Certified Public Accountants (CPAs) are not immune to legal risks and can wade into risky territory at any time. Ethical and legal dilemmas cannot always be avoided. Superior risk management strategies must be put into place to help prevent any unintended legal ramifications from the work CPAs do for their clients.
Common ethical dilemmas should be considered and guarded against before problems arise. For example, ethical dilemmas for CPAs may include work involving two-party transactions, conflicts of interest, pro-bono work, and confidentiality agreements.
Here we will look at some of the most common ethical dilemmas that plague CPA firms.
At some point, most CPAs will be asked to assist with a two-party transaction. The case may involve a divorcing couple or business partners who are going separate ways.
There are a few snags CPAs run into when working on two-party transactions. Conflicts of interest may arise, there is the potential of a confidentiality breach, and even the most meticulous CPAs can get caught offering preferential treatment. Note that even the mere appearance of such preferential treatment can be problematic.
To mitigate some of these risks, CPAs must have proper disclosure forms and conflict of interest waivers when working on a two-party transaction. Even when couples or business partners are on good terms and communicating civilly, relationships can quickly deteriorate and tensions can rise. It is imperative you are protected with the correct disclaimers before these issues become legal stumbling blocks — or landmines.
Fraud and CPA duty
CPAs have insight into operations and finances of both individuals and businesses. CPAs who become aware of fraud or potential fraud are expected to warn their clients of such risk.
For example, you may work with a client who expects his or her CPA to enter incorrect information regarding revenue. While you will likely lose the client if you refuse to participate, you will at least protect your career and license. Sometimes, though, the situations can be complicated and it won’t be as clear-cut in terms of what action is most appropriate to take.
A situation of potential fraud must be handled with a high level of care to avoid a lawsuit or possible trial. CPAs should consult with a legal professional to determine whether an exit strategy is needed, and if so, what the least damaging approach would be. At the very least, a CPA must end the relationship in writing with a disengagement letter.
Pro bono or low-cost CPA fees
There’s nothing professionally wrong with taking on pro bono work or charging below normal costs for CPA services. However, it’s important to remember that pro bono work is still subject to the same professional standards as other work. Here are a few tips to avoid ethical dilemmas when taking on pro bono work:
- Only accept projects the firm can complete with the highest level of competence
- Maintain professional due diligence with pro bono projects
- Plan and supervise pro bono projects strictly
- Make sure you have collected all the necessary data from the pro bono client, so you can make the best conclusions and provide the best recommendations
- No matter how compelling the project, refuse to take pro bono work for which you aren’t entirely qualified
Legal troubles can quickly arise from disregarding some of these points. Pro bono or low-cost work is not an excuse for branching out as an experiment in another field of CPA work. Make sure you maintain the same level of professionalism and quality of work as if the project is for a paying client.
Avoiding conflicts of interest as a CPA
One of the most common ethical dilemmas for CPAs are conflicts of interest. Two of the most common examples of this involve having a financial stake in the company for which you’re providing CPA services and having a personal relationship with a client for whom you are doing CPA work.
The best protocol for such cases is to avoid clients with whom you have relationships or financial interest or allowing the work to be completed by another CPA in your firm. You may also have an independent peer review of the work when it’s finished to ensure there is no bias or oversight.
CPAs must maintain the highest levels of confidentiality with their clients. However, there are times when a CPA may be compelled to breach confidentiality. For example, imagine after working with a client on a confidential matter, you suspect there may be elder abuse. Do you breach the confidentiality to report your suspicions? Such cases should be handled on a case-by-case basis and often require legal advice to proceed. This is where having an insurance partner with the benefit of free pre-claims assistance could be invaluable.
Ethical dilemmas are difficult
CPAs are not immune to ethical dilemmas. They can arise at any time and are difficult to manage. Having a partner to help you navigate the challenges of ethical dilemmas is critical.
McGowan recognizes the need for advice and guidance when ethical challenges arise. McGowan offers a free risk management hotline for policyholders. Just call for free help from CPA legal counsel and risk management experts, and there is no penalty for doing so.
The service is available as often as you need it. It’s just one of the perks of being a McGowan CPAOnePro plan policyholder.