Safeguarding Accountants: The Collaborative Efforts to Navigate Risks and Protect Professional Integrity
Accountants play a crucial role in supporting clients with financial matters, offering expert advice and guidance. However, certain situations can lead accountants down a perilous path, inadvertently exposing themselves to unintended consequences.
In recognition of these risks, CPA Australia, Chartered Accountants Australia and New Zealand (CA ANZ), and the Institute of Public Accountants (IPA) have joined forces to safeguard practitioners and provide comprehensive guidelines. In this article, we’ll explore the collaborative efforts of these accounting bodies and shed light on the risks associated with accountant’s letters. Additionally, we’ll discuss other potential pitfalls accountants must be aware of when striving to do right by their clients.
Safeguarding Practitioners Through Collaboration
The accounting bodies’ joint position on accountant’s letters marks a significant milestone in ensuring the integrity and professionalism of the accounting profession. Recognizing that credit assessment is the responsibility of lenders, CPA Australia, CA ANZ, and the IPA have advised accountants to decline requests for such letters. By doing so, practitioners can avoid unintended breaches of professional standards, legal obligations, and indemnity requirements. This collaborative effort underscores the commitment of these accounting bodies to protect practitioners from potential risks associated with accountant’s letters.
Risks in Providing Accountant’s Letters
One of the key risks lies in the potential interpretation of the accountant’s letters as providing “assurance” on clients financial figures. Providing assurance requires adherence to strict professional standards and procedures, which accountant’s letters may not fully encompass. By inadvertently offering what could be perceived as assurance through these letters, accountants expose themselves to significant risks and potential liability. It’s essential for practitioners to exercise caution and fully understand the boundaries of their role to avoid unintended consequences.
Accountant’s Letters Toolkit
Recognising the complexities accountants face, CPA Australia, CA ANZ, and the IPA have developed the accountant’s letters, declarations, and capacity to repay certificates toolkit. This comprehensive resource equips practitioners with guidance on balancing client support and professional compliance. It also provides a range of templates that can be used independently, enabling efficient preparation of necessary documentation while adhering to the joint position statement.
Shadow Directorship and Phoenix Behaviour
While accountant’s letters pose risks, they serve as a starting point to discuss other potential pitfalls accountants may encounter. One such situation arises when accountants unintentionally act as shadow directors, blurring the line between their advisory role and assuming management responsibilities. This can result in the loss of statutory protections enjoyed as professional advisors, leaving accountants vulnerable to legal and professional consequences.
Another unfortunate scenario accountants may encounter is engaging in phoenix behaviour. With the best intentions of supporting struggling clients, accountants might inadvertently cross legal boundaries, participating in activities that constitute phoenix behaviour. Such actions can lead to the loss of professional indemnity insurance coverage and potential personal liability.
Illegal Phoenix Activity
Illegal phoenix activity refers to the unlawful practice of transferring a company’s assets to another entity to avoid obligations to creditors. Recognising the severity of this issue, the Australian federal parliament has described it as immoral, unethical and a form of stealing from Australian workers and businesses. To combat this detrimental practice, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (Reforms) came into effect on February 18, 2020.
Understanding the Reforms
The key aspects of the Reforms include:
1. Creditor-Defeating Disposition: The introduction of a new type of voidable transaction known as a “creditor-defeating disposition.” This empowers authorities to scrutinise transactions that defeat the rights of a company’s creditors.
2. Expanded Liability: Any person, including business advisors, can face criminal and civil liability if they engage in conduct that leads to a company making a creditor-defeating disposition. This broader scope of liability ensures accountability across various roles involved in such transactions.
3. ASIC’s Enforcement Powers: The Reforms grant the Australian Securities and Investments Commission (ASIC) the authority to issue orders against individuals who have received property as a result of a creditor-defeating disposition. These orders may require returning the property to the company, providing compensation equivalent to the property’s value, or transferring other assets of equal value to the company.
4. Criminal Offences: The Reforms establish criminal offences for officers of a company and those who procure, incite, induce, or encourage creditor-defeating dispositions. This extends to financial advisors and lawyers who engage in activities that encourage companies to make such dispositions.
Accountants play a vital role in supporting clients financial needs, but it’s crucial to navigate potential risks and protect professional integrity. The collaborative efforts of CPA Australia, CA ANZ, and the IPA demonstrate a commitment to safeguarding practitioners and maintaining high standards in the accounting profession. By understanding the risks associated with an accountant’s letters and the boundaries of ‘safe’ advice, accountants can make informed decisions and avoid unintended consequences.
At Brooke Bird we pride ourselves in providing honest and straightforward advice to accountants in need. Please do not hesitate to reach out to us should you need specialist advice in regards to staying on the right side of the line when clients are in distress.