Scenarios in which professional accountants should avoid any association

Professional accountants must refuse to be associated with work or information if it would mislead users. 

In the MIA / IFAC Code, this mainly covers three situations – you can remember them and give scenarios for exam.

1. Information that is materially false or misleading

Principle:

If the accountant knows (or should know) that information is materially false or misleading, they must not prepare, approve, sign or be linked to it.

Scenarios:

A client asks the accountant to:

• Overstate revenue or profit, or
• Hide major liabilities to look stronger to banks or investors. The accountant must refuse to prepare or sign those financial statements.
• Management wants the auditor to ignore clear evidence of inventory fraud and still issue a clean report. The auditor must not associate with such a report.

2. Information provided recklessly (without proper care)

Principle:

Accountants must avoid association with information that is prepared or presented carelessly, without proper checks, where there is a real risk of misleading users.

Scenarios:

An accountant is asked to quickly sign a cash flow projection or feasibility study:

• No proper analysis done
• Key assumptions not reviewed. Signing it would mean they are associated with information furnished recklessly and they should refuse or insist on proper work first.
• A senior manager pressures the accountant to “just estimate” some big numbers to meet a deadline, without supporting documents. The accountant should not sign off on such figures.

3. Information that omits or obscures important facts

Principle:

Even if the numbers are technically correct, leaving out important information or presenting it in a way that hides the truth can still mislead users.

Scenarios:

Financial statements that:

• Do not disclose a major legal claim,
• Hide related party transactions, or
• Fail to mention going concern problems. The accountant should not allow their name to be linked unless proper disclosure is made.
• A report for a bank leaves out a significant loan default or breach of covenant on purpose. The accountant must refuse to be associated with that report.

4. Association with illegal or unethical activities

Principle:

Accountants must not associate with activities that are illegal or clearly unethical.

Scenarios:

Being asked to:

• Create fake invoices,
• Backdate contracts, or
• Help with tax evasion, money laundering or sham transactions. They must refuse and, where required, consider legal/professional reporting duties.

How to write it in exam (short version)

You can summarise as:

A professional accountant should avoid any association with information that is materially false or misleading, that is provided recklessly without proper care, or that omits or obscures information required to be included where such omission would be misleading. 

The accountant must also refuse to be associated with reports or transactions that involve fraud, illegality or unethical conduct.