Confidentiality Case Analysis

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to Quixote under the continuity agreement, any conflict of interest (whether actual or perceived) is a violation of the AICPA Code of Professional Conduct.

It is therefore critical that prior to proceeding with Quixote, Michael gives considerable thought and deliberation to whether or not he can remain objective in spite of his inside knowledge of La Mancha’s plans. He must be 100% certain that he can continue without utilizing that knowledge in any unethical or inappropriate fashion. It is unacceptable if his previous dealings with La Mancha would in any way impair his impartiality towards Quixote. If at any time he finds that he is not able to act objectively, he should immediately withdraw from the engagement. He should document his disclosures and communicate the situation to Aldonza.

Solution

AICPA Code of Professional Conduct Section 102 – Integrity and Objectivity (2013) applies to all CPAs, and stipulates “In the performance of any professional service a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others” (p. 2909). The rule further offers a definition of conflict of interest: “A conflict of interest may occur if a member performs a professional service for a client or employer and the member or his or her firm has a relationship with another person, entity, product, or service that could, in the member’s professional judgment, be viewed by the client, employer, or other appropriate parties as impairing the member’s objectivity” (p. 2909). It also suggests that disclosure and consent may be acceptable ways to manage conflicts of interest “if the member believes that the professional service can be performed with objectivity, and the relationship is disclosed to and consent is obtained from such client, employer, or other appropriate parties” (p. 2909).

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Specifically, Rule 301 – Confidential Client Information states that “A member in public practice shall not disclose any confidential client information without the specific consent of the client” (p. 2957). Michael has to make sure that he remains professional and responsible towards his clients, both current and former, by keeping their information private if they do not consent to share them.

In our textbook “Accounting Ethics”, Duska, Duska, and Ragatz (2011) discuss that an accountant is not obliged to remain confidential in certain situations, such as if he must comply with a “‘validly issued and enforceable subpoena or summons’ and must not ‘prohibit review of a member’s professional practice’” (p. 102); however, neither of these exceptions apply to this particular case. It is important for Michael to explain the situation to each of his clients and he should make sure that they reach an agreement to avoid any conflict of interest or compromise of his integrity.

Conclusion

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 to Quixote under the continuity agreement, any conflict of interest (whether actual or perceived) is a violation of the AICPA Code of Professional Conduct. It is therefore critical that prior to proceeding with Quixote, Michael gives considerable thought and deliberation to whether or not he can remain objective in spite of his inside knowledge of La Mancha’s plans. He must be 100% certain that he can continue without utilizing that knowledge in any unethical or inappropriate fashion. It is unacceptable if his previous dealings with La Mancha would in any way impair his impartiality towards Quixote. If at any time he finds that he is not able to act objectively, he should immediately withdraw from the engagement. He should document his disclosures and communicate the situation to Aldonza.

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.

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