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Conflicts of interest

A conflict of interest arises when the same audit firm is appointed for two companies that interact with each other, for example:

• Companies which compete in the same market
• Companies which trade with each other

A conflict of interest may create a threat to the fundamental principles of objectivity and confidentiality.

• Professional accountants should always act in the best interests of the client.
• However, where conflicts of interest exist, the firm’s work should be arranged to avoid the interests of one being adversely affected by those of another and to prevent a breach of confidentiality.

Conflicts of interest

In order to ensure this, the firm must notify all affected clients of the conflict and obtain their consent to act. The following additional safeguards should be considered:

• Separate engagement teams (with different engagement partners and team members).
• Procedures to prevent access to information, e.g. physical separation of the team members and confidential/secure data filing.
• Signed confidentiality agreements by the engagement team members.
• Regular review of the application of safeguards by an independent person of appropriate seniority.
• Advise the clients to seek independent advice

Accepting/continuing an audit engagement

• Issues to consider prior to accepting an engagement
• Professional clearance
• Independence & objectivity
• Management integrity
• Money laundering
• Resources
• Risks
• Fees
• Professional competence
• Reputation of the client
• Preconditions for an audit

Professional clearance.

Potential prospective audit company must:

• Ask the client for permission to contact the existing auditor (and refuse the engagement if the client refuses).
• Contact the outgoing auditor, asking for all information relevant to the decision whether or not to accept appointment (e.g. overdue fees, disagreements with management, breaches of laws & regulations).
• If a reply is not received, the prospective auditor should try and contact the outgoing auditor by other means e.g. by telephone.
• If a reply is still not received, the prospective auditor may still choose to accept but must proceed with care.
• If a reply is received, consider the outgoing firm's response and assess if there are any ethical or professional reasons why they should not accept appointment.
• The existing auditor must ask the client for permission to respond to the prospective auditor.
• If the client refuses permission, the existing auditor should notify the prospective auditor of this fact.