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Calling all tax CPAs: help quality reviews take center stage

GettyImages-494755316Data breaches happen daily. We see it in the news, and we hear it from our clients. Clients trust us with their private information including Social Security numbers, paystubs, birthdays and other data valuable to identity thieves.

We need to maintain security and provide the best service for our clients. To do this, we must observe two things: integrity and adherence to the quality of services we deliver. And both require obedience to specific standards of behavior.

In the case of quality, there are many ways to prove we’re adhering to standards. Reviews of our work are one. But doing so can raise significant concerns for practitioners, particularly when it comes to logistics.

Practical applications of tax practice reviews

In a practice environment, reviews take place as part of our daily routine. When a client engages a firm to provide professional services, the firm gathers and evaluates data and information necessary to complete the job to produce a deliverable. During this process, the final product — whether it’s a set of financial statements, a tax return or an advisory memo — undergoes a review to make sure the finished product is complete and accurate.

Other times, an outside organization like the American Society for Quality (ASQ) or the International Organization for Standardization (ISO) grants a specific accreditation. These types of endorsements demonstrate the firm is following prescribed standards. This assures the customer that what an organization should be doing — or says it’s doing — is being done. A mandated peer review exercise is usually done in the context of an attest practice. However, this type of third-party quality review can be undertaken by other parts of a firm’s practice on a voluntary basis. Having an outside party review an organization’s operations, policies and procedures is another way to demonstrate quality in performance.

The recently updated AICPA Tax Practice Quality Control Guide states that one of the key elements of maintaining a quality control system is the monitoring of operations. This can be straightforward for larger firms that often have internal groups review the actions of individual departments. This makes sure all employees adhere to the firm’s standards of quality, regardless of the physical location of the office or the client’s business or size.

It’s much more challenging for a smaller firm or a sole practitioner. Issues could arise such as a lack of sufficient internal resources or enough qualified personnel on staff to perform such an examination. And if someone outside the firm is engaged in the review, it’s essential they adhere to the rules surrounding access to confidential client information.

Guiding the way for easier quality reviews

Many firms wonder if a client’s permission is required for their records to be included in such a quality review. Recently, the AICPA’s Professional Ethics Executive Committee (PEEC) issued an exposure draft titled Disclosing Client Information in Connection With a Quality Review. This is intended to be a new interpretation of the Confidential Client Information Rule (AICPA, Professional Standards, ET sec. 1.700.001) of the AICPA Code of Professional Conduct, which would expressly allow a CPA to undertake such an assessment without violating the Code of Professional Conduct.

An existing exception to this rule restricting the exchange of confidential client information is in place for firms undergoing a mandatory peer review. Such confidential information can also be shared in conjunction with the evaluation of a professional practice subject to an acquisition or if such a review was required by a state board of accountancy or state society.

If adopted, this interpretation would allow for voluntary tax practice reviews to take place as long as:

  • the member complies with Treasury Regulation 301.7216-2(p) related to disclosures of tax return information that occur during such a review, and
  • the member who performs such a review, doesn’t use the information obtained during the review to their advantage nor do they disclose any confidential client information that comes to their attention during the review engagement.

By issuing this interpretation, PEEC clarifies these reviews can take place without exposing a member to any violation of the AICPA’s Code of Professional Conduct.

What’s next?

Firms of any size that voluntarily undergo a tax practice review clearly demonstrate they’re focused on maintaining the high-quality standards clients expect. Therefore, PEEC encourages all interested parties to comment on this proposed interpretation.

Comments should be submitted via email to: Ethics-ExposureDraft@aicpa-cima.com by August 20, 2018. After evaluating the comments, PEEC may decide to publish the proposed interpretation in a final release. Once published, the interpretation will become effective on the last day of the month in which the release is published in the Journal of Accountancy, unless otherwise stated in the release.

Henry Grzes, CPA – Lead Manager, Tax Practice & Ethics, Association of International Certified Professional Accountants

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