Accountants, Privilege, and the Problem of Working Papers
Full and frank disclosure between corporate issuers and their auditors and accounting advisors is critical for maintaining access to the information required for audits and public confidence in the capital markets. While tax authorities in the United States, Australia, New Zealand and the United Kingdom have the power to make broad requests for working papers, in all four jurisdictions, legislation or administrative practice reflects the determination that the best approach for balancing tax and capital markets requirements is for the revenue authorities to seek working papers only in exceptional circumstances. Additionally, limited forms of privilege for accountants have been recognized in all four jurisdictions. In contrast, Canada Revenue Agency practices require broad disclosure of corporate information and working papers. This paper suggests that the result of CRA practice is to restrict access for auditors to information necessary for the assessment of financial statements and required by capital markets. It argues that by driving corporations to seek tax advice from lawyers rather than accountants, CRA paradoxically is creating an environment where less information, not more, is available for tax authorities. The author proposes that the CRA adopt a policy of requesting working papers and information only in exceptional and well-defined circumstances. Such a policy would accord with recent corporate governance reforms aimed at encouraging more open and transparent financial reporting, and would bring Canadian practice in this area into step with recent international developments.