Tailor-Made Tax Practice Quality Controls presented at the West Michigan Tax Symposium
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Transcript of Tailor-Made Tax Practice Quality Controls presented at the West Michigan Tax Symposium
Tax Section 1#AICPAtax
Tailor-Made Tax Practice
Quality Controls
Presented by:
Jina Etienne, CPA, CGMA
Director – Taxation, AICPA
Tax Ethics & Standards | AICPA Tax Section
West Michigan Tax Symposium November 12, 2014
Tax Section 2Tax Section #AICPAtax 2
Today’s Agenda
Quality Control Standards
Elements of a Quality Control
System
Considerations in Designing a
QC System
Unique Challenges for Solo
Practitioners & Small Firms
Questions
See Resource Appendix for additional information not included in the live
presentation, such as products, resources, hyperlinks and other information.
Tax Section 4Tax Section #AICPAtax 4
Quality Control Standards
AICPA Code of Professional Conduct
AICPA’s Statement on Quality Control Standards
(SQCS) No. 8, A Firm’s System of Quality Control
Yellow Book, Generally Accepted Government
Auditing Standards
PCAOB
Circular 230, §10.36
State Board of Accountancy rules and regulations
Tax Section 5Tax Section #AICPAtax 5
Firmwide Quality Control
AICPA has longstanding and
well-established principles of
quality control regarding a firm’s
accounting and auditing practice
SQCS objectives
• Compliance
• Appropriate work product
Tax Section 6Tax Section #AICPAtax 6
Professional Liability Implications
Lack of experience in industry or client operations
Lack of knowledge or qualifications
Lack of independence
Conflict of interest
Poor supervision and review
Tax Section 7Tax Section #AICPAtax 7
Relevance for the Tax Practitioner
Assists compliance with
• Statutory and regulatory requirements
• Professional standards
Minimizes the risk of professional
liability
Required by Circular 230
A best practice for all sizes and
types of tax practices
Tax Section 8Tax Section #AICPAtax 8
Tax Practice Quality Control System - Defined
Purpose is to provide
reasonable assurance of
compliance with applicable
statutory, regulatory, and
professional requirements
Consists of organizational
structure, policies, and
procedures
Evidenced by Tax Practice Quality Control document
Tax Section 9Tax Section #AICPAtax 9
Elements of a Quality Control System
Leadership responsibilities
Ethical requirements
Acceptance of client relationships
Human resources function
Engagement performance
Monitoring of QC system
Tax Section 10Tax Section 10#AICPAtax
Factors that Influence QC System
Practice
size?
Number of offices?
Degree of
authority
granted?
Knowledge and
experience?
Nature of
practice?
Specialties?
Other factors?
Cost-benefit
considerations?
Practice
areas?
Tax Section 12Tax Section #AICPAtax 12
Leadership Responsibilities
Assume ultimate responsibility
Quality of work overrides profits
Appropriate experience and authority
Clear and continuous communication
Dedicate sufficient resources
Demonstrate commitment to the QC system
Tax Section 13Tax Section #AICPAtax 13
Ethical Requirements
Adherence to all applicable laws, regulations, and
professional standards
Communication of firm policies and procedures
Documentation of compliance
Tax Section 14Tax Section #AICPAtax 14
Acceptance of Client Relationships
Evaluate prospective clients
Determine if the firm has the necessary capabilities
and resources
Document the understanding with the client
Periodically re-evaluate the client relationship
Tax Section 15Tax Section #AICPAtax 15
Human Resource Function
Hiring program
Assignment of personnel to engagements
Continuing education program
Qualifications for advancement
Evaluations
Tax Section 16Tax Section #AICPAtax 16
Engagement Performance
Engagement plan
Supervision and review
Compliance with QC system standards
Communication of results to client
Documentation of results and of their
communication to client
Use of consultants
Procedures to resolve differences of opinion
Tax practice documents
Tax Section 17Tax Section #AICPAtax 17
Monitoring of QC System
Document compliance with QC system
Establish an inspection program
Evaluate compliance
Assign monitoring responsibility
Provide a process for client complaints
Tax Section 18Tax Section #AICPAtax 18
Quality Control Materials
Quality Control Policy (written)
• Summarizes and communicate QC policies and procedures
• Ensures delivery of quality services to clients
Tax Procedures Manual
• Details procedures and related forms, checklists and worksheets
• Streamlines the administrative aspects of practice
Voluntary Tax Practice Review (optional)
• To assess the quality of the QC system
• Internal self-assessment vs. firm-on-firm review
Tax Section 19Tax Section #AICPAtax 19
Tax Procedures Manual
Sets expectation to follow established procedures
• Provides a benchmark assessing internal compliance with firm’s
QC requirements
Should be written
• Included as an appendix in the firm’s tax practice quality control
document
Make it accessible to all firm personnel
Review and update periodically
Include in firm training
• New hire training
• Annual busy season preparation
Tax Section 20Tax Section #AICPAtax 20
Sample Quality Control Documents
AICPA’s Tax Practice Quality
Control Guide*
Different samples for three different
practice models
• Sole Practitioner CPA Firm with Limited
Staff
• CPA Firm Without a Structured Tax
Department
• CPA Firm with a Structured Tax
Department
Each is based on the six elements
*See Resource Appendix for links
Tax Section 21Tax Section #AICPAtax 21
Sole Practitioner
The sole practitioner sample document contains
general parameters for operating a tax practice and
establishes the basic foundation of preferred
practices for a sole practitioner’s tax practice.
