Only the client is entitled to accountant's reports.

A Massachusetts superior court ruled that an accounting firm is required to provide its work product only to its actual client.

This case arose from a divorce proceeding between Vanda Cacciola and her estranged husband, Luciano Manganella. Each of them owned a 50% stake in jasmine Company, a business whose assets were to be distributed under the divorce action. Cacciola alleged that Manganella was siphoning assets from Jasmine Company, and she requested financial information concerning the company from Saul Goldberg of Levenson, Goldberg and Co., the company's accountants. Goldberg refused to produce the information that Cacciola requested.

Cacciola then brought an action against the firm seeking initinctive rehef and damages. She claimed the firm had a professional duty to provide her with certain financial information regarding Jasmine.

In ruling for the defendant, the court said that according to Massachusetts law CPAs have a duty to provide information only to their clients. In this case, the firm's client was Jasmine Company, not Cacciola. The court noted that each year the company's designated representative, Manganella, signed the engagement letter and received the firm's financial statements and tax returns.

The AICPA Professional Standards specifically states that "a member will have satisfied his or her obligations ... when all client records and other information, as defined therein, have been supplied, where required, to the individual who has been previously designated or held out as the client's representative. The member need only supply such information once and need not comply with subsequent requests from the representative, or from other individuals associated with the client entity, to again provide the information,"

The court rejected the plaintiff's argument that because jasmine was a closed corporation, the defendants had a duty to treat it as a partnership and to respond to the plaintiffs request as if she were a partner. The court said it would be unfair to hold outsiders of the corporation to such a high standard, since the plaintiff could cite no precedent for this proposition. (Cacciola v. Jasmine Company, Inc., Superior Court, Commonwealth of Massachusetts, Civil Action #92-3548)

Editor's note: Thanks to John Hughes of Hutchins, Wheeler and Dittmar for the Cacciola case.

--Edited by Wayne Baliga, CPA, JD, CPCU, CFE, president of Aon Technical Insurance Services.