Auditor’s Need to Know v. Counsel’s Need to Protect Client Confidences (Portfolio 5407)
This Portfolio outlines the competing roles that independent auditors and counsel for public companies play and the professional conflicts those roles create.
Bloomberg Tax Portfolio 5407, Auditor’s Need to Know v. Counsel’s Need to Protect Client Confidences (Accounting Policy and Practice Series), outlines the competing roles that independent auditors and counsel for public companies play and the professional conflicts those roles create regarding the independent auditor’s responsibility to the public and the attorney’s responsibility to the client. The Portfolio, directed to both independent auditors and attorneys, is particularly relevant in light of the emphasis placed on independent auditors’ certifications of the internal controls and financial statements of public companies.
This Portfolio highlights situations in which the conflict between the independent auditor’s duties of independence, documentation, and inquiry and the attorney’s duties to maintain client confidences and zealously represent the client’s interest tend to arise. These include independent auditors’ analyses of a public company’s loss contingencies, corporate internal investigations, and decisions on tax matters.
The authors provide an analysis of the factors driving the conflict. The Portfolio discusses the impact of enhanced public auditing standards and rules, and the liability facing independent auditors for the breach of those standards and rules. The Portfolio describes the contours of the attorney-client privilege and work-product doctrine, focusing on the history, scope, limitations, and waiver regarding these essential evidentiary privileges. The authors also discuss liabilities facing attorneys who disclose confidential communications or protected work-product. The Portfolio then discusses the accountant-client privilege and the role that evidentiary privilege plays with respect to the conflict.
The Portfolio provides a comprehensive look at the conflict between the auditor’s need to know and counsel’s need to protect client confidences, including available case law on whether disclosure to independent auditors vitiates the attorney-client privilege or work-product doctrine vis-à-vis third parties in subsequent litigation and legislative action on analogous conflicts. The Portfolio concludes with recommendations for managing the conflict.
Please note that the Portfolio is intended for general informational purposes only. It is not intended to be and should not be considered legal advice or a substitute for obtaining legal advice from independent, legal counsel. Publication of this information is not intended to create, and receipt does not constitute, an attorney-client relationship.
This Portfolio may be cited as Bloomberg Tax Portfolio 5407, Carney and Campbell, Auditor’s Need to Know v. Counsel’s Need to Protect Client Confidences (Accounting Policy and Practice Series).
Table of Contents
I. Introduction and Scope
II. Situations in Which the Conflict May Arise
III. The Treaty
IV. Auditor’s Duties
V. Auditor Liability
VII. The Conflict Between the Auditor’s Need to Know and Counsel’s Need to Protect Client Confidences
VIII. Managing the Conflict
Florida Atlantic University
Senior Director, Peer Review & Professional Standards Illinois CPA Society
Illinois CPA Society