Confidentiality and Client Records: Understanding CPAs’ Ethical Obligations

All certified public accountants (CPAs) in North Carolina are subject to Subchapter 08N of the North Carolina Administrative Code, which is entitled “Professional Ethics and Conduct.” This subchapter establishes the rules that govern all CPAs and accounting practices in the state, including those relating to confidentiality and client records.

While there are several provisions of Subchapter o8N that either directly or indirectly address confidentiality and client records, the two primary sections devoted to these topics are:

• 21 NCAC 08N .0205 Confidentiality
• 21 NCAC 08N .0305 Retention of Client Records

Confidentiality

Under 21 NCAC 08N .0205, CPAs in North Carolina owe a strict duty of confidentiality to their clients:

“A CPA shall not disclose any confidential information obtained in the course of . . . a professional engagement except with the consent of the . . . client.”

While there are a number of exceptions to this rule, they are all narrowly limited, and they only apply in certain discrete circumstances where disclosure is required by law or rule. For example, disclosure of confidential client information is allowed without consent if required by court order or subpoena, or if requested in connection with an enforcement action by the State Board of Certified Public Accountant Examiners (the “State Board”).

Retention of Client Records

Under 21 NCAC 08N .0305, North Carolina CPAs owe a number of duties with regard to the retention and return of client records. Generally speaking, a CPA must return a client’s records “in his or her possession . . . after a demand is made for their return.” The rule further makes clear that “records shall be returned upon demand,” unless a reasonable delay is necessary to retrieve a closed file or extract work papers that are subject to retention under the rule.

With regard to work papers, CPAs in North Carolina have a general obligation to retain them for at least five years (or longer if required by law). All retained records remain subject to the confidentiality obligations in 21 NCAC 08N .0205. However, if certain work papers “contain data that should be reflected in the client’s books and records but . . . have not been duplicated therein,” then those work papers must be provided to the client upon request as well. As examples of work papers to which clients may be entitled, 21 NCAC 08N .0305 lists:

• Worksheets in lieu of original entry
• Worksheets in lieu of general or subsidiary ledgers
• Adjusting and closing journal entries and supporting details not included in the client’s journal entry
• Consolidating and combining journal entries, worksheets and supporting details used to arrive at final figures included in financial statements, tax returns and other final products

Speak with a Raleigh Professional License Defense Attorney in Confidence

If you are facing licensing action due to an alleged breach of confidentiality or failure to appropriately dispose of client records, the professional license defense attorneys at Cheshire Parker Schneider & Bryan, PLLC can defend you in your State Board proceeding. To discuss your situation in confidence, call our Raleigh, NC law offices at (919) 833-3114 or request a consultation online today.