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TAX PRACTICE RESPONSIBILITIES

and are continued throughout the
engagement.
The AICPA categorizes conflicts into three ■ Review of the work by a senior member
general categories: adversarial conflicts, of the firm not involved in the engage-
transactional conflicts, and relational conflicts. ment to determine the appropriateness
of the judgments or conclusions: Act as
an independent judge of whether the
conclusions would be appropriate if
In addition to considering all existing identified, the firm should evaluate the the conflict did not exist.
clients when accepting a new engage- threat to the individual practitioner’s and ■ Consultation with legal counsel, ethics
ment, the firm should consider whether the firm’s integrity and objectivity. Is the or professional boards, or another CPA:
a former client or former engagement threat to principles of professional Receive independent verification of
may cause a conflict with a potential cli- conduct at an acceptable level taking the ability to waive the conflicts and
ent. Practitioners may have confidential into account the third-party standard, act with integrity and objectivity.
knowledge of a former client’s activities which looks at whether a reasonable If the practitioners cannot implement
or business practices that could impair and informed third party would con- sufficient safeguards, the firm should
integrity or objectivity in the engage- clude that the practitioners are compli- consider declining or terminating the
ment with the potential client. Duties ant with the rules governing integrity engagement and not proceeding with
to a client related to confidentiality of and objectivity? If the threat is not the work.
data survive both the termination of the at an acceptable level, are there safe-
engagement and the termination of the guards the firm can put in place to bring Consent
client relationship, and the perception the threat to an acceptable level? Some Even if safeguards can be implemented
of the former client as to existence of a potential safeguards a firm might con- or it is determined that the current
conflict is still a consideration. sider are: threat level is acceptable, clients should
■ Segregation of data to ensure confiden- be notified of the conflict and be re-
Existing clients with new tiality: Separate the location of the quired to give informed consent for the
conflicts relevant data and limit access to the work to continue. The nature of the con-

The entire firm should be involved in client files to staff members who are flict and level of threat to the practitio-
identifying conflicts that arise with working on that engagement. ner’s integrity and objectivity will impact
clients after the onboarding process. ■ Segregation of professionals working the type of notice required. Threats that
When a staff member recognizes a on the engagements, if the firm is large are at an acceptable level without the
current conflict or becomes aware of a enough to differentiate the specialties of implementation of any safeguards may
potential conflict, such as a negotiation the engagements: Assign the conflict- only require a general notification if that
for the sale of a business or a married ing clients to separate professionals is deemed sufficient in the practitioner’s
couple going through a divorce, the staff and build an information barrier so professional judgment.
member should alert the management that the professionals are not aware of For instance, the firm can notify
team so that they can determine what the decisions and advice given to the clients that the firm serves multiple cli-
steps to take. A firm’s policy for the opposing client or of the information ents in any given industry and therefore
identification of conflicts as they arise received from the opposing client. may have a client’s direct competitors as
should include educating all staff mem- ■ Policies and procedures limiting access other clients, without disclosing the cli-
bers regarding circumstances that may to client data, especially in the case of ents’ names or notifying existing clients
trigger a conflict. Senior members of related parties: Put policies in place to every time the firm accepts a new client
the firm should take continuing educa- ensure that clients do not have access in that industry. Such a general notifica-
tion classes to keep the firm apprised of to confidential data related to an tion may be disclosed in the engagement
updated standards and should regularly opposing party or a related party. letter and informed consent given by
discuss conflicts of interest with the staff ■ Regular review of safeguards by a the client through the signing of the
to keep members vigilant in watching senior member of the firm not involved engagement letter.
for potential conflicts. with the client or the engagement: Conflicts that require additional
Conduct manager-level review to safeguards generally require a more
Mitigating conflicts determine if the safeguards that were specific disclosure. The disclosure must
When a conflict or potential conflict is discussed have been implemented be enough to allow the client to give

34 August 2022 The Tax Adviser