R6- Ethics Flashcards
client workings papers
Without a subpoena or client consent, a CPA partnership may provide its working papers only to surviving partners on the death of a partner or under a review of the CPA’s professional practice under AICPA or State CPA Society or Board of Accountancy authorization. In most other cases, including the IRS and a CPA purchasing a partnership interest in the firm, a subpoena or the client’s consent is required.
The FASB should have no reason to need access to a practitioner’s working papers.
Courts of original jurisdiction
n terms of tax matters, courts of original jurisdiction (or trial courts) include the Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims. After a taxpayer has exhausted their administrative remedies with the IRS, the taxpayer may generally litigate the case in court. All cases must start at the trial court level. For a federal tax dispute, there are three trial courts in which the case may be heard: (1) Tax Court, (2) U.S. District Court, and (3) U.S. Court of Federal Claims.
Decision power
Generally, the higher the level of the court that rendered a decision, the greater the weight the decision should be given. A decision rendered by the U.S. Supreme Court is the definitive answer on a tax issue; the only way that the rule laid down by a Supreme Court decision can be impacted is if Congress disagrees with the Supreme Court’s interpretation and changes the tax law by amending the Internal Revenue Code
CPA Negligence
Under common law, CPAs are liable to their clients for failure to exercise due professional care. Accordingly, ordinary negligence is a sufficient degree of misconduct to hold CPAs liable for damages caused to their clients. The CPA will not be held liable if losses are not the result of the CPA’s negligence. If the CPA’s negligence did not cause the losses, there would be no liability to the CPA.
CPA defences
Defenses available to the CPA include the following:
The CPA was not negligent or fraudulent.
Contributory negligence of the client caused the loss.
The CPA adhered to GAAS and planned audit examination to search for material fraud.
The error was immaterial.
The proximate cause of loss was not the erroneous financial statements
Access to audit papers
Audit working papers may be subpoenaed and are not protected as privileged communication.
Going concern disclosure
The going concern issue is special knowledge obtained on an engagement, and this knowledge is protected by the Confidential Client Information Rule (ET 1.700.001). This knowledge may not be used on an engagement for T Corp. unless it can be used without violating the confidence of West or if the CPA obtains the permission of West to disclose the information.
Communications to an IRS Agent
Communication to an IRS agent should be much more detailed than to a taxpayer. The communication should include details of why the position is being held and any other material to make the issue understandable.
Privity
Privity refers to a contractual or near-contractual relationship
Tax preparer penalty
A tax preparer may in good faith rely on information provided by the client. The preparer should make reasonable inquiries if the information appears to be incorrect, incomplete, or inconsistent on the basis of known facts. Since documentation is required to deduct automobile expenses, the CPA may receive a tax return preparer penalty.
Power of state board of accountancy
Each state has a board of accountancy which offers the CPA Examination, issues CPA licenses, and maintains standards of practice for the CPAs under their jurisdiction.
At what level must tax cases start
All tax cases must start at the trial court level. Tax Court, U.S. District Court, and U.S. Court of Federal Claims are the three courts for federal tax disputes.
CPA Negligence
Under common law, a CPA who recklessly departs from the standards of due care when conducting an audit may be held liable to third parties if the CPA committed actual fraud or was guilty of gross negligence.
The doctrine of strict liability has not been applied in such cases, nor is the CPA liable to third parties in the event of simple negligence.
Primary sources
The Internal Revenue Code, or IRC, is the most authoritative source when conducting tax research. Treasury Regulations and U.S. Tax Court cases are also primary sources. IRS publications are not considered a primary authoritative source when conducting tax research.
Safe harbor rule
The safe harbor rules protect a small corporation from a penalty on current-year underpayment as long as the business had a prior-year tax liability, had a current-year adjusted gross income of $150,000 or less, and paid 100% of the prior-year tax liability as current-year estimated tax payments. In other words, the safe harbor is $100,000 in this question.
