As a Certified Public Accountant, you are not immune to legal risks. You can find yourself in risky territory more than you would like. Unfortunately, ethical and legal dilemmas present themselves more than you’d imagine. It is something you have to deal with, so having a robust risk management strategy in place is a must.
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Ethical dilemmas for CPAs surface in many forms. Work involving two-party transactions, conflicts of interest, pro-bono work, and confidentiality agreements are all territory for ethical dilemmas to present themselves.
In this article, we’re taking a look as some of the most common ethical dilemmas that CPAs face.
Managing two-party transactions
Every CPA, at some point, will be involved with a two-party transaction. The most common cases involve divorcing couples and business partners going separate ways.
Two-party transactions can present some sticky situations for a CPA. Often, conflicts of interest arise, setting the stage for a potential confidentiality breach. Even the most careful CPA can get caught offering preferential treatment. Although a CPA may not even be conscious of it, just the appearance of preferential treatment can cause problems.
To mitigate risk, CPAs should have properly prepared disclosure forms and conflict of interest waivers when working on any two-party transaction. Even if couples or business partners are friendly with each other, relationships can quickly turn hostile. You must be protected with the proper disclaimers before tensions rise — once they’re in motion, it could be too late from a legal standpoint to protect yourself.
When you suspect fraud
As a CPA, you have insights into the operations and finances of both individuals and businesses. If you become aware of fraud or potential fraud, you’re expected to warn your clients about the risk.
For example, you may find yourself working with a client who asks you to enter incorrect information about revenue. You know you’ll lose the client if you refuse, but you will also protect your license and keep your career. However, at times the situation can get more complicated, and it’s not clear what decision is best.
Circumstances of potential fraud must be handled with the highest level of care to avoid litigation. CPAs should consult with legal professionals to determine what they’re dealing with and the best way to exit the situation if needed. If you choose to end the relationship, always end it in writing with a disengagement letter.
Treat pro bono work as a paying project
There’s nothing wrong with taking on pro bono work or giving clients a lower than normal rate for your CPA services. But keep in mind that pro bono work is still subject to the same professional standards as your other work. Consider these tips to avoid ethical dilemmas when you take on any pro bono work:
- Only accept projects you can complete with the highest standards
- Maintain professional level due diligence with all pro bono projects
- Plan and supervise pro bono projects like any other project
- Make sure you have collected all relevant data from the pro bono client
- Refuse to take on any pro bono project you feel you’re not qualified for
Pro bono and low-cost work should never be an excuse to branch out and experiment with CPA work you’re not familiar with. You should always treat pro bono work as a paying project.
Avoid conflicts of interest
Conflicts of interest are perhaps the most common ethical dilemma CPAs are faced with. In these cases, it’s typically one of two scenarios that creates a conflict of interest – you have a financial stake in the company you’re providing services for, or you have a personal relationship with your client.
The best thing to do is to avoid clients whom you have relationships or financial interests. You can also hand off the project to another CPA in your firm. You may also choose to have an independent peer review of your work upon completion to ensure there is no bias or oversights.
Confidentiality dilemmas
As a CPA, you’re bound to maintain the highest level of confidentiality for your clients. However, in some cases, you may be compelled to breach that confidentiality. Imagine you’re working with a client, and you suspect elder abuse. Should you breach confidentiality to report your suspicions?
You have to make the decision on a case by case basis and should seek legal advice before moving forward. In difficult ethical dilemmas like this, having an insurance partner with the benefit of free pre-claims assistance is invaluable.
Experience in ethical dilemmas
Remember, as a CPA, you are vulnerable to ethical dilemmas all the time. They show up when least expected and can quickly become a big problem. Having an experienced partner to help you navigate the landscape of ethical dilemmas is critical.
McGowan understands the need for advice and guidance when ethical challenges surface. McGowan offers a free risk management hotline for policyholders. Pick up the phone, and our risk management experts can give you the counsel you need to make the right decision and stay protected.
The service is available as often as you need it at no charge. It’s just one of the perks of being a McGowan CPAOnePro plan policyholder.