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This type of conflict generally cannot be ● Owners may have opposing objectivity of the practitioner to be
waived by consent. interests in elections made at the compromised.
Transactional conflicts are present entity level. ■ A tax return prepared for a client is
when the firm is representing two clients ● Owners may have disputes with audited:
who are involved in the same transac- opposing interests. ● The client’s defense may include
tion. If the nature of the transaction is ■ A client is selling a portion of their improper representation by the
not directly adversarial, the conflict may business to an existing or potential firm.
be waived with informed consent. The client: ● The client may perceive the
conflict may change during the course of ● The buyer and seller may have practitioner’s objectivity to be
the transaction, becoming adversarial in opposing interests in classification compromised since the firm
nature and therefore nonwaivable. of the sales price or in the valua- has an interest in defending the
Relational conflicts arise when the tion of the assets. practitioner’s work.
clients have a relationship of some sort, ● The firm has a vested interest in
either through marriage, co-ownership retaining the work after the sale. Conflicts involving new clients
of a business, or another existing rela- ■ The firm has multiple clients in As demonstrated by the above list of
tionship. The practitioner’s relationship the same industry with competing common conflicts, conflicts of interest
with the opposing clients may give the interests or who are in direct compe- can occur both in the acceptance of
appearance of impaired objectivity on tition with each other: new clients and in the changing cir-
the part of the practitioner, and the ● Confidential knowledge of a cumstances of existing clients, so firms
clients should be properly advised and client’s business may affect the should have policies in place to identify
consent should be obtained. advice given to another client in potential issues in both scenarios.
Practitioners must use professional that industry. The process for identifying conflicts
judgment to determine whether there is ● The client may perceive the arising from new client engagements is
a conflict of interest in a given situation, objectivity of the practitioner to be often easier to manage through set poli-
taking into account whether a reason- compromised. cies during the onboarding stage. The
able and informed third party who is ■ A client is in litigation or anticipates act of accepting a new client engage-
aware of the relevant information would litigation with another client: ment can be the evaluation trigger for
conclude that a conflict of interest ex- ● Either client may request forensic determining conflicts between the
ists. Additionally, the AICPA standards accounting engagements for new client and existing clients.
take into account whether the percep- data to be included as part of the For smaller firms, the onboarding
tion of a conflict of interest may exist. litigation. process can include a step, prior to the
Given these standards, when might a ● The client may perceive the start of any new engagement, to discuss
conflict arise? objectivity of the practitioner to be the possible acceptance of a new client
compromised. during weekly management meetings.
Common conflicts ■ Multiple members of a family are Alternatively, small or moderate-size
Examples of common conflicts in a clients: firms may prefer to handle the matter
smaller firm environment include: ● The firm has confidential data through written submission of potential
■ A couple for whom the firm has that should not be disclosed to new clients for weekly evaluation by
filed a joint return is going through a related parties. other team members. Client managers
divorce: ● Related parties may have opposing with intimate knowledge of their clients’
● The practitioner’s knowledge of interests in matters. businesses and activities are the most
each spouse’s financial situation ■ The firm or firm staff members enter likely members of the firm to be able to
could affect the integrity or into a business relationship with a identify potential conflicts between new
objectivity of advice. client (i.e., leasing office space to the and existing clients. This issue is more
● The spouses may have directly client, investing in an opportunity difficult when a firm acquires a new
conflicting interests, such as an with the client, or selling an asset to practice and accepts a large number
innocent-spouse claim or oppos- the client): of new clients with little knowledge of
ing interests in how a deduction is ● The firm may have opposing the clients and their activities; special
claimed. interests on reporting and care should be taken in this situation
■ An entity and multiple owners of the elections. before beginning any work for the
entity are the firm’s clients: ● The client may perceive the new clients.

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