Assumes one owner, with or without employees.
Tax Section 22Tax Section #AICPAtax 22
Sole Practitioner, continued
The owner has overall
responsibility the QC system
Employees may assume varying
degrees of responsibility for
aspects of the QC system
Challenges for the solo owner
• What is “leadership” in a solo practice?
• When to seek outside counsel or
consultants?
• Process to investigate client complaints
Tax Section 23Tax Section #AICPAtax 23
Firm Without a Structured Tax Department
The sample document for a local CPA firm
Concentration is on establishing
responsibilities for tax matters within the
firm, and addresses some specialization
within the tax area
Presumed to be a mid-sized firm
Notice the a differentiation in “partner”
titles
• Tax “partner in charge” has overall responsibility
• Other partners or staff may assume varying degrees
of responsibility for different aspects of the system
Tax Section 24Tax Section #AICPAtax 24
Firm With A Structured Tax Department
This sample document contains detailed policies
and procedures that commonly exist in firms with a
separately structured tax department.
Added a new partner title: “administrative partner”
• Others to consider: “risk partner” or “QC partner”
Tax partner in charge has overall responsibility
Other partners or staff may assume varying degrees
of responsibility for different aspects of the system
Tax Section 26Tax Section 26#AICPAtax
Commitment to quality
Establish and maintain
policies and procedures
Communicate
expectations
Talk about it with clients
Adapt procedures
based on resources
Articulate your value to
clients and prospects
Leadership Responsibilities
Tax Section 27Tax Section 27#AICPAtax
Awareness of relevant
standards
Anticipate “sticky
spots”
Avoid surprises
License, Circular 230,
and memberships or
associations
Specialized guidance
available
Set expectations
Ethical Requirements
Tax Section 28Tax Section #AICPAtax 28
Examples of Ethical Requirements
Tax return reporting standard
Confidentiality of client information
Conflicts of interest
Due diligence
Knowledge of client’s error
Contingent fees
Written tax advice
Tax Section 29Tax Section 29#AICPAtax
Know what to ask
Define your process for
each situation
Know when to say no
Know when to walk
away
Balancing Independence & Advocacy
Tax Section 30Tax Section #AICPAtax 30
Client Acceptance Procedures
Identify risks
Develop firm portfolio of services
Develop desired client profile
Require approvals
Suggested Tools and Procedures:
Prospective client questionnaire
New Client Acceptance Forms(different for each type of client)
Minimum fees & fee worksheets(for complex engagements)
Tax Section 31Tax Section #AICPAtax 31
Evaluating Integrity
Open and honest communication with management
Talk to predecessor accountant
• Rationale for changing firms
• Changes in ownership/ownership disputes
For larger clients & business entities
• Background checks on management
• Verification of applicable licensing/registration requirements
• Management experience
Tax Section 32Tax Section #AICPAtax 32
Other Acceptance Considerations
Compliance history?
Ability to pay?
Relationships with others?
• Clients
• Colleagues
• Family
• Friends
Conflicts of interest?
