Professional Ethics Question

hztm

Hi, I am looking at a question in the Osbourne Book and would appreciate any views on the answer.

You are the accountant working for two clients. Client (1) owns a shop which they rent to client (2). Client (1) tells you that they are about to sell the shop. You then visit client (2) who tells you that they are about to spend a lot of money on refurbishing the shop and expanding their business. The question asks you to raise and discuss the professional ethics related to this situation.

I am thinking that there is a major conflict of interest here but how do you deal with this - would you need to stop working for both clients? what would you tell them?

Thank you for any advice.

welshwizard

What about confidentiality?
You can't tell Client 2 what Client 1 intends to do. YOu could suggest that Client 2 asks Client 1 for permission before they do the works? This may then force the issue - and Client 1 may reveal their intentions.

Whilst you may not have revealed the intention to sell, you have acted in CLient 2's best interest and maintained Client 1's confidentiality. However, this is just one opinion, I am sure that there are others here who would think different.

Monsoon

You don't need to stop working for both clients (at least, that's not logical to me).

You obviously can't tell Client 2 that Client 1 intends to sell.
Bear in mind, though, that as it's commercial premises, Client 1's buyer will probably be intending to buy with a tenant, so the chances are, Client 2's landlord will change and not a lot else.

WW's suggestion of advising Client 2 to double check with their landlord first seems good to me.

Another consideration is Client 2's lease - presumably they wouldn't be spending lots of money on a leased property if their lease is nearly up - if they have 3 or so years left to run, they will be safe if the building is sold anyway (subject to the terms of the lease).

It's harder if Client 2 knows you also act for Client 1, but you just have to say "I can't tell you anything confidential" if they ask.

I can't think of anything that causes a conflict of interest in terms of what to say to Client 1, it's just the way the situation may affect Client 2 that causes the potential problem.