Chinese walls alert.

Firms at risk from conflicts of interest in acting for clients must ensure any Chinese walls established are truly effective, according to new guidance from the English ICA. The technical release on conflict of interest and confidentiality comes only weeks after the US Securities and Exchange Commission’s damning report on PricewaterhouseCoopers’ share dealings in listed audit clients. The guidance has been prepared following the high-profile Prince Jefri vs KPMG case last year, which highlighted the responsibilities of firms where the interests of two clients or of a client and a former client conflict. But the timeliness is also indicative of growing international concerns about Big Five firms. The report stresses that firms should seek to obtain client consent wherever possible, but if it is not, a Chinese wall will only be effective if it has certain characteristics. These include the physical separation of the various departments in order to insulate them from each other, carefully defined procedures for dealing with instances where the wall may be crossed, and monitoring by compliance officers. The guidance applies to all firms, but the increasing instances where Big Five firms are involved with several clients in the same industry and offering a range of advice, will make this particularly applicable to them. At the same time, the SEC, Auditing Practices Board and the European Commission are in the process of examining the quality of audits and touch on independence and conflict of interest. Victoria Cochrane of Ernst & Young, who drafted the guidance, said: ‘Every firm in practice should take note of the guidance and put it into effect. With any but the smallest of client bases, you cannot be sure that one of your clients will not fall into dispute with another, or other conflicts of interest arise. The decision in the case of Prince Jefri has clarified procedures and safeguards that should be put in place to ensure that the accountant does not end up bearing the costs.’

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