Raphael Gordon, Guest Writer

GORDON

Conflict of interest in doing business is very topical in Jamaica and a number of countries in the world. Care has to be exercised whenever a related party is entering into any dealings (transactions) with others with whom such a person is related. The definition of a related party under International Financial Reporting Standards is as follows:

A party is related to an entity if:

(a) directly, or indirectly through one or more intermediaries, the party:

(i) controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries);

(ii) has an interest in the entity that gives it significant influence over the entity; or

(iii) has joint control over the entity;

(b) the party is an associate (as defined in International Accounting Standard (IAS) 28, Investments in Associates) of the entity;

(c) the party is a joint venture in which the Scheme is a venturer (IAS 31, Interests in Joint Ventures );

(d) the party is a member of the key management personnel of the entity;

(e) the party is a close member of the family of any individual referred to in (a) or (d); or

(f) the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e).

A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged.

The United Kingdom has introduced New Legislation governing directors' conflicts of interest and this comes into effect on October 1, 2008.

Every director must comply with new statutory duties and there is a separate obligation relating to conflicts of interest between a director and the company. To comply, publicly owned companies must amend their articles of association to allow the non-conflicted directors to authorise a particular directors' conflict. Private companies can make similar constitutional amend-ments, but can also comply if most shareholders pass a resolution authorising the independent directors to approve the conflict of interest.

Directors who hold positions on the boards of two competing companies are likely to face conflicts of interests regularly.

Directors must also refuse benefits from third parties if acceptance of such benefits may give rise to a conflict. Directors are required to declare personal interests in a proposed arrangement with the company in advance.

Organisations may want to consider the UK changes and use them as best practices, some directors of Jamaican companies are already practising the last two conditions.

Raphael E. Gordon is the Managing Partner of KPMG, Chairman of KPMG CARICOM, Past President of the Institute of Chartered Accountants of Jamaica, a member of the Public Accountancy Board, and a former Jamaica's representative on the Association of Chartered Certified Accountants International Assembly. The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG. No one should act upon such informationwithout appropriate professional advice after a thorough examination of the particular situation. regordon@kpmg.com.jm