CASE 5.5
PHILLIPS PETROLEUM COMPANY
Synopsis
How many auditors would serve time in jail to protect the confidentiality of a client’s financial
records? This case profiles one principled audit partner who did just that. Bill Grant, managing
partner of Arthur Young‘s Tulsa office, was jailed in October 1975 by a federal judge for failing to
turn over certain audit workpapers that had been subpoenaed by a federal grand jury. The
workpapers pertained to prior audits performed by Arthur Young for Phillips Petroleum Company, a
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Phillips Petroleum Company—Key Facts
Case 5.5 Phillips Petroleum Company 235
1. Bill Grant, an Arthur Young audit partner, was jailed by a federal judge because he refused to
3. The workpapers requested by the grand jury included tax accrual workpapers and attorneys’
4. Grant refused to provide the requested workpapers because he was concerned that the
5. Grant was released from jail after one day but ordered to produce the requested workpapers
within the following week or face a potential jail term of seventeen months.
6. The federal judge and Arthur Young attorneys eventually reached a compromise that resulted in
Instructional Objectives
236 Case 5.5 Phillips Petroleum Company
1. To illustrate difficult decisions that an auditor faces when responding to a situation in which his
or her actions may threaten the confidentiality of a client’s financial records.
2. To examine how forcing auditors to provide confidential client information to outside parties
Suggestions for Use
This case focuses on the client confidentiality rule and thus could be discussed in conjunction
with classroom coverage of that topic. The role of attorneys’ letters is also featured in this case.
Consequently, instructors may want to integrate this case with coverage of the “wrap-up” phase of an
Suggested Solutions to Case Questions
1. Clearly, given the potential repercussions of the decision he had to make, Grant almost certainly
deliberated long and hard over this matter and consulted extensively with colleagues and legal
counsel within his firm before making his decision. There are several exceptions to the client
confidentiality rule, one of which involves the subpoena of confidential client information. In such a
case, an auditor will not violate the client confidentiality rule if he or she turns over the information
that has been subpoenaed. Is it appropriate for auditors to refuse to turn over confidential client
2. When a partner or employee of a public accounting firm is subpoenaed to testify regarding a
client, that firm has an obligation to apprise the individual of his or her legal and professional
responsibilities. Why? Because the individual will be acting as a representative of the firm when he
Case 5.5 Phillips Petroleum Company 237
key objective of attorneys’ letters is to corroborate information provided by client management
regarding pending legal matters, such as unresolved lawsuits. Once an auditor has documented the
4. It stands to reason that if auditors realize that their tax accrual workpapers are subject to being
obtained by the IRS, they will be very careful to avoid including information in those workpapers