Conflict of Interest Examples

Why This Matters

Conflicts of interest sit at the heart of nearly every major ethics scandal in accounting and finance. When you're tested on professional ethics, you're not just being asked to identify what a conflict looks like—you're being evaluated on whether you understand why these situations compromise professional judgment and how they undermine the foundational principles of objectivity, independence, and fiduciary duty. These concepts appear repeatedly in professional codes of conduct, regulatory frameworks, and real-world case studies that show up on exams.

The examples below demonstrate how personal interests can corrupt professional decision-making across different contexts: financial self-interest, relationship-based bias, information asymmetry, and competing loyalties. Don't just memorize the definitions—know which underlying principle each conflict violates and be ready to explain why that matters for stakeholders. That's what separates a passing answer from an excellent one.

---

Financial Self-Interest Conflicts

These conflicts arise when professionals stand to gain financially from decisions they're supposed to make objectively. The core problem is that personal profit motives distort judgment, even unconsciously.

Self-Dealing

• Occurs when someone in authority makes decisions that benefit themselves financially—such as an executive approving contracts with companies they secretly own
• Violates fiduciary duty by prioritizing personal gain over the organization's or clients' best interests
• Undermines governance structures because the decision-maker is on both sides of the transaction, eliminating the checks that protect stakeholders

Insider Trading

• Involves buying or selling securities based on material, non-public information—a direct exploitation of information asymmetry for profit
• Violates securities laws with severe penalties including fines, imprisonment, and permanent industry bars
• Destroys market integrity because fair markets depend on all participants having equal access to material information

Personal Investments

• Creates conflicts when professionals invest in companies they advise, audit, or regulate—their financial stake compromises objectivity
• Requires mandatory disclosure under most professional codes and securities regulations to allow stakeholders to assess potential bias
• Particularly problematic for auditors whose independence is the foundation of reliable financial reporting

---

Relationship-Based Conflicts

These conflicts emerge from personal connections that compromise professional objectivity. The mechanism here is social obligation—we naturally favor people we know, even when we shouldn't.

Nepotism

• Involves favoring relatives or friends in hiring, promotions, or contract awards—substituting personal loyalty for merit-based evaluation
• Damages organizational culture by signaling that connections matter more than competence, reducing morale among qualified employees
• Creates legal exposure in public sector contexts where anti-nepotism laws often apply

Gifts and Entertainment

• Occurs when accepting items of value from parties seeking favorable treatment—even small gifts can create unconscious reciprocity bias
• Subject to organizational policies that typically set dollar thresholds, disclosure requirements, or outright prohibitions
• Tests the "newspaper test" principle: if the gift would look inappropriate in a headline, it probably is

Vendor Relationships

• Arises when personal friendships with suppliers influence purchasing decisions—objectivity in procurement requires arm's-length evaluation
• Distorts competitive bidding because favored vendors may receive contracts despite inferior terms or quality
• Requires structural safeguards like rotating vendor contacts, mandatory competitive bidding, and separation of duties

---

Information-Based Conflicts

These conflicts involve misusing access to confidential or proprietary information. The ethical breach stems from violating the trust that comes with privileged access.

Confidential Information Misuse

• Involves exploiting sensitive information for personal gain or to benefit others—turning a position of trust into an opportunity for advantage
• Breaches fundamental professional duties including confidentiality, loyalty, and the duty of care owed to clients and employers
• Creates cascading harm because once trust is broken, stakeholders question the integrity of all information the professional handles

Kickbacks

• Refers to secret payments received for steering business or approving transactions—essentially selling one's professional judgment
• Constitutes bribery under most legal frameworks, with criminal penalties for both the giver and receiver
• Inflates costs for organizations because vendors build kickback payments into their pricing, harming the ultimate payers

---

Competing Loyalty Conflicts

These conflicts arise when professionals owe duties to multiple parties whose interests may diverge. The challenge is that divided attention and competing obligations make it impossible to serve all parties equally.

Moonlighting

• Occurs when employees take secondary jobs that compete with or distract from their primary employment—splitting time, energy, and potentially loyalty
• Raises resource concerns if company time, equipment, or proprietary knowledge is used for outside work
• Requires employer disclosure in most professional contexts, with some employment contracts explicitly prohibiting competing outside work

Serving on Multiple Boards

• Creates conflicts when a director's fiduciary duties to one organization clash with duties to another—common in industries with overlapping competitors
• Triggers recusal obligations when matters affecting both organizations come before the board
• Requires careful disclosure to all boards involved, with some governance codes limiting the number of board seats one person may hold

---

Quick Reference Table

---

Self-Check Questions

1. Which two conflicts of interest both involve exploiting non-public information, and what distinguishes them legally?

2. A partner at an accounting firm owns stock in a company her team audits. Which conflict category does this represent, and why does it specifically threaten auditor independence?

3. Compare and contrast nepotism and vendor relationships: what underlying bias do they share, and how do the affected stakeholders differ?

4. An employee receives sports tickets from a vendor currently bidding on a major contract. Using the concepts from this guide, explain which principles are at risk and what organizational safeguards should apply.

5. If an FRQ asks you to identify conflicts that could result in criminal prosecution (not just professional discipline), which three examples from this guide would you cite, and what laws do they violate?