Big CPA Firm has many partners in one of its local offices. Two of these partner

Question

Big CPA Firm has many partners in one of its local offices. Two of these partners are Tom, a tax partner, and Alice, an audit partner. Because of the size of the office, Tom and Alice do not know each other very well.

Tom has a tax client, Anchovy Corp., that is in severe financial trouble and may have to file for bankruptcy. Anchovy is a customer of sardine Corporation, on of Alice's audit clients. Accounts receivable on Sardine's books from Anchovy are significant. If Anchovy goes bankrupt, it could cause serious problems or sardine. Alice is unaware of the bad financial condition of Anchovy.

1. Can Tom disclose to Alice the problems at Anchovy?

2. What if Anchovy goes under and takes Sardine with it?

3. What potential ethics issues do you see in this situation?

Explanation / Answer

1.Tom cannot disclose to Alice the problems at Anchovy. This situation comes under Rule 301 which describes about confidential client Information. The rule 301 of AICPA code of Professional Conduct tells that , A CPA in the practice of public accounting must not disclose confidential data of a client without specific consent of that client. But there is an exception to the rule 301, If Anchovy gives permission to Tom can Anchovy's financial condition be disclosed to the , Alice's client(Sardine Corporation).

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