Accountants Are Not Privileged 

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Accountants Are Not Privileged

FROM: NOV-DEC 2007 | BY VERN KRISHNA

The accounting profession does not have the same privileges – at least in the legal sense – as some other professions. The purpose of legal privilege is to promote uninhibited communication between professionals so that they can render services in an effective manner.

To be sure, communication between accountants and their clients is confidential, but that does not mean it is not available to tax authorities or law enforcement agencies. Privilege, by its nature, conceals relevant evidence from emerging in a trial. Thus, a balance between the client’s interest in privacy and the proper administration of justice must be achieved.

The policy reason for permitting privilege is that the law protects communication between lawyers and clients so that clients can obtain frank and candid advice from their lawyers. However, the law draws a line at extending the same privilege to accountants.

There are limited circumstances under which courts will protect confidential relationships on a case-by-case basis. For example, the courts sometimes protect doctor-patient, psychologist-patient, journalist-informant, and religious communications if they satisfy stringent criteria.

The Wigmore test, a set of criteria used to determine whether communications should be privileged, protects communications if:

1. They originate in a confidential relationship implying non-disclosure;
2. The element of confidentiality is essential to the full and satisfactory maintenance of the relationship between the parties;
3. The relationship is one that, in the opinion of the community, ought to be fostered; and
4. The injury to the relationship through disclosure of the communication is greater than the benefit society gains from exposing the communication through litigation.

The real barrier for accountants is that the person claiming privilege must establish that the private interest outweighs the public interest of full disclosure. And given the recent crisis of confidence in the financial world, the courts are reluctant to extend the circumstances in which the accounting profession should be considered privileged.

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