Compliance glossary
Definition

Data Classification

A system for labeling data by sensitivity (e.g., public, internal, confidential, restricted) so that appropriate controls can be applied.

What it means.

Data classification is the practice of categorizing data by sensitivity so that appropriate controls (encryption, access restrictions, retention rules) can be applied automatically. For CPA firms, a common four-tier model is public, internal, confidential, and restricted. Taxpayer information, Social Security numbers, and bank account data classify as restricted. Marketing materials and published firm information classify as public. Classification is normally captured during the data inventory exercise.

Why it matters for CPA firms.

Without classification, every file gets the same treatment, which usually means the lowest common denominator. Classification lets you apply stronger controls to the most sensitive data (encrypted client portal for restricted, regular email for public) without slowing the firm down on routine documents. The FTC expects firms to know what data they hold and to protect it according to risk.

Relevant regulations.

  • 16 CFR 314.4(b)(1)
  • IRS Publication 4557
  • NIST SP 800-60

How Kompflow helps.

The Data Inventory & Classification module handles this for your firm, personalized to your software, team size, and state requirements.

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