Tax Practice Quality Control Achieving Balance Without Sacrificing Quality.

Transcription

1 Tax Practice Quality Control Achieving Balance Without Sacrificing Quality. Presented by Jina Etienne, CPA Director - Taxation, Member Service & Ethics Presented at the MACPA s Practitioner s Conference October 23, 2012 Jina Etienne, CPA Director Taxation, Member Service & Tax Ethics Joined AICPA January 31, 2011 In private practice over 17 years Managing Member of CPA firm in Silver Spring, MD Firm specialized in tax services for small businesses & individuals Started career in 1988 in tax department of Touche Ross Served two years on PCPS EC 2

2 What am I going to talk about? Quality Control System defined Factors that influence a QC system Walk-through system components Explore real-life examples Please ask questions as we go 3 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 4

3 Why is it Relevant? Applicable to all practices Assists compliance with statutory and regulatory requirements professional standards Minimizes the risk of professional liability Now required by Circular Update! Friday, September 14 th New Proposed Regulations on Circular 230 IRS released proposed regulations to Circular 230 Changes include: Elimination of the complex rules in governing covered opinions Broaden the scope Section that require procedures that for purposes of complying with all provisions of Circular 230 Clarifies that practitioners must exercise competence when engaged in practice before the IRS Includes failures to comply with a practitioner s personal tax filing obligations that demonstrate a pattern of willful disreputable conduct under Section CFR Part 10, [REG ], Regulations Governing Practice Before the Internal Revenue Service 6

4 Factors that Influence QC System Practice Size? Degree of authority granted? Nature of practice? Number of offices? Cost-benefit considerations? Knowledge and experience? Specialties? Practice Areas? Other factors? 7 My Box System When I first started my practice FIFO 3 Day Hold Missing Information Received Prepared All firms have a system that includes these processes Assembly Delivery File 8

5 Elements of a Quality Control System Leadership responsibilities Ethical requirements Acceptance of client relationships Human resources function Engagement performance Monitoring of QC system 9 Rules vs. Reality Let s look at each element from two perspectives: Rules Definitions and requirements Reality Explore real-world examples 10

6 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 Quality Control system 11 The Tone at the Top Develop a culture that quality is an essential part of your work as a firm Incorporate quality into: Evaluation & feedback loop Customer surveys Upward Evaluations On-going training Communicate expectations to your clients Newsletter articles Talk about it on your blog Facebook or LinkedIn posts 12

7 Consider this Launch a brown-bag lunch series on Tax Ethics or Quality Control Keep sessions short and focused 1 or 2 sections of Circular 230 One of the AICPA SSTSs (in whole or in part) One section of firm QC manual or procedures guide Have staff take turns leading presentations Ask presenters to weave real-life client situations or examples into each session Require management to attend and participate 13 Ethical Requirements Adherence to all applicable laws, regulations, and professional standards Communication of firm policies and procedures Documentation of compliance 14

8 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 Let s explore a few 15 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 16

9 Due Diligence It is OK to rely on client representations and information from 3rd parties Must inquire about inconsistencies Must consider implications of information known from other sources Establish procedures to document representations from clients 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) 17 Knowledge of Client Error Response depends on timing of discovery Three main situations for consideration Error is on a previously filed return - What if it was prepared by you/your firm? Return is under exam by IRS Client failed or is unwilling to file a required return Implications for new vs. existing clients Should you continue the relationship? Should you accept the client? What if a client refuses to amend a return? When do you withdraw? 18

10 Written Tax Advice Documenting oral advice Set expectations and establish procedures Must consider all forms of written advice Internal memos internal messages and to/from clients Mobile communications texting and instant messaging Risk of social media Client may have multiple contact points will several personnel throughout firm communications Purpose for the footer/disclosure Not appropriate for all purposes 19 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 20

11 Setting Expectations Are prospective client meetings 2-way interviews? Is everyone in the firm on the same page? Does everyone know how to handle price shopping calls? How and when do you decline a prospect? Suggested Tools and Procedures: New Client Acceptance Forms Minimum fees Fee worksheets (for complex engagements) Representation letters Require engagement letters (all returns) 21 Consider this Prospective Client Phone Call Screening Checklist All staff should be trained to answer the question How much do you charge to prepare a tax return? Captures and tracks prospective client calls Requires fundamental knowledge of fee structure and minimum client expectations (NOTE: This is a great opportunity for baseline training) First step in training staff to sell services 22

12 23 Human Resource Function Hiring program Assignment of personnel to engagements Continuing education program Qualifications for advancement Evaluations 24

13 Small Firm Challenge What HR department? People perform at the level expected Set high expectations It starts with the advertisement It might not be just about the money Flexibility is key Consider telecommuting Part-time help may be just the ticket Conduct exit interviews 25 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 26

14 Paperless possible downside Centralized files allow for common access Risk of spreadsheets and fill-in forms Useful as a work tool Save static copy to workpapers Version control or track changes can be a challenge Capture client communications immediately Consider using public folders to centrally store client Incorporate complete thread into workpapers, as needed Save incoming and outgoing messages Consider using a points sheet as a client communications tool 27 Consider this Electronic Missing Information List Captures issues and questions as returns are prepared Reviewer should clear inappropriate questions or issues before sending anything to the client Ask client to record answers directly on the form Supplemental information can be provided but answers should still be complete Retain as part of documenting communications with client 28

15 29 Monitoring of QC System Document compliance with QC system Establish an inspection program Evaluate compliance Assign monitoring responsibility Provide a process for client complaints 30

16 Additional Considerations Should be incorporated into annual procedures Firm busy season readiness planning Performance review process Client complaints are opportunities to improve Clients who complain care Clients who don t care just leave Involve staff at all levels (should not be something dictated from the top down) Share annual results and findings with All firm personnel Clients Prospects 31 Tax Procedures Manual Manual contents - checklists, tax return review procedures, tracking procedures, etc. Promotes quality products and services Builds consistency Streamlines the administrative aspects of practice 32

17 Use it or lose it! Review and update manual annually Integrate into tax-season training Required reading for new hires Revisit as firm grows Expand procedures for larger firms Additional procedures for specialized services Make available in electronic format Post on internal hub or SharePoint sites Save read-only copies on shared drives Distribute once a year via internal 33 Questions 34