Tax Section 33Tax Section #AICPAtax 33
Conflicts of Interest
Look closely – many potential landmines
Joint returns
• Divorce or separation
• Communication limited to one spouse
• Only one spouse signs engagement letter
Business returns
• Prepare returns for pass-through entity but only one owner
• Entity-level tax recommendations that impact your client’s
personal return but you do not prepare returns for all owners
IRS examinations
• You recommended a position that is now under review by IRS
• Client questions a position raised in an exam
Tax Section 34Tax Section #AICPAtax 34
Procedures to Address Conflicts
Provides clarity for staff on how to proceed
• Does an actual or potential conflict of interest exist?
• Can I remain objective?
• Can the potential or actual conflict be waived?
Resources for guidance
• AICPA, IRS and state CPA society
• Attorney
• Applicable standards, laws, rules, and regulations
Tax Section 35Tax Section #AICPAtax 35
What about long-time clients?
Perform a periodic evaluation (annual?)
No “one size fits all” approach
Two common triggers for evaluation
• Change in client or firm circumstances
• Problematic clients
Continually assess & reassess risks
• Changing circumstances (internal vs client)
• Avoid risk (client termination)
Tax Section 36Tax Section #AICPAtax 36
Terminating clients
Workpaper documentation
Approaching deadline
Use termination letters
• Factual and concise
• Avoid documenting the reason
• Traceable delivery method
• Termination letter elements
Cease providing services
Tax Section 37Tax Section #AICPAtax 37
Human Resources Function
New! Circular 230 §10.35, Competency
• A practitioner must possess the necessary competence to
engage in practice before the IRS.
• Competent practice requires the appropriate level of knowledge,
skill, thoroughness, and preparation necessary for the matter for
which the practitioner is engaged.
Be slow to hire and quick to fire
Consider engagement assignments
• Evaluate returns to determine proper staff or support role
Require annual CPE + ongoing learning
Annual review + ongoing informal feedback
Tax Section 38Tax Section #AICPAtax 38
Do You Have a Hiring Program?
Four phases of the employment process
• Recruitment
o Job characteristics
o Minimum education, skills & training
o Personality (firm culture)
Tax Section 39Tax Section #AICPAtax 39
Do You Have a Hiring Program?
Four phases of the employment process
• Recruitment
• Selection
o Identify key questions to ask about experience or education
o Watch for “Red flags”
− Employment gaps
− Jobs left off resume
− Only years listed, not months or specific dates
Tax Section 40Tax Section #AICPAtax 40
Do You Have a Hiring Program?
Four phases of the employment process
• Recruitment
• Selection
• Placement
o Define your onboarding program
o Establish expectation of quality from the start
o Include quality control manual as part of initial training
Tax Section 41Tax Section #AICPAtax 41
Do You Have a Hiring Program?
Four phases of the employment process
• Recruitment
• Selection
• Placement
• Retention
o Ongoing training should reinforce commitment to quality and
reinforce QC procedures
o Provide ongoing feedback – both formal and informal
Tax Section 42Tax Section #AICPAtax 42
Engagement performance
Define your workflow
Know when to ask for help
Use tracking forms, logs, or control sheets
Document all client communications
Develop a network
Tax Section 43Tax Section #AICPAtax 43
Use Engagement Letters
Circular 230§10.33, Best Practices for Tax Advisors
• Clearly communicate the terms of the engagement
• Documentation is recommended
Why use engagement letters?
• Clear understanding of expectations
• Minimize risk of disputes regarding scope and fees
• Key exhibit when defending a professional liability claim
Clearly define client vs. CPA responsibilities
Tax Section 44Tax Section 44#AICPAtax
Key provisions
• Scope of services
• Limitations of services
• Client and CPA
responsibilities
• Deliverables/work product
• Timing
• Fees
Other considerations
• Avoid “evergreen”
engagement letters
• Unilateral letters
• Review engagement
letters with clients
• Attorney review
Engagement Letter Do’s and Don’ts
Tax Section 45Tax Section #AICPAtax 45
Establish procedures to document client
representations
• Require clients to complete and sign questionnaires on key
issues (e.g., Foreign Account Reporting Information Form
and/or Questionnaire)
• Use customized forms to document client understanding and
compliance (e.g., Travel & Entertainment Disclosure Statement)
Must consider all forms of written advice
• Internal memos
• Email – internal messages and email to/from clients
• Mobile communications – texting and instant messaging
• Social media – do you have a written policy?
