ISAs – Summaries and Application Guide Code of Ethics

PART 3 – ETHICAL REQUIREMENTS FOR CHARTERED ACCOUNTANTS IN

PRACTICE
Section 310: Conflict of Interest
Introduction:
Introductory paragraph states that:
 Conflict of interest creates threat to Objectivity, and other fundamental principles.
 Conflict of interest is created when:
o 2 or more clients have conflict of interest. (e.g. two competitor clients)
o Interest of a chartered accountant is in conflict with interest of a client (e.g.
providing investment advice to a client for a company in which spouse has
interest).

General:
Examples of Circumstances creating conflict of interest:

Due Diligence:
1. Valuation of an audit client.
2. Advice to two different clients to acquire same company.

Valuation Services:
3. Serving both buyer and seller for same transaction.
4. Valuation of assets for two competing parties (e.g. Joint-Venture).

Arbitration:
5. Representing two clients on same matter in a legal dispute (e.g. dissolution of partnership,
divorce proceeding)
6. Assurance report to licensor and licensee (on royalty payable)

Interest of a chartered accountant in conflict with client:

7. Advice to invest in a business in which spouse has interest.
8. Strategic advice to a client while having interest with major competitor.
9. Advice to a client to acquire same company, which firm is also interested in acquiring.
10. Advice a client to buy a product on which commission will be received from seller.

Conflict Identification:
CA shall identify conflict:
1. Before accepting a new client (considering size and structure of the firm, client base, nature
of services).
2. When there are changes in circumstances (e.g. nature of service, interest or relationship)
3. Due to interest and relationships of a network firm.

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ISAs – Summaries and Application Guide Code of Ethics

(Evaluation and Safeguards of) Threats Created by Conflict of Interest:

CA shall evaluate the threat by considering measures to prevent unauthorized disclosure of
confidential information.

Actions which might be safeguards:

1. Separate engagement teams.
2. Appropriate reviewer.
3. Disclosure and consent of client, if necessary.
a. General, Specific or Implied (considering factors)
b. In writing, or Oral (matters to be documented if oral).
c. If consent refused, end interest/relationship or engagement.
d. If disclosure would breach confidentiality and consent cannot be obtained (e.g. due
diligence of a client for a hostile takeover by another client, forensic investigation
for a client in which another client is involved).
i. Steps to consider in accepting engagement.
ii. Matters to be documented, if accepted.

QUESTIONS TO PRACTICE
Sr. # Attempt Title of Question
1 Winter 2018, part b Alpha Limited and Gama Limited
2 Summer 2016, part b Javed Limited
3 Winter 2015, part c Zaheer Limited
4 Winter 2014, part b An audit client
5 Winter 2013, part b Murree Limited and Bhurban Limited
6 Summer 2012, part a The government has invited
7 Summer 2011, part i Romeo Supermarket Limited