Confidentiality (Section 114)

Fact

Accountants must not disclose client information to third parties without proper authority, unless there is a legal or professional duty to disclose. 

Elaboration

• You cannot share client information with friends, family, or social media.
• You cannot use client information for personal profit (e.g. insider trading).

Disclosure is allowed if:

• Client authorises it;
• Required by law (e.g. court order, regulatory authority);
• Needed for practice review, investigations, or to protect your own professional interests.

Example

• You audit Company A and see that they are planning to buy land in a certain area. 
• You then quietly buy land there first to profit from price increase.
• You have misused confidential information for personal advantage – this breaches confidentiality

Implication for breaching Confidentiality

Failure to maintain confidentiality may result in disciplinary action by the professional body and damage to the accountant’s professional standing.

If a professional accountant breaches confidentiality, the impact is quite serious. You can group the implications into 4 main areas for exam answers:

1. Professional & Disciplinary Consequences

Breach of MIA By-Laws / Code of Ethics can be seen as professional misconduct.

Can face:

• Disciplinary action by MIA (warning, reprimand, suspension, removal from register).
• Loss of professional reputation – seen as untrustworthy by clients, employers, and peers.
• Difficulty getting future clients / jobs because no one wants an accountant who “cannot keep secrets”.

2. Legal & Financial Consequences

The accountant may be legally liable for unauthorized disclosure and may have to pay compensation.

If confidential information is disclosed without proper authority, the accountant may:

• Be sued for damages (e.g. loss suffered by the client because information was leaked to competitors).
• Be in breach of contract (employment contract / engagement letter usually includes confidentiality clauses).
• In some cases, may even breach data protection or other laws, leading to fines or other legal consequences.

3. Loss of Client / Employer Trust

Breaching confidentiality undermines the trust relationship between the accountant and the client/employer.

Clients and employers expect that their information will be kept confidential.

If the accountant leaks information:

• Trust is broken – client or employer may terminate the engagement or employment.
• Clients may be reluctant to share full information in future, affecting the quality of work and reliability of financial reporting.
• Can damage the firm’s or organisation’s reputation as a whole, not just the individual.

4. Impact on the Profession & Public Interest

Non-compliance with confidentiality can erode public confidence in the accountancy profession as a whole.

The public relies on professional accountants to act ethically and responsibly.

If confidentiality is frequently breached:

• Public confidence in the profession decreases.
• The perceived value of professional accountants and their role as trusted advisers is weakened.

How to Write in Exam

You can combine the points like this:

If a professional accountant does not comply with the principle of confidentiality, he or she may face disciplinary action by the professional body and legal liability for unauthorised disclosure of information. 

The breach can damage the trust and relationship with clients or employers, lead to loss of business or employment, and harm the accountant’s professional reputation. 

At a wider level, repeated breaches of confidentiality can undermine public confidence in the accountancy profession.

Ethical conduct towards clients:

• Do not disclose client information to third parties without proper authority or legal/ professional duty to disclose.
• Do not use confidential information for personal advantage or for the benefit of others.
• Ensure staff and team members also maintain confidentiality.