Managing Client Communications
Tax Section 46Tax Section #AICPAtax 46
3rd Party Requests for Tax Information
Traditional requests pertain to loans to clients
Nontraditional requests
• Employment or citizenship status
• Number of employees, “full-time” status or other information
relevant to worker classification
o May emerge in 2014 re: “play or pay” provisions under
Affordable Care Act
• Information pertinent to:
o Sales and use tax
o Qualification for government programs or matching funds
o Tax exempt status
Tax Section 47Tax Section #AICPAtax 47
Application of §7216
Must obtain taxpayer consent for each separate
disclosure or use
May be attached to an engagement letter
See§301.7216-3(c)(1) for special rules
• Obtaining multiple disclosures to either:
o Consent to multiple uses within the same document
o Consent to multiple disclosures within the same document
o Cannot authorize multiple types in the same document
• Consent to disclosure of all information in an entire return
Tax Section 48Tax Section #AICPAtax 48
Monitoring of QC system
Reassess annually to adapt for growth and shifts in
technology
• Assess operating effectiveness of policies and procedures
• Assign monitoring to qualified individuals
• Address deficiencies
Suggested Procedures:
Document complaints and steps taken to
address them
Post-tax season wrap-up meeting
Quality control inspections
Tax Section 50Tax Section #AICPAtax 50
Sole Practitioner Challenges
Balancing roles
• Running the business
• Doing the work
• Quality control
Planning for growth
Maintaining focus
Adapting QC elements that contemplate multiple roles:
Redefining “leadership” in a solo practice
Know when to ask for help
Limit scope of services to minimize risk
Tax Section 51Tax Section #AICPAtax 51
Service Standards & Guidelines
Develop a targeted turn-around time for returns
Deadline for submitting information to file by 4/15
Define processes for:
• Managing extensions
• Tracking missing information
Create guidelines for balancing competing priorities,
for example:• All work is FIFO, with defined exceptions (e.g.,
top 5% always take priority?)
• Temporarily eliminate all non-tax services for a
define period during busy season (e.g.,
between 4/1 and 4/15?)
Tax Section 52Tax Section #AICPAtax 52
Manage Your Schedule
Define busy season office hours
• Allow time for breaks and family
• Create a work-free day
• Make Fridays a “normal” work day (e.g., don’t work late)
Manage client appointments
• Defined days for evening appointments (e.g., Tuesdays only)
• Limit times for Saturday appointments (e.g., 8am to noon)
• Set an appointment-free day (e.g., no appointments on
Wednesdays)
Plan for administrative tasks
• Set aside an “admin” day
• Reserve a particular time of day for admin (e.g., after lunch)
Tax Section 53Tax Section 53#AICPAtax
My “Box” System…
Received Prepared
Missing
Information
- Assembly- Delivery- File
When I first started my practice…
All firms have a system that includes
these processes…
FIFO3 Day Hold
Tax Section 54Tax Section 54#AICPAtax
True “solo” practice
• Build in additional time for
self review
• Use worksheets to create
check-totals
• Use logs and tracking
reports
Small firm environment
• No self review
• Consider an intern for basic
data entry
• No data entry by staff that
perform reviews
Adapt Workflow Based on Resources
Tax Section 55Tax Section #AICPAtax 55
Create Support Network
Create a go-to resource list
• Online discussion groups or listserv
• Online sources for technical
information
Find a trusted advisor, mentor,
or colleague
Develop a network for technical support
Establish relationships with related professionals
(e.g., attorney, banker, and financial advisor)
Tax Section 56Tax Section #AICPAtax 56
Consultants & Part-Time Staff
Outsource complex, specialized, or
time-consuming work or projects
Consider hiring part-time positions
during filing season
• Remote staff (requires proper technology)
• Adapt procedures to account for training and
supervision
Push down/automate routine tasks
• Leverage portals instead of sending documents to clients
• Open your calendar so staff can schedule appointments
Tax Section 57Tax Section #AICPAtax 57
Documenting Your Procedures
Whiteboard your process
Draw a flow chart for each
procedure
• Technical (e.g., preparation, review)
• Administrative (e.g., billing, assembly)
Get input from staff, all levels
Start with a template
• See resource appendix
• Consult insurance carrier
• Firm networking groups
Tax Section 59Tax Section 59#AICPAtax
Jina Etienne, CPA, CGMADirector – Taxation, AICPA Tax Section | Tax Ethics & Standards
1455 Pennsylvania Ave, NW, Washington, DC 20004
Direct: 202-286-0448
@MissTaxCat
https://www.linkedin.com/in/etiennejina
Tax Section 60Tax Section 60#AICPAtax
Resource AppendixThese slides have been included as supplemental information only. They may be referenced during the presentation but will not be included in the live presentation.
