CPA ethics: the importance of public trust.
However, we may be losing a stereotype that has long been important to us. Generally CPAs have always been and continue to be very ethical and conscientious. However, recent events have clouded this image.
While our image has improved since Enron, there is still work to be done. Unfortunately, lawmakers and others feel we have abused the public trust.
Corporate scandals and tax shelters are seen as examples of this abuse. They think companies are not paying their "fair share" of taxes and that CPAs are helping them cheat.
This column focuses on the process of restoring the government's and public's trust in CPAs. The following are examples of what our profession, the IRS, FTB and lawmakers are doing toward that end.
Taxing authorities have started to make their own corrections, including the IRS' significant changes to Circular 230. These changes limit the taxpayer's ability to avoid paying penalties by relying on tax opinions from CPAs. A best practices standard also has been added.
CPAs always have been thought to run high-quality practices with attention to detail and oversight of their staff. But the IRS now feels it necessary to impose a penalty to ensure that CPAs maintain a high standard of quality control and oversight.
The California Legislature is responding to the fact that some CPAs have participated in tax evasion. They have proposed two bills aimed at revoking CPA licenses for individuals and firms they determine "aided or abetted" tax evasion. Included in the legislation is a "should have known" standard, which is similar to parents telling their children that they should have known better than to do something.
According to the legislation, CPAs could lose their licenses to practice in California because they should have known someone in their firm, or a client, was participating in a tax evasion scheme.
Our profession has a history of well-developed ethical standards, which we use to assure the public we are committed to maintaining their trust. The AICPA has developed the majority of these standards.
The AICPA's ethical standards are relevant to all CPAs working to restore the public's trust in our profession. The AICPA Principles of Professional Conduct state, in part, that we have a responsibility to cooperate with each other to improve the area of accounting, maintain the public's confidence and carry out the profession's responsibilities for self-governance.
A distinguishing mark of a profession is acceptance of its responsibility to the public. The public trust should not be subordinated to personal gain and advantage.
AICPA Statement on Standards for Tax Services (SSTS) No. 1 states that our self-assessment tax system can only function effectively if taxpayers file tax returns that are true, correct and complete. It is well-established that the taxpayer has no obligation to pay more taxes than are legally owed, and that they are responsible for the returns filed.
The CPA, however, has a dual responsibility to the taxpayer and to the tax system. To our clients, we present tax planning ideas and the risks of those plans. To the tax system, our responsibility is to ensure the returns we sign are true, correct and complete with appropriate disclosure.
Another way to continue the process of restoring the public trust is to assist the taxing authorities in improving the tax system. The FTB has asked for our help in cracking down on abusive Nevada corporations, abusive trusts and tax shelters.
There is nothing inherently wrong with having a Nevada corporation, using a trust to manage assets or taking advantage of tax shelters.
It is wrong, however, to use these entities to evade taxes.
Generally, CPAs cannot report their clients to taxing authorities due to confidentiality and privacy legal issues. While you cannot report your clients to taxing authorities, you do need to provide clients with the correct interpretation of the law and the risks of non-compliance.
You can, though, report the promoters of abusive tax shelters. If appropriate, you can forward promoter information to the IRS and FTB.
It is time for us to take the lead and reclaim the public's confidence. CPAs always have symbolized integrity and reliability. We can report promoters of tax fraud and reinforce with our clients their responsibilities in our tax system. We can work with lawmakers to draft quality, effective tax legislation.
CPAs should be reviewing Circular 230, the AICPA Code of Professional Conduct, the AICPA Statements on Standards for Tax Services and California Board of Accountancy regulations.
We also can reinforce to our associates their responsibility to know, understand and follow ethical standards.
Although Hollywood may never let us shed the nerdy stereotype, we can continue to work together to gain the confidence of opinion leaders and lawmakers and renew the public trust.
Conrad Davis, CPA is a partner at Sacramento-based Ueltzen & Company, LLP providing financial statement and tax services. You can reach him at firstname.lastname@example.org.
By Conrad Davis, CPA
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|Title Annotation:||Certified public accountants|
|Date:||Oct 1, 2005|
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