Question

_7. Galice Lorenzo, CPA has disclosed client information as part of an ethics violation for a state board of accountancy investigation. ASSIVO _8. Miller, CPA, performs investment advisory services for an audit client and receives an annual fee based on a percentage of the value of the client's investment portfolio at the end of each year.

Answer 1

1. The recently revised AICPA Code of Professional Conduct includes a new Confidential Client Information Rule under Section 1.700.001, which expands the guidance on maintaining the confidentiality of client information.

The general thought previously has been that if CPA tax practitioners were complying with Sec. 7216 and revisions of its related regulations that went into effect six years ago (Regs. Secs. 301.7216-1 through 301.7216-3), they were complying with the less detailed AICPA code Rule 301, Client Confidential Information.

Now that the new AICPA guidance with its expanded interpretations has taken effect (on Dec. 15, 2014), members are encouraged to assess their practices for compliance with both sets of rules.

New AICPA Confidential Client Information Rule

Former Rule 301 stated that “a member in public practice shall not disclose any confidential client information without the specific consent of the client,” but did not state the method for obtaining the consent. However, Rule 391, Ethics Rulings on Responsibilities to Clients, suggested that the consent be in writing (see Interpretation 391-2, “Disclosure of Client Information to Third Parties”). Former Rule 301 provided exceptions to the consent requirement for complying with Rule 202, Compliance With Standards, and Rule 203, Accounting Principles; complying with a valid subpoena, summons, or applicable statutes and government regulations; conducting a review of a member’s professional practice under AICPA or state CPA authority; or initiating or responding to a complaint made by a professional ethics organization. One interpretation under the rule regarding confidential information and the purchase, sale, or merger of a practice stated that client consent is not required in connection with a review of client confidential information in connection with the purchase, sale, or merger of a practice. The member, however, should take appropriate precautions (i.e., use nondisclosure agreements) to protect against the prospective purchaser’s disclosing confidential information.

2. The State Board rules do not allow commissions or contingent fees if the CPA performs, for the client, "...a compilation of a financial statement accompanied by a report..." The AICPA rules prohibit commissions or contingent fees if the CPA performs, for the client, "... a compilation of a financial statement when the member expects, or reasonably might expect, that a third party will use the financial statement, and the member's compilation report does not disclose a lack of independence." Accordingly, if a CPA is not independent of a client, performs a compilation, and discloses the lack of independence, he or she could receive a commission or contingent fee, from that client, under the AICPA rules, but could not receive such fees under the State Board rules.