It is well-established that attorneys and their clients are entitled to private and protected communications.  But what level of protections are available when an accountant is used in an engagement to provide an area of expertise not possessed by the attorney?

This is a significant question because accountants are frequently relied upon as indispensable members of legal teams because they have the ability to properly interpret complex technical accounting concepts and explain them to lawyers, judges and juries.  When utilizing accountants in legal matters, the level of protections afforded will often depend on the agreement entered into between the parties.

As an initial matter, parties involved in legal disputes should understand that the accountant-client privilege generally does not provide the same level of protections as the attorney-client privilege.  Relying solely on the accountant-client privilege presents substantial risks for the client.  Rather, the parties should recognize and consider the benefits of entering into a Kovel Agreement to protect their communications.

What is a Kovel Agreement?

A Kovel Agreement is initiated to provide the client with the strongest legal and accountant advice to support the client’s position and arguments.  Additionally, entering into a Kovel Agreement allows the protections and privileges, typically confined to the attorney-client interactions and work-product, to be extended to accountants contracted by the attorney for a more thorough representation of the client.  With a Kovel Agreement, the scope of communications and materials that is protected from disclosure to third parties and potential adversaries widens accordingly.

What do I Need to do to Ensure the Client is Protected Under a Kovel Agreement?

Kovel Agreements are guided by specifics.  Proper paper and communication trails preserve the integrity of the agreement.  The legal counsel drafts the agreement, which should state that the counsel is engaging the accountant to assist in providing thorough legal services to counsel’s client.  The client and issue-at-hand should be specified.  Under the agreement, signed by all parties, legal counsel is responsible for directing the accountant’s services and the accountant takes instruction from counsel regarding all aspects of the business arrangement.  In order to protect “work-product,” the agreement should state that all workpapers created by the accountant for the engagement belong to the attorney.

Parties should be aware that if a court concludes that an accountant provided the client with accounting or tax advice, even if working with an attorney, the attorney-client privilege will not  apply.  When attorneys and accountants work together on engagements, it is critically important to establish that the accountant is working under the direction of the attorney.

The items discussed above are only a few of the provisions found in a well-constructed Kovel Agreement.  It is especially important for accountants to understand the limits of the accountant-privilege and how Kovel Agreements can be used to protect their communications and work-product.  Accountants and their clients should always consult with an attorney who understands the nuances associated with this subject, has experience with drafting Kovel Agreements and protecting client and accountant communications.