of interest
- Disclose the conflict and the proposed safeguards
- Offer the opportunity to take independent advice
- Obtain consent to act
- Document: the disclosure of the conflict; the proposed safeguards; that you have offered the opportunity for independent advice; and, importantly, the clients’ informed consent to continue acting
- Re-evaluate if there is any change in the nature of the engagement.
CA Advisory Group
If you need advice on a potentially difficult ethical issue, contact the CA Advisory Group.Read more