111/4142 PRIVILEGED COMM VOCABULARY 1D2

Question 1

Responsibility of Confidentiality

Answer 1

One of the ethical responsibilities to clients is the obligation not to reveal client information obtained during the client-accountant relationship. Section 1.700 of the AICPA Code of Professional Conduct addresses this issue:

Confidential Client Information Rule:

“A member in public practice shall not disclose any confidential client information without the specific consent of the client.

“This rule shall not be construed (1) to relieve a member of his or her professional obligations of the ‘Compliance With Standards Rule’ [1.310.001] or the ‘Accounting Principles Rule’ [1.320.001], (2) to affect in any way the member’s obligation to comply with a validly issued and enforceable subpoena or summons, or to prohibit a member’s compliance with applicable laws and government regulations, (3) to prohibit review of a member’s professional practice under AICPA or state CPA society or Board of Accountancy authorization, or (4) to preclude a member from initiating a complaint with, or responding to any inquiry made by, the professional ethics division or trial board of the Institute or a duly constituted investigative or disciplinary body of a state CPA society or Board of Accountancy. Members of any of the bodies identified in (4) above and members involved with professional practice reviews identified in (3) above shall not use to their own advantage or disclose any member’s confidential client information that comes to their attention in carrying out those activities. This prohibition shall not restrict members’ exchange of information in connection with the investigative or disciplinary proceedings described in (4) above or the professional practice reviews described in (3) above.”

ET 1.700.001

There are certain times when confidential client information must be disclosed, which are:

• compliance with a validly issued and enforceable subpoena or summons,
• review of CPA’s professional practice under the AICPA or state CPA society authorization review,
• responding from inquiry by a recognized investigative or disciplinary body, and
• compliance with the Compliance with Standards Rule and Accounting Principles Rule.

The important time to remember this rule is during the planning stage of rendering professional services. Here, for example, the auditor usually discusses with the prior auditors all information relevant to the audit. However, the client must give full consent before such a discussion can occur.

ET 1.700.050 (“Disclosing Client Information in Connection with a Review of the Member’s Practice”) declares that “a review of a member’s professional practice includes a review performed in conjunction with a prospective purchase, sale, or merger of all or part of a member’s practice.” However, the interpretation also imposes on prospective purchasers the obligation not to disclose or use to their advantage any such confidential client information that comes to their attention during such a review.

Question 2

Principles of Professional Conduct

Answer 2

The Principles of Professional Conduct are broad guidelines that provide the framework for the Rules of Professional Conduct. The principles do not represent rules that must be followed and for which disciplinary action can be taken, but are the spirit behind the rules. They set the tone, the aspirations, and the ideals.

The principles are divided into six articles (ET 0.300):

• Responsibilities
• The Public Interest
• Integrity
• Objectivity and Independence
• Due Care
• Scope and Nature of Services
• The principles read as follows:
• Responsibilities (ET 0.300.020): “In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.”

The Public Interest (ET 0.300.030): “Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.”

Integrity (ET 0.300.040): “To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.”

Objectivity and Independence (ET 0.300.050): “A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.”

Due Care (ET 0.300.060): “A member should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member’s ability.”

Scope and Nature of Services (ET 0.300.070): “A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.”

See related topics for definitions of terms used in the principles.