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Laws & Ethics in Accounting

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The accounting profession is, to a large extent, self-regulated by a range of organizations including the American Institute of Certified Public Accountants (AICPA), the Institute of Management Accountants (IMI), and the Institute of Internal Auditors (IIA).

Each of these organizations has its own ethics code. The codes have a good deal in common, in particular a stress upon the confidentiality of the relationship between the accounting professional and the client.

Confidentiality as Non-Disclosure

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The AICPA's Code of Professional Conduct, for example, provides in Rule 301 that a member "in public practice shall not disclose any confidential client information without the specific consent of the client."

Despite the ethical stress on non-disclosure, there is no legal principle of accountant-client confidentiality analogous to rules protecting spousal or lawyer-client communications.

Accordingly, the AICPA Code also specifies that the language quoted above does not "affect in any way the member's obligation to comply with a validly issued and enforceable subpoena or summons...."

No Bar to Legal Processes

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Similarly, the Statement of Ethical Professional Practice on the website of the IMA states that each member has a responsibility to "keep information confidential except when disclosure is authorized or legally required."

One of the issues that has arisen in connection with confidentiality concerns communication between an accountant and a successor accountant. Suppose one CPA withdraws from a relationship with a client after discovering "irregularities in his or her client's tax return." Suppose then the client hires a new accountant who has to go over the books from scratch. Can the prior CPA in any way communicate to the new CPA why she withdrew?

Disclosure to Successor

Asked about communication with a successor, the AICPA has said: "If a member is contacted by the successor he or she should, at a minimum, suggest that the successor ask the client to permit the member to discuss all matters freely with the successor."

If the client grants that permission, or course, there is no ethical quandry. If the client denies that permission, at least the successor has learned of the existence of some conflict.

The situation of the members of the IMA is by definition somewhat different. "Management accounting" is accounting performed within an organization for the benefit of its managers.

The general rule for the resolution of ethical conflicts within the IMA is that a member should discuss an issue "with your immediate supervisor except when it appears that the supervisor is involved. In that case, present the issue to the next level."

Whistle Blowing

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A management accountant is expected to move up the organizational chain as far as possible with his concerns, thus preserving confidentiality while seeking to bring a problem to the attention of those who can react.

The accountant is also advised to consult his own attorney "as to legal obligations and rights concerning the ethical conflict."

Only in the case of a "clear violation of the law" should this process end with communication of "such problems to authorities or individuals not employed or engaged by the organization."


Christopher Faille is a finance journalist who has been writing since 1986. He has written for HedgeWorld and The Federal Lawyer and is the author of books including "The Decline and Fall of the Supreme Court." Faille received his Juris Doctor from Western New England College.