ACCA Advanced Taxation (ATX) Practice Exam

What must a firm do to resolve a conflict of interest when advising two parties?

1. Inform both parties and seek their consent

2. Prioritize one client's needs over the other

3. Continue without disclosing the relationship

4. Advise only the more profitable client

The correct answer is: Inform both parties and seek their consent

When advising two parties, the most responsible action a firm can take to resolve a conflict of interest is to inform both parties and seek their consent. This approach upholds the ethical standards and professional integrity expected in advisory roles. By being transparent about the conflict, both parties are given the opportunity to understand the situation fully and decide how they wish to proceed. This ensures that both parties feel respected and treated fairly, maintaining trust in the advisory relationship. Seeking consent also allows the firm to navigate the conflict in a way that adheres to legal and ethical guidelines, which often require that clients be fully informed when conflicts arise. Consulting with both parties can help in negotiating a way forward that considers the interests of all involved. In contrast, prioritizing one client's needs over the other compromises the integrity of the advisory relationship and can lead to distrust or legal repercussions. Continuing without disclosing the relationship disregards the obligation to maintain transparency and can harm the reputation of the firm. Advising only the more profitable client ignores the ethical duty to serve all clients fairly and equitably. Overall, informing both parties and seeking their consent is the most ethical and professional way to handle conflicts of interest in advisory situations.