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Extending the benefits from a voluntary tax practice review.

Until recently, only national and regional firms, or local firms that were members of certain associations of firms, could benefit from the cross-review of their tax practices. These reviews, when available, would improve effectiveness and efficiency as well as reduce risk exposure.

Voluntary Tax Practice Review (VTPR) is designed to provide a framework for any firm desiring the benefits of these reviews. The goal of VTPR is "to give CPAS useful, practical ideas to improve their tax practice" (introduction to the AICPA Tax Division's Guidelines for Voluntary Tax Practice Review).

The Guidelines contains a six-page "Statement On Guidelines For Tax Practice Quality Control" that clearly lays out priorities for a quality tax practice; its discussion of the role of advocacy and integrity is particularly important.

A VTPR includes both administrative and technical reviews. The Guidelines provides a framework for both types of review. There is no question that self-review provides a major benefit. For a discussion of the benefits of using the Guidelines for Voluntary Tax Practice Review for self-assessment, see the item "Using VTPR for Self-assessment," in the March 1992 Tax Practice Management column, at 190.

Some firms may prefer to be self-reviewing for technical reviews and engage an outside firm for administrative review. This would be most appropriate for a firm that already has a quality control partner responsible for internal tax technical review. Administrative review is needed because procedures are so closely tied to overall quality control. The introduction to the Guidelines emphasizes the importance of the administrative review: Firms "are discouraged from having a technical review without an accompanying administrative review."

The outside reviewer

Using an outside firm to provide administrative and/or technical reviews provides:

A fresh perspective and challenge to the status quo.

A base of understanding that allows additional consulting at reasonable cost

Assurance that the reviews will be carded out.

A fresh perspective

Administrative procedures are closely linked to quality control, and firm management must increasingly rely on these procedures as the firm grows or as the office use of information technology increases.

However, practice procedures and policies within many firms are static unless the status quo is challenged. Sometimes new firm members will add a fresh, outside perspective based on their experience elsewhere.

The outside reviewer can also fill this role. Since the objective of the review is to provide useful, practical ideas to improve a tax practice, the outside reviewer can often quickly identify "obvious" procedural items. In addition, the independent reviewer may be influential enough to ensure that new ideas receive serious consideration, even by confirmed followers of the status quo.

A base for

consulting relationship

Some reviewing firms may also be willing to consult in the areas of strategic planning, firm marketing, professional productivity, administrative procedures, or computing hardware and tax software.

By carefully choosing a reviewer that can provide additional services in an area of identified need, the "reviewed" firm will obtain double benefit from the voluntary review.

A voluntary administrative tax review provides the reviewer with basic knowledge of a firm's culture as well as its procedures. This can be a very cost-effective way to step into one-on-one consulting.

For many tax practices, the cost of establishing a relationship with a recognized consultant has been prohibitive, because of the time required for the consultant to understand how each unique practice operates. Once this consulting relationship is built, ongoing dialogue can be economical.

Completing the review

A. self-review, must be handled by partners or other senior professionals to be effective. But client demands and more pressing administrative problems are often given priority. Realistically, these reviews are prone to be pushed aside, sometimes indefinitely, despite the best intentions.

Paying an outside firm to provide the review alters priorities. Even the process of selecting a reviewer can focus firm-wide attention to the value added benefits" of an otherwise boring process. Events like setting review dates and meeting reviewer benchmarks keep the momentum going.

Once the engagement letter with the reviewing firm is signed, the reviewing firm will push the work to conclusion (in order to earn its fees and get paid). This results in the reviewed firm getting the necessary information to improve its practice in a timely manner.

Update on

confidentiality issues

Voluntary reviews are confidential. No records are kept by the AICPA or by the reviewing firm.

Other confidentiality questions are being resolved. The IRS is expanding final regulations for Sec. 7216 on exceptions to confidentiality rules to include accounting and auditing reviews as well as voluntary tax reviews. These regulations should be reviewed when planning for voluntary tax review.

State accounting boards, however, may still have regulations that limit the possible scope of a review. Thus, practitioners may wish to mention the reviews in tax engagement letters.


The objective of voluntary review is to help improve a firm's tax practice by increasing effectiveness and reducing risk exposure. The marginal cost of using an outside reviewer may be a good investment.
COPYRIGHT 1992 American Institute of CPA's
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Article Details
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Author:McMillin, Mary Ellen
Publication:The Tax Adviser
Date:Jun 1, 1992
Previous Article:When to advise a Sec. 754 election.
Next Article:Privilege and confidentiality: confusing principles.

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