Tax Section 61Tax Section 61#AICPAtax
Book Recommendations
The E-Myth RevisitedWhy Most Small Businesses Don't
Work and What to Do About It
The Checklist Manifesto: How to Get Things Right
Tax Section 62Tax Section 62#AICPAtax
AICPA Product Recommendations
Managing Your
Tax Season
File In Time Due date tracking and task
management software
10 Steps to a Digital
Practice in the Cloud: New Levels of CPA Firm
Workflow Efficiency
Tax Section 63Tax Section #AICPAtax 63
AICPA Member Resources
Tax Ethics & Professional Standards resource page
• General guidance
• Tools & resources
• Learning & articles
Circular 230 resource page
• General guidance
• Tools & resources
Statements on Standards for Tax Services
• Interpretations
• Frequently Asked Questions
Tax Section 64Tax Section #AICPAtax 64
Tax Section Member Resources
Tax Practice Quality Control GuidePractice guide outlining on how the Statements on Standards for Tax Services affect the
tax practice quality control systems for certified public accountants in public practice.
“Navigating the Sticky Spots: Calibrating Your Ethical
Compass” PowerPoint slidesPresentation slides from the Nov. 2013 AICPA webcast
Annual Compliance KitOur comprehensive annual bundle of resources (e.g., checklists, engagement letters,
organizers, etc.) to assist with return preparation, review, and delivery.
Throughout the tax interest area of the AICPA website, this symbol identifies tools and resources
available exclusively for Tax Section members. When accessing premium member-only content within
the Tax Resource Library, members will be prompted to enter their user ID and password to validate
their Tax Section membership. Not a member? Learn more about these premium resources along with
the many other benefits of membership in the AICPA Tax Section.
Tax Section 65Tax Section #AICPAtax 65
Tax Practice Quality Control Guide
Contains samples for three different
practice models
• Sole Practitioner CPA Firm with Limited Staff
• CPA Firm Without a Structured Tax
Department
• CPA Firm with a Structured Tax Department
Throughout the tax interest area of the AICPA website, this symbol identifies tools and resources
available exclusively for Tax Section members. When accessing premium member-only content within
the Tax Resource Library, members will be prompted to enter their user ID and password to validate
their Tax Section membership. Not a member? Learn more about these premium resources along with
the many other benefits of membership in the AICPA Tax Section.
Tax Section 66Tax Section #AICPAtax 66
§7216 Resources
AICPA Tax Section’s Section 7216 Consent Forms
Practice Guide
IRS Section 7216 Information Center web page
Tax Section 67Tax Section #AICPAtax 67
§7216 Consent – Form & Content
See Rev. Proc. 2013-14
Paper format must be on 8 ½ x 11 paper, and:
• All text must pertain solely to the disclosures or use
• All text on the sheet must be at least 12-point type
Electronic formats must:
• Be provided on one or more computer screens;
• Provide text on the screen related to the specific disclosure or
use to be authorized by the consent;
• Be of normal or standard body text for that website with
sufficient contrast between the text and background colors;
• Be able to be signed and dated by the taxpayer; and,
• Be formatted in a readable and printer-friendly manner.
Tax Section 68Tax Section #AICPAtax 68
Disclosures Not Requiring §7216 Consent
Provided in Regulation §301.7216-2
Disclosures not required
• Made pursuant to any other IRC provision or to an IRS
employee
• Different offices of the same firm
• Related family members* (with taxpayer’s consent provided
there is no conflict)
• Attorneys for purposes of securing legal advice
• Officer of a court for proceedings involving the tax return
preparer or client
*Per definition of related taxpayer under §301.7216-2(e)(2)
Tax Section 69Tax Section #AICPAtax 69
§7216 Rules Regarding Newsletters
Regulations allow tax return preparers to compile
lists for newsletters
Lists may contain:
• Name, addresses, email address and phone number
• Entity type and tax form number
May be used to provide tax information, general
business information or analysis, or solicit
additional tax preparation services
May NOT:
• Solicit products or services other than tax return preparation
• Sell or transfer the list, except as part of the sale of the business