Confidentiality and the public interest in Maltese statutory audit firms

Abstract

PURPOSE: One of the main hallmarks of the accountancy profession is the allegiance to various stakeholders. Nonetheless, the existence of various responsibilities within the profession does not come without problems. Hence, the main objective of this study is to assess the balance between client confidentiality and the public interest, as applied by local audit firms. This study observed the notion of ‘Public Interest’ and the regulatory framework pertaining to it and client confidentiality. Finally, Kohlberg’s Cognitive Moral Development Theory was used to determine at which level local auditors reason when faced with an ethical dilemma concerning client confidentiality and the public. DESIGN: The objective of the research was achieved through the use of a mixture of two approaches. Semi-structured interviews were conducted with eight experienced auditors and an online questionnaire was completed by eighty-three auditors. FINDINGS: The study shows that local auditors find it difficult to define the notion of public interest yet it emerged that the latter is reasonably safeguarded by different pieces of legislation. Moreover, it transpired that the confidentiality rule does not act as a barrier to a disclosure in the public interest. The study also shows that auditors tend to alternate between the conventional and post-conventional level of moral reasoning when faced with the client confidentiality versus public interest dilemma. CONCLUSIONS: In order to facilitate auditors’ duty to invest in the interests of the public, an increase in guidance as to when confidentiality should be overlooked and a clarification to the notion of public interest is suggested. Yet, regardless of the amount of guidance and clarifications made, it is imperative to act in an ethical manner. Auditors appear to consider the broader implications of their decisions rather than merely citing confidentiality when making their decisions. A shift from rule oriented reasoning to a more principle oriented reasoning in all issues concerning client confidentiality is pivotal. VALUE: This study seeks to shed light on what the public interest means and whether confidentiality acts as a barrier for auditors in honouring their duty to serve the public. Accordingly, it may encourage the regulatory authorities to issue more guidance and to improve auditors’ moral standing as this might be the answer to restore public trust in the audit profession.