Accountants are bound by a set of rules, usually called professional ethics , that help define the appropriate relationship between them and their clients. Of all the rules you have to follow in your practice, avoiding a conflict of interest is probably the number-one concern, at least as far as your clients go. Conflicts of this sort are mostly of an I-know-it-when-I-see-it variety. As hard as it is to define, it’s still really important for you to be able to spot, and correct, any potential violation before it becomes an issue for your practice.

What Is a Conflict of Interest?

A conflict of interest occurs when you or your accounting firm wind ups in a position where your financial interests are at odds with clients who are trusting you to advise or audit them. Conflicts like this take many forms. Among the most common are:

• Direct conflicts, where your firm is on the opposite side of some business matter from one of your clients.
• Indirect conflicts, where you may have two or more clients whose interests are opposed, but you’re effectively helping them compete against each other.
• Deferred conflicts, where the service you rendered to a client was perfectly fine when you did it, but circumstances have since changed and you can’t go on as you did in the past.

How Can You Spot an Ethical Conflict?

Direct conflicts are generally easy to spot. For instance, say your accounting firm has invested in real estate in Winnipeg, and later one of your Toronto-based clients puts in a bid to buy the land (perhaps not knowing you own it). Since you have privileged access to the client’s books, you’re in a unique position to know how much money it can afford to pay for the land and whether its final offer is, indeed, its final offer. This is probably the clearest case of conflict of interest you’re likely to see.

Indirect conflicts can be harder to spot, and they usually take vigilance to avoid. Say you were brought in two years ago to audit the payroll of a big employer in Québec. Now, a Montreal-based labour union has asked you to consult with it in preparation for a big contract negotiation. When you find out the negotiation is with your old client, even if you haven’t worked with it for years, your continued involvement with this project could create the appearance you’re using your experience to unfairly advantage one party over another. Even if you don’t intend to do anything of the sort, the mere appearance is potentially enough to run afoul of your professional ethics.

Deferred conflicts can be the biggest surprises you bump into. The classic example of a conflict that emerges after you’ve gotten involved is of a married couple you once advised on taxes. In the past, you consulted with the parties as a couple, but now they’re getting a divorce. It probably isn’t possible for you to carry on filing for them both separately, as they’re likely to spend at least a little time in conflict over marital property. This scenario only gets more complicated if they own a business together that you’ve audited, but they intend to continue running it together and would like you to stay on as their auditor, even if you can no longer handle their personal finances.

Things You Can Do to Avoid Conflict

All of this can quickly get complicated. If your firm is typical, you’re probably involved with dozens or scores of clients who may cluster relatively close in a single industry. It isn’t realistic for you to keep their overlapping interests in mind with every interaction, nor is it expected of you. You’re on the hook if you violate your ethics though, so you need some kind of system for keeping track. Ideas for doing this include:

• Assembling a database of clients with lots of fields for their details. Try to list their industry, subsidiaries and parent corporations, known holdings, key personnel, and so on. If you notice any overlap between clients, say for instance, the CFO of one client is a managing partner of another, that relationship may bear closer scrutiny.
• Avoiding investing in the field where you do your consulting or auditing. If your firm specializes in agribusiness, for example, your personal investment in a major industrial farm company might raise eyebrows. Try putting your money elsewhere so you’re not likely to wind up on both sides of a deal.
• Investing either your or your firm’s money in a blind trust. If you don’t know you’re invested in that Winnipeg land deal, then you’re free to give your client the best advice you can, and nobody could accuse you of sacrificing your client’s interests for your own.

What if You’re Not Sure About a Potential Conflict?

A few times during your career, you’re bound to find yourself in a murky grey area. When this happens, you may not even know you’re in conflict. As usual, it’s always best to err on the cautious side, but you can also consult with a professional of your own to help you see where the line is in your situation. If, for example, one of your clients mentions how hot an investment looks and suggests you get in on it, taking that advice may or may not be a breach of ethics, all things considered. In cases like this, think about consulting an attorney or accounting ethics expert for a written opinion. As a rule, you’re fine if you’re found to be acting in good faith.

As an accountant, you’re bound to act in your clients’ best interests. When your interests conflict with theirs, there can be trouble. Take care to avoid the appearance of a conflict of interest to always do what’s right for the clients who trust you.