Angry in the Great White North

Accountants are required to keep client information confidential. Accounting firms in Canada comply with the Personal Information Protection and Electronics Documents Act (PIPEDA). Principle #5 outlines when the information can be disclosed:

The personal information collected from a client during the course of a professional service engagement may be:

• Shared with the firm's personnel participating in such engagement;
• Disclosed to partners and employees within the firm to the extent required to assess compliance with applicable professional standards and rules of professional conduct, and the firm's policies, including providing quality control reviews of work performed;
• Provided to members of the organization's audit committee and board of directors, and others in the organization that might not otherwise have access to the information, in the course of communicating aspects of the results of our audit; and
• Provided to external professional practice inspectors (e.g. representatives of the Canadian Public Accountability Board, or a provincial institute of chartered accountants), who by law, professional regulations, or contract, have the right of access to the firm's files for inspection purposes.

Bottom line, the accountants can share the information with other accountants in order to comlete the accounting work, to report on the results of the accounting work, or to inspect the accounting work.

Anyone else would have to get a court order of some sort to see the information. PIPEDA protects the accounting profession from having to disclose the information to anyone else.

Now if you haven't already, read this piece on the Canadian Public Accountability Board (CPAB) and how provincial securities commissions have the ability to create new quasi-legal rules to control the accounting profession. Yet for all that power, there is more coming, promised in the Ontario provincial budget presented by the former finance minister, Dwight Duncan, this past spring:

The government is working with other jurisdictions and the Canadian Public Accountability Board (CPAB) to maintain an effective and well-functioning oversight system for audit firms, which supports public confidence in the integrity of financial reporting by public companies.

I ended that posting wondering what it was that the provincial government needed to do to enhance this oversight of audit firms. The Ontario Securities Commission and other securities commissions already created the CPAB and vested it with the power to decide who is an auditor and who isn't.

I think I know what is coming, and to see it, we have to go to Quebec. There Bill 7 was passed this summer. It is entitled "An Act to amend the Chartered Accountants Act":

This bill amends the Chartered Accountants Act to make it possible for the Ordre des comptables agrees du Quebec to enter into an agreement with certain bodies exercising complementary functions with respect to the protection of the public. The agreement must specify the nature and scope of the information that may be exchanged, as well as the purpose of the communication.

The Bureau may enter into an agreement with the following bodies exercising complementary functions with respect to the protection of the public: the Autorite des marches financiers and the Canadian Public Accountability Board incorporated under the Canada Business Corporations Act (R.S.C. 1970, chapter C-32). The term of the agreement may not exceed five years.

The bill authorizes members of the Order to provide information relating to their professional activities or their clients, to the extent specified in the agreement.

The information communicated by the Order under the agreement must be treated by the body receiving it with as much confidentiality as if it had been obtained or was held by the Order in the exercise of the powers granted by the Professional Code. That obligation does not, however, restrict the powers granted by an Act of Quebec to the Autorite des marches financiers as regards the communication of information.

So by law, accountants can share client information with the securities commission or the CPAB. No mention of the client is made -- presumably his or her opinion is not relevant.

But surely, the sharing is constrained by this agreement that must be drafted by the accountant and the securities commission. Safeguards will be in place. Accountants will work vigourously to make sure these agreements safeguard the clients as much as possible, right?

Remember, though, that the securities commissions have great power over accoutants. From the Securities Act in Ontario:

25. Prescribing requirements in respect of financial accounting, reporting and auditing for purposes of this Act, the regulations and the rules, including,
i. defining accounting principles and auditing standards acceptable to the Commission,
ii. financial reporting requirements for the preparation and dissemination of future-oriented financial information and pro forma financial statements,
iii. standards of independence and other qualifications for auditors,
iv. requirements respecting a change in auditors by a reporting issuer or a registrant,
v. requirements respecting a change in the financial year of an issuer or in an issuer's status as a reporting issuer under this Act, and
vi. defining auditing standards for attesting to and reporting on a reporting issuer's internal controls.

It was this power that was used to create the CPAB in the first place. The CPAB belongs to the securities commissions, not to the accounting profession, and has the power to inspect and discipline accountants who perform audits. And now accountants will be asked to enter into agreements to share information with those same commissions and the auditing watchdog created by the commissions, the CPAB.

You tell me what accountant is going to stand up against these guys. You tell me what accountant is going to say, "No, I'm not convinced my clients interests will be protected, and I'm not convinced that you really need this information. I will not enter into this agreement."

See, this is why we need a disinterested third party. Traditionally that would be the courts. But thanks to Bill 7, in Quebec the accountant and the securities commission can decide on their own to share information, with the CPAB leaning on the accountants to make sure they understand the importance of playing ball.

Is this just true in Quebec? Don't count on that. Remember that the securities commissions are committed to harmonizing the rules across the country. That's why they created the Canadian Securities Administrators (CSA):

The Canadian Securities Administrators (CSA) is a forum for the 13 securities regulators of Canada's provinces and territories to coordinate and harmonize regulation of the Canadian capital markets.

The CSA brings provincial and territorial securities regulators together to share ideas and work at designing policies and regulations that are consistent across the country and ensure the smooth operation of Canada's securities industry. By collaborating on rules, regulations and other programs, the CSA helps avoid duplication of work and streamlines the regulatory process for companies seeking to raise investment capital and others working in the investment industry.

So if Quebec creates a means by which the provincial securities commission can get its hands on accountants' client files, you can bet every province is lining up the same rules. Which brings us back to the vague promise in the Ontario budget:

The government is working with other jurisdictions and the Canadian Public Accountability Board (CPAB) to maintain an effective and well-functioning oversight system for audit firms, which supports public confidence in the integrity of financial reporting by public companies.

An oversight system to support public confidence as a result of cross-jurisdiction cooperation. Oh yeah, Ontario is getting that accounting peek-a-boo law.

The question is when and how. When? Soon. How? Not sure. I don't see a bill being debated that covers this. The fact that the budget makes mention of this makes me think Ontario is planning to slip this into the budget. But that poses two problems:

1. It isn't a government spending issue, so it doesn't belong in the budget.
2. The current finance minister is Greg Sorbara, and he is not allowed to deal with OSC-related legislation because of a long-standing unresolved conflict-of-interest issue.

One more thing. Put aside the effect on the accounting profession, the means by which this law might be passed, the question of Sorbara's conflict of interest. Just think about this law, assuming it is coming to Ontario. As soon as I retain an accountant, my financial information is potentially on the desk of the lawyers at the OSC. The OSC is a government body, but an accountant is a private citizen. This law turns private citizens into agents of the State. Worse yet, it undermines Section 8 of the Charter of Rights and Freedoms:

Everyone has the right to be secure against unreasonable search or seizure.

The courts have interpreted this to mean that Canadians have a reasonable right to privacy (Hunter v. Southam, 2 S.C.R. 145, 159-60 (1984)). Sure sounds pretty unreasonable to me to know that my financial and personal details are going to end up with the securities commission without my consent or even my knowledge.

I wonder if the Attorney General is double-checking the constitutionality of this legislation, assuming it's on its way. It's part of Michael Bryant's job, after all, to advise ministries on the drafting of legislation. But then he might be worried about what his accountant is going to do with his files, especially if the OSC really, really wants the equivalent of Quebec's Bill 7 passed in Ontario.

[I now wait for people to tell me I don't understand the Quebec legislation, or that I'm being alarmist.]