Conflicts of interest between competing clients

An firm might act for two clients that are in direct competition with each other. The firm has a professional duty of confidentiality, and so will not disclose confidential information about one client company to its competitor. Again, the test is whether a “reasonable and informed third party” would consider the conflict of interest as likely to affect the judgement of the firm.

The approach that the audit firm should take will be a matter of judgement and should reflect the circumstances of the case. Where the acceptance or continuance of an engagement would materially prejudice the interests of any client, the appointment should not be accepted or continued.

In other cases, possible safeguards might include the following:
Giving careful consideration to whether it is appropriate to accept an assurance engagement from a new client that is in direct competition with an existing client, it may be appropriate to decline the offer from the potential new client.

• Careful management of the clients, for example by ensuring that different members of staff are used on the two engagements.
• Full and frank disclosure to the clients of the potential conflict, together with suitable steps by the firm to manage the potential conflict of interest.
• Procedures to prevent access to information (physical separation of the teams and secure data filing). Such an approach is known as creating “Chinese walls”.
• Establishing clear guidelines on security and confidentiality and the use of confidentiality agreements.
• Regular review of safeguards in place.
• Advising one or both clients to seek additional independent advice.