October 05, 2011

Written Comments of Edward Lamar Taylor

I would like to address an issue with respect to multidisciplinary practice that I have believe has not been discussed. Namely, one case in which the merger of the accounting and legal professions could create a situation where a CPA's traditional attest function could conflict with the attorney's traditional duty to preserve client confidences.

Much focus has been placed on resolving the differences in AICPA and ABA professional standards regarding accountants and lawyers, particularly the standards relating to confidentiality. Resolving this issue is obviously an important first step toward achieving multidisciplinary practice guidelines. Some, however, apparently feel that this issue can be resolved easily. Take for instance the comments made recently by Deloitte & Touche's national tax practice director, Roger L. Page to the ABA commission on multidisciplinary practice. Mr. Page asserted that the CPA's attest function in the form of her duty to render an informed, objective audit opinion does not override her duty of confidentiality. He said, "CPAs may not disclose any confidential information without the specific consent of the client, even when the preparation of audit opinions is involved." He further noted that CPAs may be disciplined if they disclose client information without client consent.

From Mr. Page's comments one presumes that in order for a CPA to simultaneously comply with her attest function and her duty to keep client secrets, if confidential information came to the CPAs attention which prevented the issuance of an unqualified audit opinion, the CPA would have to either get permission to disclose the information or withdraw from the engagement. If indeed this is the case, then a CPA's duty of confidentiality is much like that of an attorney's, and there should be no reason why a CPA's professional duty of confidentiality cannot be reconciled with that of an attorney's. However, I submit that at least in one instance, a CPA's attest function clearly overrides her duty of confidentiality; thus such a simple reconciliation may not be possible.

Title 15, section 78j-1 of the U.S. Code (the Securities and Exchange Act of 1934), provides that if in the course of an audit required under Chapter 2B of the 1934 Act, an accountant is required under section 78j-1(2) to report material illegalities to the issuer's board of directors, and such board does not furnish the accountant with a copy of a notice sent by the board to the Securities and Exchange Commission, the accountant MUST either resign from the engagement or report this information to the Commission. If the accountant resigns from the engagement, he/she MUST report the illegal act to the Commission anyway. This federal statute would seem to trump any private, AICPA rule to the contrary. Given the language of the statute, no client permission is required prior to disclosure. In fact, the statute seems to contemplate disclosure only when the issuer would not provide permission. In addition, if an accountant willfully fails to make a required report to the SEC, he/she may be subject to a civil fine. As such, CPA's have a strong motive to disclose confidential information under section 78j-1. Therefore, despite Mr. Page's assertions to the contrary, section 78j-1(b) appears to provide a situation in which a CPA's attest function would trump any duty of confidentiality mandated by the AICPA.

How does the AICPA and the National Conference of Lawyers and CPA's propose to address this issue? Is it the AICPA's position that an accountant will disregard this federal statute requiring disclosure of obviously confidential information.

In addition, to the ethical issue of disclosing confidential information, section 78j-1 may prevent a CPA from claiming protection under 26 U.S.C. s. 7525, the Taxpayer/ Federally Authorized Tax Practitioner's Confidentiality Statute. Section 78j-1 requires disclosure for material illegal acts. An illegal act is defined in section 78j-1(e) as an act violating ANY law, or any rule or regulation having the force of law. Presumably an audit could disclose material illegalities regarding an issuer's tax returns that may be required to be disclosed on an issuer's financial statement. Also presumably, if a CPA discloses such information to the Securities and Exchange Commission as required under 78j-1, then she waives any privilege to such information under section 7525 of the Internal Revenue Code. How does the AICPA plan to resolve this issue?

Furthermore, section 78j-1 is unique to accountants. No similar statutory or ethical rule appears to exist for lawyers. The ABA Model Rules of Professional Conduct rule 1.6 is distinguishable. Rule 1.6 allows a lawyer to reveal confidential information (1) to prevent a client from committing a FUTURE criminal act that may result in death or serious injury and (2) to establish a defense on behalf of the lawyer in a criminal or civil charge by the client. In contrast, section 78J-1 contemplates the disclosure of a PAST violation. Moreover the violation need not be criminal much less involve death or serious injury. Also, at the time the CPA is required to disclose, there will not likely be a criminal or civil charge to defend. Thus, despite comments to the contrary a CPAs duty of confidentiality does not always override her attest function.

In sum, despite commentary to the effect that CPA and attorney rules regarding confidentiality are similar, it is my understanding that section 78j-1 requires a CPA's to breach her duty of confidentiality in certain cases. No similar rule exists for lawyers. This would seem to be an important issue to be resolved if a unified standard of ethics is to be applied to both CPA's and lawyers.