Understanding ethical principles - objectivity Jane Matthews, a PricewaterhouseCoopers partner, is contemplating the difference between 'conflict of interest, and 'bias', as discussed within the objectivity principle. Give an example of each, from an accounting perspective and discuss how we might safeguard against these two elements.

Answer:-

A conflict of interest is a situation in which a person's self interest may intervene with his responsibility to make a decision in the public interest or in client's interest.

Conflict of interest poses a threat to fundamental principles that cannot be eliminated to an acceptable level through the application of safeguards, it is not appropriate to accept a specific engagement from one or more conflicting engagements is required.

Example:- A purchasing manager is purchasing raw material from his friend at low price which is of low quality and recording it on high price.

Safeguards against conflict of interest:-

i) Notifying the client of the firm that may represent in public practice is acting for two or more parties in respect of a matter where their interets are in conflict, and obtaining their will to so act,

ii)Notifying all relevant parties who are in conflict

iii) Can use of separate engagement teams

iv) Regular review of application of safeguards by any senior who is not involved in relevant conflict or client engagement.

A conflictof interest arises when a person finds himself involving in more than one role at a time whereas biasness is towards a single role only. In accounting, bias is often confused with intentional manipulation whereas it is not. Biasness is not necessarily intended.

Example:- A manager may recall the types of events happened with him in the past and they can make a decision based on this. Although, now time has changed, more solutions are available to the problem.

Safeguards against Biasness:

i) Don't rely on information which is readily available, it can be biased.

ii) Don't be overconfident while making decisions.

iii) Making correct interpretations that support confirmations or pre existing beliefs

iv) Don't make hurry. Consider all available data or seek for more alternative to minimize the biasness.