AICPA releases guidelines on outsourcing engagements.
On the first item, while Ethics Ruling 1, under the Code of Professional Conduct Rule 301 (Computer Processing of Client Returns), specifically deals with the use of outside services to process tax returns, the rule would apply to any use of third-party providers. The ruling advises that members "must take all necessary precautions to be sure that the use of outside services does not result in the release of confidential information." The Code also requires that a member and his/her firm remain responsible for ensuring the accuracy and completeness of the services performed by the third-party provider. Thus, professional services are to be performed with professional competence and due professional care, and the use of a third-party provider does not in any way alter a member's responsibility in this regard.
In addition to a member's responsibility under the Code to maintain confidentiality, the Gramm-Leach-Bliley Act must be considered. The Act includes protections that allow consumers to determine when personal financial information could be shared among financial service institutions. The Federal Trade Commission promulgated a set of rules to implement the Act's privacy requirements governing the use of "consumer financial information" (available at www.ftc.gov/privacy/privacyinitiatives/ financial_rule_lr.html). As currently interpreted, the GLBA requires practitioners who provide, among other things, tax planning and tax preparation services to individual clients, to give notice of the practitioner's policy regarding disclosure of private information at the start of an engagement, and annually thereafter. While these notices generally are required to disclose categories of nonaffiliated third parties to whom there is disclosure of non-public information, the GLBA does not require that a practitioner specifically disclose to a client that independent third-party providers are used in performing services to clients (i.e., if the third-party provider is connected to or involved in the provision or processing of the services offered by the practitioner, there is no requirement to disclose to the client that information is shared with that third-party provider).
On the third point, the Internal Revenue Code prohibits anyone involved in the preparation of tax returns from knowingly or recklessly disclosing or using the tax-related information provided other than in connection with the preparation of such returns. The regulations under Section 7216 provide an exemption from this law for tax return preparers who disclose taxpayer information to a third party for the purpose of having the third party process the return (note there is no requirement in Section 7216 or its regulations for a member to inform the client that a third-party provider is being used). In addition, Section 7525 provides a client with a privilege similar to an attorney-client privilege when they make certain tax-related disclosures to, among others, CPAs. Care must be taken to assure that a third-party provider does not do anything that adversely affects a client's rights under this provision.
To summarize, whether derived from the Code or the GLBA, practitioners and their firms are responsible to maintain the security and confidentiality of information. In addition, in performing any services for clients, practitioners must do so with professional competence and due professional care, as well as be in compliance with all provisions of the Code. Once the practitioner is initially satisfied that a third-party provider is properly structured to ensure continued compliance with all laws and regulations and ethical requirements, the practitioner should establish monitoring procedures to ensure that the third-party provider's procedures remain effective.
Practitioners and their firms should consult their own legal advisers for additional guidance on this subject.
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|Title Annotation:||American Institute of Certified Public Accountants; Code of Professional Conduct|
|Date:||Feb 1, 2004|
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