The Sale of a CPA Practice and Confidentiality

by MICPA | Jun 03, 2014   ()

This article addresses the ethical considerations pertaining to confidentiality that are applicable to both the potential seller and purchaser of a CPA practice.

AICPA Professional Standards Interpretation 1.700.050 pertaining to the purchase, sale or merger of a practice refers to Rule 1.700.001 which permits the review of a member’s practice under AICPA or CPA state society authorization. It states that a review of a member’s practice includes a review “in conjunction with a prospective purchase, sale, or merger of all or part of a member’s practice.” A member is required to take the appropriate precautions as a prospective purchaser does not disclose any information obtained during the review. Written confidentiality agreements are examples of appropriate precautions. The information obtained is confidential client information.

A member reviewing a practice related to a prospective purchase or merger is forbidden to disclose any other member’s confidential client information her or she obtained in the review to his or her advantage.

Act #10, Public Acts of 1997, Section 733, Paragraph 2 states “Statements, records, schedules, working papers, or memoranda pertaining to a client shall not be sold, transferred, or bequeathed without consent of the client or the client’s personal representative and shall not be assigned except to 1 or more surviving partners or a new partner of the licensee or members of the licensee’s firm.” Interpretation 1.700.050 is silent on this issue. Therefore, as expected, state law prevails regarding the sales, transfers, or bequeaths of clients.

Unlike Interpretation 1.700.050, the State is silent regarding confidentiality in viewing client records pertaining to a sale or merger of a practice. After placing a call to the State of Michigan it appears that the key component of viewing the records does not constitute the transferring of them. Thus, effectively the State does not require client permission when a potential purchaser of a CPA practice is reviewing the records of the firm. As such interpretation 1.700.050 is to be adhered to when the purchase, sale, or merger of a practice is involved.

Source: The Michigan Association of CPAs

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