164 [81 Op. Att’y

PUBLIC INFORMATION ACT ) STATUS OF AUDITOR’S

“MANAGEMENT LETTER”

May 23, 1996

The Honorable Richard Colburn

Maryland Senate

You have requested our opinion whether an audit firm’s

“management letter” is privileged and therefore exempt from the

Public Information Act from disclosure to members of the public.

You also asked whether, if an audit firm’s management letter is

privileged, it is nevertheless available to a governmental agency that

is the source of funding for the recipient of the management letter.

Our opinion is as follows:

1. A management letter is privileged and exempt from

disclosure from the Public Information Act only to the extent that it

contains either (i) a communication made by a client to the licensed

certified public accountant or firm performing the audit or (ii)

information derived from the client’s materials. The portions of a

management letter that contain comments of the auditor severable

from client communications or client-derived information are not

privileged. 

2. Because the Public Information Act applies to interagency

requests for access to records, the agency recipient of a management

letter that is partly privileged may decline to disclose those parts of

the letter to another government agency, even one that provides its

funding, unless other law requires disclosure. 

I

Background

Earlier this year, the Commissioners of Caroline County

received a request from two newspapers for a copy of a

“management letter” that had been sent by an audit firm to the

County. The audit firm recommended that the Commissioners

decline to make the letter public. 
Gen. 164] 165

The audit firm distinguished between the nature and purpose

of a management letter and an audit report. The former “is a letter

that points out minor problems, identifies potential problems and

praises a job well done when appropriate.” Letter from John D.

Ireland, CPA, to County Commissioners of Caroline County

(February 9, 1996). According to Mr. Ireland, the management

letter (which we ourselves have not seen) contains “little or no

background information” and only very brief comments. This is so,

Mr. Ireland points out, because the letter is both preceded and

followed by oral discussions. The audit firm is concerned that the

letter itself, without the context of these discussions, might be

misleading.

Mr. Ireland observes that the audit report, which is made

public, “would include any material problems in the County’s

operations. Our firm’s job is to make judgments about how

important or material an issue is and our tool of communication to

the public is the audit report, not a management letter.” 

II

Statutory Privilege

No privilege for communications between an accountant and

a client was recognized under the common law. In re Special

Investigation No. 202, 53 Md. App. 96, 100, 452 A.2d 458 (1982).

See generally Francis M. Dougherty, Annotation, Privileged

Communication Between Account and Client, 33 A.L.R. 4th 539

(1984). 

In 1924, the General Assembly modified the common law by

enacting a statutory privilege. Chapter 585 of the Laws of Maryland

1924. The current version of the privilege is set out in §9-110 of the

Courts and Judicial Proceedings (“CJ”) Article, Maryland Code:

Except [with regard to disclosures in a

peer review process or in connection with a

bankruptcy, criminal, or Board of Public

Accountancy regulatory proceeding], or unless

expressly permitted by a client or the personal

representative or successor in interest of the
166 [81 Op. Att’y

client, a licensed certified public accountant or

firm may not disclose:

(1) The contents of any communication

made to the licensed certified public

accountant or firm by a client who employs

the licensed certified public accountant or firm

to audit, examine, or report on any account,

book, record, or statement of the client; 

(2) Any information that the licensed

certified public accountant or firm, in

rendering professional service, derives from:

(i) A client who employs the

licensed certified public accountant or firm; or

(ii) The material of the client.

CJ §9-110(b). The purpose of the statutory privilege was “to create

an atmosphere in which the client can feel free to discuss highly

confidential and personal financial details with his accountant.”

Dixon v. Bennett, 72 Md. App. 620, 642, 531 A.2d 1318 (1987),

cert. denied, 311 Md. 557 (1988). 

Because “the accountant/client privilege did not exist at

common law,” the statutory privilege “in derogation of the common

law [is] to be strictly construed.” In re Special Investigation No.

202, 53 Md. App. at 103. Construed strictly ) or, indeed, merely

straightforwardly, in accordance with its text ) CJ §9-110 by no

means provides blanket protection to communications from an

accountant to his or her client. Rather, such a communication is

privileged if, but only if, it contains information that is itself a client

communication or is derived from the client’s material. 

In an unpublished opinion issued in 1979, Attorney General

Sachs concluded that CJ §9-110 did not apply to a “managerial audit

letter” that indicated weaknesses in a school board’s internal

accounting controls and recommended ways to improve the control

system. Opinion No. 79-024 (1979) (unpublished). Attorney

General Sachs observed that the statutory privilege “was enacted to

prohibit accountants from disclosing information given to them by
Gen. 164] 167

their clients. It is not intended to prevent clients (such as the Board)

from disclosing advice (such as the managerial audit letter) given to

them by their accountants.” Opinion No. 79-024, at 6-7 n.7. We are

aware of no change in the law since 1979 that would call into

question this analysis and conclusion.

The Maryland Public Information Act calls for a custodian to

deny inspection of a public record if “by law, the public record is

privileged or confidential.” §10-615(1) of the State Government

Article. To the extent that portions of a management letter from a

CPA fit within the relatively narrow confines of the statutory

privilege in CJ §9-110, the custodian must deny inspection.

However, to the extent that a letter contains comments from a CPA

that are severable from any client communications or material, those

portions must be disclosed. 

We note, in this regard, that the management letter to the

Commissioners of Caroline County is said to contain “little or no

background information ....” Not having seen the letter, we can

reach no conclusion whether such a letter could be privileged. In

any event, the responsibility for applying these legal standards to the

particular document is the Commissioners’. 

III

Funding Agency Access to Privileged Portions of a Letter

As discussed in Part II above, portions of a management letter

might fall within the statutory privilege ) that is, those portions that

repeat client communications or are derived from client material. If

so, other public agencies would generally not be entitled to inspect

those portions of the management letter, because the Act “regulates

the access of one governmental agency to the records of another.”

Office of the Attorney General, Public Information Act Manual 5

(6th ed. 1993).

Although the agency that receives the management letter may

withhold it from another governmental agency on this basis, it need

not do so. “[T]he accountant-client privilege belongs to the client

...” and therefore can be waived by the client. First Interstate Credit
168 [81 Op. Att’y

 Alliance, Inc. v. Arthur Andersen & Co., 541 N.Y.S. 2d 433, 435

(N.Y. App. Div. 1989) (applying Maryland law). It is also possible

that other law might require the disclosure of a document that is not

subject to disclosure under the Public Information Act. In the 1979

opinion, Attorney General Sachs concluded that the “managerial

audit letter” in question there, which had been prepared for a board

of education, was “a matter of public record” under §5-108(c)(1) of

the Education Article. Opinion No. 79-024, at 3.

IV

Conclusion

In summary, it is our opinion that management letters from

audit firms are generally not privileged against disclosure. To the

extent that portions of a particular letter are privileged, access to

those portions may be denied to other governmental agencies unless

another law requires disclosure.

J. Joseph Curran, Jr.

Attorney General

Jack Schwartz

Chief Counsel

Opinions and Advice