Privileged communication for accountants;

              30 HASKINS & SELLS April
THE courts and state legislatures have
for many years deemed it wise to
exempt certain types of communications
from examination during trial. The
statutes of practically every state ex­pressly
specify what types of communica­tions
are exempt, although in certain cases
the courts have extended the right of
privileged communication to persons other
than those specified in the state statutes.
It is generally recognized by state statutes
that communications between doctor and
patient, lawyer and client, and priest and
penitent are privileged communications
and consequently are exempt from court
testimony. The statutes of the States of
Florida, Louisiana, Maryland, Michigan,
Mississippi, and Tennessee, as well as the
territories of Alaska and the Philippine
Islands, provide that communications be­tween
an accountant and his client are also
privileged communications. However,
few, if any, other states have provided
in their statutes for privileged communi­cation
between the accountant and his
client.
The work of the accountant is highly
confidential in nature. He usually has
access to the client's most private records.
The client must be able to place the utmost
confidence in the auditor because the
auditor acquires a knowledge of his client's
business which that client very often
would not want his competitors to have.
Accountants have continually tried to
maintain the confidence of their clients by
refusing to disclose, even in court, facts
concerning the client's business, without
the client's consent. Usually the courts
have upheld the accountant's conduct in
this respect, although in a few cases the
accountant who refused to testify concern­ing
his client's business was found guilty of
contempt of court and penalized accord­ingly.
The very nature of the accountant's
work, which has confidence as its founda­tion,
requires that the accountant be pro­tected
in maintaining the confidence of
business men.
The accountant is perhaps even more in
need of protection in another phase of com­munication
between his client and himself.
When an accountant is engaged to make an
audit or an investigation, it is his duty
to notify the client, either in the report or
in a conference, of any relevant facts which
he uncovers during the course of the audit
or investigation. If the accountant dis­covers
irregularities or fraud, as he does in
numerous cases today, it is his duty to state
the facts. Yet, as soon as he does state
the facts he places himself in danger. If
the statement of the auditor casts sus­picion,
direct or indirect, on any certain
employe, that individual may decide to
sue for libel and, unless the accountant is
protected by law, he may be punished for
merely doing his duty in reporting the
facts as he found them. Even in cases
where there seemed to be no doubt about
his guilt, the employe has sued for libel,
after the client has waived the right to
prosecute him, or after he has been tried
and acquitted because of some technicality.
Many accountants have learned from
experience to word their comments on
irregularities and shortages in such a way,
if possible, that no reflection is made on
any particular employe. But, cases may
arise in which it is practically impossible
to avoid making a direct statement of the
facts as they actually exist. Communica­tions
of this kind furnish the client with
confidential information concerning the
condition of his business discovered by the
auditor in the performance of his duties, and
certainly should be considered privileged,
just as is the lawyer's advice to his client.
An interesting case, Hearn v. Ostrander,
has recently been decided by the Supreme
Court of North Carolina, which, while
not involving accountants, might, in view
of the situation, very well be applied to
communications made by accountants to
Privileged Communication for Accountants