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31 March 2020: Coronavirus Update. The situation is fast moving and we are continuing to monitor the global situation and its impact on our members, staff, exam candidates, students and the profession. More information for Members and Students in My CIMA.

Section 220: Conflicts of interest

Conflicts of interest for members in business

220.1           Members are required to comply with the rules and fundamental principles and apply the conceptual framework set out in Section 200 to identify, evaluate and address threats.

220.2           A member in business may be faced with a conflict of interest when undertaking a professional service. In determining whether a professional service, relationship, or matter would result in a conflict of interest, a member should use professional judgment, taking into account whether a reasonable and informed third party who is aware of the relevant information would conclude that a conflict of interest exists.

220.3           A conflict of interest creates adverse interest and self-interest threats to the member’s compliance with the “Integrity and Objectivity Rule” and the Integrity and Objectivity principles. For example, threats may be created when:

(a)   a member undertakes a professional service related to a particular matter involving two or more parties whose interests with respect to that matter are in conflict; or

(b)   the interests of a member with respect to a particular matter and the interests of a party for whom the member undertakes a professional service related to that matter are in conflict.

220.4           A party may include an employing organisation, a vendor, a customer, a lender, a shareholder, or another party.

Requirements and application material

General

R220.5         A member shall not allow a conflict of interest to compromise professional or business judgment.

220.5 A1      The following are examples of situations in which conflicts of interest may arise:

  • Serving in a management or governance position for two employing organisations and acquiring confidential information from one employing organisation that could be used by the member to the advantage or disadvantage of the other employing organisation.
  • Undertaking a professional service for each of two parties in a partnership employing the member to assist in dissolving their partnership.
  • Preparing financial information for certain members of management of the employing organisation who are seeking to undertake a management buy-out.
  • Being responsible for selecting a vendor for the member’s employing organisation when the member or their immediate or close family relative could benefit financially from the transaction.
  • Serving in a governance capacity or influencing an employing organisation that is approving certain investments for the company in which one of those specific investments will increase the value of the personal investment portfolio of the member or their immediate or close family relative.

Evaluation of a conflict of interest

220.8 A1      When an actual conflict of interest has been identified, the member should evaluate the significance of the threat created by the conflict of interest to determine if the threat is at an acceptable level. Members should consider both qualitative and quantitative factors when evaluating the significance of the threat, including the extent to which existing safeguards already reduce the threat to an acceptable level.

220.8 A2      In evaluating the significance of an identified threat, members should consider the following:

(a)   The significance of relevant interests or relationships.

(b)   The significance of the threats created by undertaking the professional service or services. In general, the more direct the connection between the member and the matter on which the parties’ interests are in conflict, the more likely the level of the threat is not at an acceptable level.

220.8 A3      If a member concludes that the threat is not at an acceptable level, the member should apply safeguards to reduce the threat to an acceptable level. Examples of actions that might be safeguards to address threats created by conflicts of interest include:

(a)   Restructuring or segregating certain responsibilities and duties.

(b)   Obtaining appropriate oversight, for example, acting under the supervision of an executive or non-executive director.

(c)   Consulting with third parties, such as a professional body, legal counsel, or another professional accountant

220.8 A4      Examples of actions that might eliminate threats created by conflicts of interest include:

(a)   Withdrawing from the decision-making process related to the matter giving rise to the conflict of interest

(b)   Declining to perform or discontinue the professional services that would result in the conflict of interest

(c)   Terminating the relevant relationships or disposing of the relevant interests.

Disclosure of a conflict of interest and consent

220.9 A1      It is generally necessary to:

(a)   Disclose the nature of the conflict of interest and how any threats created were addressed to the relevant parties, including to the appropriate levels within the employing organisation affected by a conflict; and

(b)   Obtain consent from the relevant parties for the professional accountant to undertake the professional activity when safeguards are applied to address the threat.

220.9 A2      Consent might be implied by a party’s conduct in circumstances where the member has sufficient evidence to conclude that the parties 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.

220.9 A3      If such disclosure or consent is not in writing, the member is encouraged to document:

(a)   The nature of the circumstances giving rise to the conflict of interest;

(b)   The safeguards applied to address the threats when applicable; and

(c)   The consent obtained.

220.9 A4      When addressing a conflict of interest, a member is encouraged to seek guidance from within the employing organisation or from others, such as a professional body, legal counsel, or another professional accountant. When making disclosures and seeking guidance of third parties, the member should remain alert to the requirements of the “Confidential Information Obtained From Employment or Volunteer Activities”, interpretation of the “Acts Discreditable Rule” and the Integrity and Objectivity principles (270.1 and R210.3). In addition, federal, state, or local statutes, or regulations concerning confidentiality of employer information may be more restrictive than the requirements contained in the CGMA Code.

220.9 A5      A member may encounter other threats to compliance with the “Integrity and Objectivity Rule” and the Integrity and Objectivity principles. This may occur, for example, when preparing or reporting financial information as a result of undue pressure from others within the employing organisation or financial, business or personal relationships that close relatives or immediate family of the member have with the employing organisation. Guidance on managing such threats is covered by the “Knowing Misrepresentations in the Preparation of Financial Statements or Records”, interpretation (240.3 – 240.4) and the “Subordination of Judgment by a Member”, interpretation (240.11 A1 – A11).