Confidentiality Case Analysis

Case Analysis #2

Introduction

In general terms, something that is confidential is said be to something that is meant to be kept secret. Accountants, like doctors and lawyers, are often entrusted with information that is private and restricted. Accountants must be discrete in keeping this information secret. Confidential information may include the details about the private affairs of an individual, a past or prospective client: an employer or an employer’s client. Confidentiality also means that any information acquired as a result of a professional and business relationship must not be used for the personal advantage of the professional concerned, or of 3rd parties, as in the case of Mr. Michael Cervantes.

Chartered Institute of Management Accountants

140-Confidentiality

140.1 (a) states that the principle of confidentiality imposes an obligation on all professional accountants to refrain from disclosing outside the firm or employing organization confidential information acquired as a result of professional/business relationships without authorization from the present or past client or by legal authority to disclose such information & 140.1 (b) using confidential information for their personal advantage or that of a 3rd party. In addition, 140.6 state the following; accountant’s confidentiality continues even after the end of relationships between a professional accountant and a client or employer, i.e., Michael Cervantes and La Mancha Hardware Co. When a professional accountant changes employment or acquires a new client, the professional accountant is entitled to use prior experience but not use or disclose confidential information.

International Federation of Accountants (IFAC)

The IFAC’s code of ethics of professional accountants state six fundamental principles that the professional accountant must comply. Three of which are listed here:

1. Professional integrity- refers to honesty, fair dealings, trustworthiness, and free from conflict of interest.

2. Professional objectivity- imposes an obligation on all professional accountants not to compromise their professional or business judgment because of bias of interest or the undue influence of others.

3. Confidentiality- should be respected by professional accountants in guarding private information acquired during the course of performing professional services and should not disclose or appear to use such information without proper and specific authority or personal advantage or advantage of the 3rd party unless there is legal or professional right or duty to disclose.

AICPA-Code of Professional Conduct

ET Section 301- Confidential Client Information

Under Rule 301, it is stated that a review of a member’s professional practice is hereby authorized to include a review in conjunction with a prospective purchase, sale, or merger of all or part of a members’ practice. The member must take appropriate precautions, thru written confidentiality agreement, so that the purchaser does not disclose any information obtained in the course of the review because such information is deemed confidential. Thus, members in the capacity involved with a prospective purchase or merger shall not use to their advantage nor disclose any member’s confidential client information that comes to their attention.

Solution

Mr. Michael Cervantes can ensure that he does not use the confidential information obtained from his prior business/professional relationship with La Mancha by following the guidance provide earlier in this text. As per the codes, Mr. Cervantes can seek the proper formal and written authorization from La Mancha to disclose the confidential information. Otherwise, Mr. Cervantes should disclose to Quixote Electronics, Inc., that a conflict of interest and bias exist which impairs or compromises his ability to be objective. He should not disclose the information that was intended to be kept secret, the potential purchase of Impossible Dream Hardware Co.

Mr. Cervantes can safeguard his reputation and that of the profession by removing himself as the acting CPA and recommend different representation. However, before doing so he must utilize all available remedies to redress the conflict of interest.

• He should review the conflict of interest and confidentiality with his business partner, Mr. Aldonza Dulcinea, CPA.

• He should seek advisement from an independent advisor or National Board of Accountants and Auditors (NBAA) to obtain the best possible course of action.

• If the conflict still exists after fully exhausting all remedies of internal review, Mr. Cervantes should resign or withdraw and submit the information to Mr. Aldonza Dulcinea, CPA.

It would be unethical of Michael to self-serve his or Quixote’s interests by sharing or exploiting the confidential information of La Mancha that he possesses.

Michael should remain keenly aware that he is responsible for always acting within the AICPA’s Code of Professional Conduct throughout any engagement, regardless of whether it is his own client (current or former) or a client by means of a continuity agreement.

In order to proceed with integrity intact,

Michael should disclose the potential conflict of interest to the owner of Quixote.

He should be as clear and open as possible without compromising integrity and confidentiality by divulging La Mancha’s private information.

The amount of information that needs to be disseminated should be just enough for the owner of Quixote to make an informed decision about whether he is comfortable with Michael taking on the company’s accounting needs.

Michael must resist any temptation to reveal any of La Mancha’s protected or confidential plans and information, even if he is being pressured by Quixote’s owner.

While Michael has an obligation to provide services