Definition
A conflict of interest arises when a professional service, relationship or interest creates an adverse interest or self-interest threat to a member's integrity or objectivity. The AICPA Conflicts of Interest interpretation (ET 1.110.010) asks the member to identify the conflict, evaluate it using professional judgment and the view of a reasonable and informed third party, and consider disclosure and consent. Circular 230, section 10.29, applies to practice before the IRS. It bars representation involving a conflict unless the practitioner reasonably believes the work can be done competently and diligently, the law permits it, and each client gives informed consent confirmed in writing within 30 days. Copies of consents are kept for at least 36 months after the representation ends.
Why it matters in an audit or review
Conflicts can lead to damaged objectivity, litigation and discipline. They differ from independence, which is a separate set of rules for attest clients.
Example
Illustrative: a firm prepares tax returns for two business partners who are in a dispute over the sale price of their company. The firm identifies the conflict, concludes it cannot represent both competently, and declines one engagement.
Common mistakes
- Treating a signed engagement letter as consent.
- Ignoring conflicts that arise after the engagement begins.
Sources
- AICPA, Code of Professional Conduct, ET 1.110.010, Conflicts of Interest: https://pub.aicpa.org/codeofconduct/ethics.aspx
- Treasury Department Circular No. 230, 31 CFR 10.29: https://www.law.cornell.edu/cfr/text/31/10.29
- Journal of Accountancy, How to Manage Conflicts of Interest (November 2017)
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error