In 2015, the Illinois Supreme Court revisited the issue of who holds the privilege over materials that are covered by the accountant’s privilege. In Illinois, the accountant’s privilege is a creation of statute that states “[a] licensed CPA shall not be required by any court to divulge information or evidence which has been obtained by him in his confidential capacity as a licensed or registered CPA.” 225 ILCS 450/27. In Brunton v. Kruger, the Illinois Supreme Court confirmed that the accountant is the holder of the privilege, rather than his or her client. 32 N.E.2d 567, 576 (Ill. 2015).
This decision has a significant impact on malpractice suits brought against accountants by their clients. Generally, the plaintiff will want access to all of the accountant’s work papers and provide them to their expert for the expert to render an opinion on whether the standard of care was breached. While it’s possible that these papers are unnecessary for the expert to render an opinion, it would be easier—and more compelling—if they had access to all of the accounting documents. Now, in Illinois, the accountant can claim the privilege and withhold production of their work papers as long as an exception does not apply. Thus, Brunton can serve as a shield from the production of highly relevant information in accounting-malpractice actions. Notably, in the context of actions based on failing to adequately perform an audit, the privilege would apply to all work papers of the accountant.
The operative inquiry to determine whether the privilege covers a given document or communication is whether the accountant obtained the information or evidence in his or her confidential capacity. The statute does not put any limitation on the scope of the materials that are covered by the privilege, whether they be work papers, communications, or other materials. Prior case law has only created two exceptions to this rule: (1) documents relating to the preparation of a client’s tax returns; or (2) information provided to an accountant relating the current or final account of a probate court proceeding. See in re 1985 Grand Jury No. 746, 530 N.E.2d 453 (Ill. 1988); In re Estate of Berger, 520 N.E.2d 690 (Ill. App. Ct. 1987). If neither of these exceptions applies, and the information was obtained in his or her confidential capacity as a licensed accountant, then the accountant can claim the privilege.
Keywords: professional services liability litigation, accounting malpractice, accountant’s privilege, discovery
Alexander I. Passo is with Patterson Law Firm, LLC in Chicago, Illinois.