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Status: In Progress.
In the course of an audit of the financial statements of an entity, an auditor may request access to information, such as legal opinions from outside counsel, that is subject to solicitor-client privilege (i.e., an exception to the power given to a party to compel relevant evidence to be disclosed).
The tax case - Interprovincial Pipe Line Inc. & IPL Energy Inc. v Minister of National Revenue - touched on the issue of whether disclosure to the auditors of legal opinions obtained from outside counsel resulted in waiver or loss of solicitor-client privilege. In his ruling, the judge warned that it would be prudent for entities to put in writing their attempt to limit any potential waiver of privilege.
As a result of this case, some entities have been advised by their legal counsel to seek written agreement with their auditors on the terms on which access to documents regarding legal claims is given. Using such a letter will not necessarily guarantee that information will remain privileged. That will depend on the particular circumstances of each case. However, the judge in the case noted above stated that a written agreement between an entity and its auditor is preferable to relying on oral discussions.
Auditors must ensure that any such agreement (a) does not prevent them from fulfilling their professional responsibilities, and (b) permits them to respond to situations where they may be under a legal obligation to disclose working papers and documentation retained by them, as long as they notify the entity and take reasonable precautions to preserve privilege.
A sample letter to be sent from the entity to the auditor, which was developed after consultation between a law firm and technical audit partners of some of the major accounting firms, may serve as a useful guide.
Staff support: Eric Turner, CA
Phone no.: +1(416) 204-3240
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