Objectivity is a key facet of professional ethics for accountants. Lapses in the application of this principle can expose members to legal consequences, including reputational harm, loss of clients, fines and serious professional disciplinary sanctions.

Kate Dixon and Rebecca Stickney, leaders of the CA ANZ professional conduct teams in Australia and New Zealand respectively, discuss what objectivity requires and how it can be strengthened to ensure that ethical practice remains at the heart of all client engagements.

“Objectivity is one of the fundamental principles in the code,” says Dixon, “which requires members to exercise professional or business judgement without being compromised by bias, conflict of interest or factors such as undue influence of individuals, organisations or technology.”

“Objectivity is an area where members come unstuck. We often see objectivity compromised when a member is too connected to a client.”

Dixon says the code is explicit that members should not undertake a professional activity if a circumstance or relationship unduly influences their professional judgement.

“The code requires members to apply the conceptual framework to identify, evaluate and address threats to compliance with the fundamental principles, including that of objectivity. This includes having an inquiring mind, exercising professional judgement and using the reasonable and informed third-party test.”

“Objectivity is an area where members can come unstuck,” says Stickney. “We often see objectivity compromised when a member is too connected to the client, which obscures their ability to exercise the objective and independent mindset they need to undertake that engagement. Sometimes members are blatantly in breach of the principle, such as where self-interest is a factor, but breaches are also unintentional. For example, where judgement is clouded due to being overly invested in an engagement or failing to see threats to objectivity.”

Stickney says members need to be alert to perceived, potential and actual threats. “For example, a member might be acting for two sets of clients with a joint business interest. Safeguards to protect against objectivity or conflicts breaches include not advising on the joint interest, use of different partners within a firm to serve the different parties, setting up ethical walls and, in some instances, recommending independent advice.

“The usual rules around documenting safeguards and getting informed consent (noting some differences between requirements in Australia and New Zealand) apply too. And don’t forget, the appropriateness of safeguards needs to be subjected to the reasonable and informed third-party test.”

Too many hats

Stickney says the Disciplinary Tribunal saw a serious case recently, where a member was performing a range of roles and engagements for a group of interconnected clients, trusts and investment companies.

“The member was the accountant and professional trustee of the charitable trust, and also provided investment and management services to it. Additionally, he was a director and shareholder in an investee company which had investments with the trust, in which a close family member also had financial interests.

“There were some real problems where lots of hats had to be managed and significant issues arose around the member’s fees, the appointment of a family member as a paid adviser to the trust, as well as charges that were improperly charged to the trust but were in fact for the benefit of the other company.”

Stickney says the Disciplinary Tribunal found the member did not appropriately manage the conflicts of interest and objectivity threats. There was no evidence of disclosure or implementation of safeguards, and no informed consent obtained. Additional issues related to integrity around billing and due care in carrying out the engagement. The Disciplinary Tribunal accepted that the member’s failings were not deliberate but found the failure to contemplate any impact of the various hats was inexplicable for a senior practitioner. The member, an FCA, was suspended for a year, had his fellowship status removed, was ordered to be ineligible to hold a Certificate of Public Practice for 12 months and was instructed to pay the full costs of the investigation and hearing, of approximately NZ$20,000.

Relationship breakdowns

Dixon says a common area where members do not properly comply with the objectivity principle is when dealing with marital and shareholder business relationship breakdowns. She urges members to be very careful with such engagements.

“There’s a lot of pressure on members dealing with separated partners and any joint entities,” she says. “They might be long-standing clients with whom the member has a close relationship and members generally want to help their clients as much as possible.”

She says the process of identifying, evaluating and addressing threats to compliance with the objectivity principle means that members need to pause and take stock of whether, and in what circumstances, they can continue to act for one or more – or neither – of the clients, both now and in the future.

Sometimes, if there are no appropriate safeguards, the member must disengage.

“The couples might start out with the best intentions but if things fall apart between them, the member may be caught in the crossfire of acrimonious clients, which could result in loss of those clients, complaints and claims against them in serious circumstances.”

She says in a recent case involving a dispute between business partners, the Professional Conduct Committee said the member should have implemented safeguards and disclosed the conflict of interest in writing to the parties.

Preferably, he should have obtained explicit consent in writing for the parties to proceed and advised them to seek independent advice.

“The member’s failure to do so resulted in him being censured, fined A$5000, required to undertake training, submit to a quality review and pay costs.”

Dixon says maintaining objectivity demands both forethought and vigilance.“There are huge benefits from having very sound, robust practices to manage conflicts of interest and objectivity threats.”

Stickney says it’s disappointing to continue to see a high number of members who don’t protect themselves, “where there’s absolutely no consideration of any issues around conflicts or no documentation of any objectivity considerations. There’s just no excuse for this.”

Key strategies to safeguard against objectivity breaches

• Establish policies and procedures that anticipate issues around objectivity
• Include information about your conflicts procedures in engagement documentation
• Ensure different partners serve different clients. Set up ethical walls
• Put everything in writing and always get written, informed consent if continuing to act
• If client’s situation changes, such as a relationship breakdown, take a fresh look at your objectivity and conflict management. Documenting all discussions is essential
• Make conflict management part of regular partnership meetings. Having well-trained staff and partners is invaluable
• If you’re in sole practice, set aside time to reflect on where issues may arise and prepare accordingly.

Need help?

The CA Advisory Group provides free, confidential support for chartered accountants facing ethical dilemmas or weighing career decisions. Call 1300 137 322 (Australia) or 0800 4 69422 (New Zealand), or visit: CA Advisory Group

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