Books of Records to New Owner

by MICPA | Jun 03, 2014   ()

Following is a question and answer highlighting a frequent inquiry sent to the MICPA Professional Ethics Task Force. Responses to inquiries have been tailored to specific questions presented and may not consider all of the unique circumstances that are part of an ethical inquiry. Attempt your own answer before reading the “unofficial” opinion of the Task Force.

Scenario: During 2009, we prepared a 2008 corporate tax return for ABC, Inc. (C Corp organized in Delaware). ABC, Inc. was purchased in 2008 was operated out of Michigan. Previously, ABC, Inc. was owned and operated out of Delaware. This was the first time services were performed for the owner or ABC, Inc. We received the client’s books of records, which consisted of all bank statements and a check register, which were used to prepare the general ledger, trial balance, federal and Michigan corporate tax returns. Financial statements were not prepared. In addition, we prepared the sole shareholders 2008 personal tax return. During 2009, the sole shareholder of ABC, Inc. sold the stock of ABC, Inc. to another individual in Texas. Later in 2009, a letter was received from an attorney in Texas, who represents the new shareholder, requesting that we give them copies of all books of records (i.e. trial balance, general ledger, bank statements, check register, etc.). We contacted the Michigan owner, who told us NOT to release any records to the new Texas owner (potential dispute on the final purchase price payment).

Are we legally required to release the books of records to the new owner, even though the previous owner (our client) says no? Also, what ethics rules come into play?

It is first noted that the MICPA is unable to provide a legal opinion as to the requirements for your firm to release books and records to ABC, Inc. shareholder(s). It is recommended that you consult with an attorney prior to disclosing any information to the Texas shareholder.

That being said, the AICPA/MICPA Code of Professional Conduct describes rules governing confidential client information (Rule 1.700.001), noting that a member in public practice shall not disclose any confidential client information without the specific consent of the client; however, it goes on to state that this rule does not relieve a member of his or her professional obligations to comply with Accounting Standards and Principles, or to prohibit a member's compliance with applicable laws and government regulations, among other things.

Rule 1.400.040 discusses the failure of a member to follow requirements of governmental bodies, commissions, or other regulatory agencies, noting that members are required to follow established requirements in the preparation of financial statements or related information for purposes of reporting to such bodies, commissions, or regulatory agencies.

In this instance, it appears there are now two separate clients, both ABC, Inc. and the Michigan shareholder. The responsibility to each client is different, as is the delivery of information. The responsibility to ABC, Inc. would be to ensure that any books of original record (and any tax returns) have been provided to ABC, Inc. (or its representative). Once information has been provided, in the due course of business, the ethical requirements will have been met. Any additional requests would be subject to additional scrutiny.

Source: The Michigan Association of CPAs

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