The Confidentiality of the Auditor-Client Relationship

Philip M.J. Reckers, Homer L. Bates

Research output: Contribution to journalArticlepeer-review


It may not be advantageous for the accounting profession or the 1RS to allow the judicial system to decide a public policy issue. More efficacious would be either legislative action to legally define the auditor/client privilege or amendments to present 1RS guidelines. The latter approach would not guarantee a final disposition of the matter, however, as the 1RS may choose at some future point to reinstate the current guidelines. In a letter to Commissioner Kurtz last May, Mr. William Barnes argued for the following revision of 1RS guidelines, on behalf of the AICPA: In applying the provisions of Code section 7602(a), neither the taxpayer nor an attorney or accountant representing the taxpayer will be required to furnish working papers, memoranda, or other analyses related to the determination of the provision and liability for federal and state taxes to be reflected in its financial statement for any reporting period.24 To date this effort has not been successful. Wigmore suggests that testimonial privilege should be recognized if the following four public policy considerations are satisfied: The communications must originate in the confidence that they will not be disclosed. The element of confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties. The relation must be one which in the opinion of the community is sedulously fostered. The injury that would inure to the relation from the disclosure of communications must be greater than the benefit thereby gained in the correct disposal of litigation.25 In a recent article, Marget noted that: A narrowly-tailored auditor-client testimonial privilege would satisfy Wigmore's four conditions and would guarantee the confidentiality of information communicated to the auditor for the purpose of an audit examination. This privilege would operate against both the government and civil litigants, barring production of audit work papers when the information sought is not relevant to the legitimate objectives of an investigation or to the issues being litigated.26 To ensure continued public confidence in the audit report, the proposed privilege would necessarily have to be restricted so as not to apply in prima facie causes of fraud or negligence. Also the privilege should only extend to confidential information communicated to the auditor in the conduct of the audit examination. Protection of information gathered in the conduct of other services does not appear to satisfy Wigmore's fourth criterion. Matters of significant impact on the public at large should not be dictated by a few—nor should public policy be ordained through neglect. In the interest of the accountant, his client, the 1RS, and especially the public, it is necessary that the parties involved address this issue and bring it to the fore.

Original languageEnglish (US)
Pages (from-to)64-69
Number of pages6
JournalCalifornia Management Review
Issue number4
StatePublished - 1979
Externally publishedYes

ASJC Scopus subject areas

  • Strategy and Management


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