Michael T Wing CPA" <mtwingcpa[at]yahoo.com> wrote:
- quote -

I agree there is a conflict. The auditor (haven't been one
in over 15 years) would still need to look at the tax return
and the underlying research to determine if a possible tax
problem needed to be disclosed. So the client might still
have to live with a more conservative approach than a
nonaudited client would take.

Drew Edmundson, CPA (NC)
e-mail is my first name at nccpa dot com

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Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:

- quote -

Agreed. I have recently thought that it might not be in the
client's best interest for the "attest" CPA to
simultaneously prepare related tax returns. Or, at a
minimum, I would think that it would/should require an
additional disclosure to the client that the CPA is
simultaneously wearing two potentially conflicting hats.

MTW

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"Ed Zollars, CPA" <ezollar[at]mindspring.com> wrote:
- quote -

On a related note about CPA/ tax accountant responsibilities,
did you read the explanation of Lt. Gov. Cruz Bustamante's
tax treatment of rental real estate?
http://www.latimes.com/news/printedi...news-a_section
he claimed various repairs.and maintenance on rental real
estate, his accountant just accepted total yearly figures
from him

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Harlan Lunsford wrote:

- quote -

I'm not so sure you *are* required to make such inquiries in
most cases, though you cannot submit a return you know is
fraudulent. But, aside from limited exceptions, I do not
believe there is any requirement to go beyond inquiring of
the client.

Now, if you are a CPA and you also issue a compiled
financial statement on that same information, there are some
requirements to judge the client's competency to have done
the work you are relying on and you cannot "play ostrich" if
a reasonable CPA would suspect there's "something wrong"
with the numbers. You would then take additional steps, as
necessary, to resolve the matter.

Now, once the CPA resolves that matter, you then have
knowledge you can't ignore in preparing the Schedule C.

For CPAs this distinction is important, because very
difficult standards of just "who" the CPA is supposed to be
"looking out for" professionally apply to tax and attest
engagements. In the former, the CPA has the clear and
exclusive duty to the client, very similar to that of an
attorney.

Like an attorney, a CPA is not allowed to become a
"co-conspirator" in assisting a client in breaking the law,
but the CPA also is under no obligation to "play policeman"
and actively search for misconduct by his client or even
follow up on items that don't clearly point to such
misconduct. However, in an attest engagement, the CPA is
meant to be an "independent" (even when not independent
under the ethics rules, but that's a long story <grin> )
professional in handling the financial statements. That
means looking out for the interests of the users of the
financial statements, and not elevating the interests of the
client above the interests of other users.

A pure tax engagement is, therefore, a very different beast
from a combination tax/attest engagement.

A non-CPA officially wouldn't be as "tied" to the rules I
noted above, but if it were me I'd probably *presume* that a
court and jury might feel I had to meet that standard,
especially if I put a report on the financial statement that
used the word "compile" or something close.

That is, while I happen to agree (probably upsetting a few
of my fellow CPAs in the process) that the state has no real
interest in preventing a non-CPA from using the compilation
language, that doesn't necesssarily mean it's smart for a
non-CPA to use that language unless he/she can deal with
being held to the same standards if hauled into court by a
plaintiff that claims to have been injured. And, arguably,
it may put them into a real "no win" situation with a
combination tax/financial statement client if the non-CPA
does manage to uncover information in trying to meet the
compilation standards that then harms the individual's tax
position.

Now, that said, let's get to the real issue--the Internal
Revenue Code imposes on the *client* an obligation to
maintain complete and accurate records. Because that is an
important fact for the client to be aware of, you do have an
obligation to inform the client of those facts and, perhaps,
raise a question about such compliance if things just don't
"make sense" to the extent you are now concerned that such
records just might not exist.

So I think I get darned close to the point you did in your
example, but for a bit different reasons.

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While reading and considering the unexplained deposits
thread above, I'm wondering now, how many , or who, will,
as Circular 230 permits, take a handwritten statement of
revenues and expenses and slap it on schedule C without
making inquiries? By that I mean, we are bidden, even
mandated, to MAKE appropriate inquiries if the numbers just
don't jibe of course, but if there's a profit, do you?

Right now, a divorced client on extension to Oct 15th (first
one of those for me in a really Looong time), sold his pet
store this year, and in process his exwife took some
records, left others, in short, records are a disaster.
So the invoices he did have when used as part of cost of
goods sold came out with 190,000$ net profit! No way.

But, photocopies of all his checks at credit union (no, not
a regular business checking account, and I kept compaining
about that over the years) when added to the invoices he
paid by credit card (copies of statements to be forthcoming;
I hope) and when eliminating duplicates, now reveal a
loss of 100,000$.. and I mean a GROSS loss. (Don't ask
about net.)

When I came up with the first figures, I could easily have
said to him, well, you had one hell of a profit, and without
further proof, that's your schedule C. But now..... I am
going to insist on credit union records of all deposits.

In another case, a taxpayer for whom I efile her 1040 every
year, owns a tanning salon, and consistently has a loss of
10,000$ plus every year. and the return is prepared by
another (who sends me all her efilers).

If she, the preparer) would ONLY take the time and insist
on banks statements.........

Cheer$,
Harlan Lunsford, EA in LA

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