Importance of Confidentiality in Accounting
A relationship between an accountant and a client is a fiduciary one, which means the accountant has a responsibility to act for the client's benefit. An accountant's code of ethics and conduct supports this relationship by requiring the accountant to comply with certain principles, including integrity, objectivity, competence and confidentiality. Confidentiality, in particular, requires that certain information, such as payroll data, be protected from unauthorized disclosure.
The book “Accountants’ Roles and Responsibilities in Estates and Trusts” notes that, in most circumstances, the law considers the relationship between an accountant and client to be a confidential one. Confidential information is privileged information that generally is not known that a client shares with an accountant for a specific purpose. The accountant is obligated to protect this information from unauthorized disclosure or public release. Because accountants comply with the confidentiality principle, clients feel free to speak frankly and reveal relevant facts regarding accounting issues, enabling the accountant to act in the client's best interest.
Accounting professionals should not disclose to a third party, publicize or disseminate any confidential information that they acquire through a business relationship unless the client specifically authorizes the accountant to do so. Access to the information by anyone who is not specifically authorized to receive the information for a legitimate purpose should be prevented. The confidentiality principle protects a business from its competitors, supports a company's efforts to maintain the company's competitive advantages and prevents the invasion of the company's privacy. The exception to this requirement is the legal obligation to disclose the information.
Clients see accountants as trusted advisers. Accountants, therefore, must implement appropriate controls to preserve that trust as required by the professional code of conduct. For example, accountants should alert subordinates of the obligation to protect the privacy and integrity of information. An accountant must ensure that fellow staff members and third parties, who provide advice or assistance, respect the accountant's duty of confidentiality. The accountant also should monitor subordinates’ activities to confirm this requirement is being met. Such protections help to ensure the accountant will not be sued by a client due to a breach of duty and that the accountant's reputation will not be damaged due to a failure to safeguard confidential information.
It's important that no confidential information is used directly by the accountant or indirectly by a third party for unethical or illegal purposes. Preventing such acts preserves the trust between the client and the accountant. In addition, maintaining the confidentiality of client records meets the accountant's duty of confidentiality in regards to data received as a result of a business relationship.