The FRC's decision in the MG Rover case has left the profession none the wiser as to its wider public interest duties, says Bree Taylor

Four businessmen orchestrated what was hailed as the rescue of MG Rover in 2001 but following its collapse a few years later they were heavily criticised for the excessive returns they enjoyed. They were disqualified from being directors in 2011. But to what extent should professional advisers be held responsible for the misdeeds of their clients?

Part of the decision of the Financial Reporting Council (FRC) was about conflicts of interest between different clients. It was found that Deloitte had failed for a nine-month period in 2001 to identify for whom they were actually acting on the transaction to buy out MG Rover from its then owners. Further, they made public statements suggesting they were acting for the MG Rover Group when they were advising and representing the interests of the Phoenix Four – those who, it turned out, were looking to profit at the expense of the MG Rover Group.

The guidance to take from this part of the decision is obvious enough. It is extremely important to be clear about whom you act for in a particular transaction. In the early stages of a transaction it can be somewhat 'fluid'. The FRC decision suggests it might be acceptable to take a short period to work out the different interest groups and who you wish (and are able) to act for. But these decisions must be made (and made clear to others) as early as possible. Any consents or conflict waivers should be sought immediately.

The intriguing part of the FRC decision relates to 'public interest' concerns. There is a fundamental principle in the ICAEW's Guide to Professional Ethics that members should strive for 'objectivity in all professional and business judgments'. The guide says that in deciding whether to accept an engagement, members should consider a number of things including 'the public interest and its bearing on the work'.

The ICAEW guide gives no definition of 'public interest'. However, the phrase has been used over the years in numerous statutes passed into law by parliament and there is a wealth of judicial comment on what it means in different contexts. One example is the 'public interest' weighing exercise done in virtually every case concerning requests for information under the Freedom of Information Act 2000. The FRC did not refer to any of those court decisions when reaching its decision that Deloitte failed adequately to consider the public interest in acting for the Phoenix Four. The FRC made no attempt to define 'public interest' or say what restrictions it might place on the accountancy profession when acting on high-profile transactions where the client stands to make money at the expense of a business that employs a lot of people. If the FRC had simply found that Deloitte did not consider the issue at all, it would be easy to see why this was a breach of a rule that essentially says 'you must consider the issue'. However, the waters are muddied by a curious remark in the decision: 'It was important for [Deloitte] to consider the public interest because it was important from the point of view of the Phoenix Four that the loan book came into "friendly hands".'

If the crux of this decision was that Deloitte's wrongdoing was acting on a transaction where the clients stood to profit from the asset they were acquiring, then members of the profession will be left wondering whether they are obliged to turn down corporate finance work involving clients entering transactions that might lead to large profits; whether it make any difference if the stated intention of the client is to save large numbers of jobs at the same time and to what extent must the member judge the client's true motives as opposed to their stated intentions?

The FRC's decision is a lost opportunity. The ICAEW clearly expects members to be moral arbiters to some extent because its own guide says that members must consider how the public interest bears on work. That obviously goes beyond merely thinking about it. Members are expected to act correctly. It is difficult to think of a more golden opportunity to set down some guidance about how to tackle the public interest issue in practice and how to act appropriately and yet the FRC gives none.

Bree Taylor, Partner,dispute resolution, Memery Crystal LLP