Tax Practice Quality ControlAchieving Balance Without Sacrificing Quality.

Presented by

Jina Etienne, CPADirector - Taxation, Member Service & Ethics

Presented at the MACPA’s Practitioner’s Conference

October 23, 2012

Tax Section

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

Jina Etienne, CPADirector – Taxation, Member Service & Tax Ethics

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Quality Control System defined

Factors that influence a QC system

Walk-through system components

Explore real-life examples

What am I going to talk about?

Please ask questions as

we go …

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Tax Practice Quality Control System - Defined

Consists of organizational structure, policies and procedures

Evidenced by Tax Practice Quality Control document

Purpose is to provide reasonable assurance of compliance with applicable statutory, regulatory, and professional requirements

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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 230

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Update! Friday, September 14th – NewProposed 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 10.36 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 10.82

31 CFR Part 10, [REG-138367-06], Regulations Governing Practice Before the Internal Revenue Service

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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?

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My “Box” System…

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Received Prepared

Missing Information

‐ Assembly‐ Delivery‐ File

When I first started my practice…

All firms have a system that includes these processes…

FIFOFIFO3 Day Hold3 Day Hold

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Leadership responsibilities

Ethical requirements

Acceptance of client relationships

Human resources function

Engagement performance

Monitoring of QC system

Elements of a Quality Control System

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“Rules”

Definitions and requirements

“Reality”

Explore real-world examples

Rules vs. Reality

Let’s look at each element from two perspectives:

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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

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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

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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

Consider this…Launch a brown-bag lunch series on Tax Ethics or Quality Control

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Ethical Requirements

Adherence to all applicable laws, regulations, and professional standards

Communication of firm policies and procedures

Documentation of compliance

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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…

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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

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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)

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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?

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Written Tax Advice

Documenting oral advice• Set expectations and establish procedures

Must consider all forms of written advice• Internal memos

• Email – internal messages and email to/from clients

• Mobile communications – texting and instant messaging

Risk of social media• Client may have multiple contact points will several personnel

throughout firm

Email communications• Purpose for the email footer/disclosure

• Not appropriate for all purposes

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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

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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)

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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

Consider this…Prospective Client Phone Call Screening Checklist

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Human Resource Function

Hiring program

Assignment of personnel to engagements

Continuing education program

Qualifications for advancement

Evaluations

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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

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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

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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 email

• Incorporate complete email thread into workpapers, as needed

• Save incoming and outgoing messages

Consider using a points sheet as a client communications tool

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Consider this…

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

Electronic “Missing Information” List

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Monitoring of QC System

Document compliance with QC system

Establish an inspection program

Evaluate compliance

Assign monitoring responsibility

Provide a process for client complaints

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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

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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

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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 email

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Questions

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