REG 11 - Ethics, Professional & Legal Responsibilities Flashcards
Tax Return Preparer
A tax preparer is an individual who:
- Prepares a tax return for compensation
-
Required to obtain a Preparer Tax ID Number (PTIN)
- Which is included on every return prepared
- Correct! A tax preparer is required to register for a PTIN if preparing returns for compensation, regardless of whether it is explicit or implicit, monetary or nonmonetary.
NOTE: Performing the following acts does NOT classify a person as a tax preparer.
- Preparing a return for family & friends for a charge
- Simply typing, reproducing, or providing mechanical assistance in preparing a return
Statements on Standards for Tax Services (SSTS)
A set of professional standards established by the AICPA that apply to CPAs preparing tax returns. It is organized into seven areas:
- TS 100 - Tax Return Positions
- TS 200 - A&Qs on Returns
- TS 300 - Procedural Aspects of Preparing Returns
- TS 400 - Use of Estimates
- TS 500 - Departures frm Positions Previously Concluded in an Administrative Proceeding
- TS 600 - Knowledge of an Error
- TS 700 - Form & Content of Advice to Taxpayers
A Realistic Possibility of the Position Being Sustatined (4)
More Likely than Not
Substantial Authority
Realistic Possibility
Reasonable Basis
- More Likely than Not = Greater than 50%
- Substantial Authority = About 40%
- Realistic Possibility = About 33%
- Reasonable Basis = About 20%
Treasury Department Circular 230
(What are the 5 Sections?)
Circular 230 is a set of US Treasury regulations that govern practice before the IRS. It affects those who (attorneys, CPAs or Enrolled Agents) prepare tax returns, represent taxpayers before the IRS, or provide tax advise.
Regulations are divided into 5 sections:
- Authority to practice before the IRS
- Duties of & restrictions on those who practice b4 the IRS
- Sanctions for Violations
- Rules for Diciplinary Proceedings
- Availability of Public Records
Internal Revenue Service (IRS)
A bureau of the Department of Treasury. The secretary is authorized by the Internal Revenue Code (IRC) to administer & enforce internal revenue laws.
Private Securities Litigation Reform Act of 1995
When auditing public companies that report to the SEC, a CPA must also comply with this act which enforces certain responsibilities (RIG):
- Related-party Transactions - auditor must include substatntive tests desgined to identify all significant/material related-party transactions
- Illegal Acts - auditor should attempt to identify illegal acts with a direct & material effect on the FS
- Going Concern - auditor should perform tests to determine if there is substantial doubt as to the ability of the client to continue in existence throughout the following fiscal year.
NOTE: The board of directors has 1 day to report to the SEC of these illegal acts & must provide proof that it did to the auditor. If auditor did not receive proof, the auditor has 1 business day to either:
- Resign from the engagement OR
- Notify the SEC of the board’s failure to make the appropriate filing
Working Papers
(Audit Documentation)
The accountant, not the client, owns the working papers. The accountant must maintain confidentiality, & cannot provide the working papers obtained during the engagement to other partieswithout the permission of the client. Some exceptions are:
- Valid subpeona
- IRS administrative subpeona
- Court Order
- Quality Control Peer Review
- “State CPA Society Quality Control Panel”
SSTS - TS 400
A taxpayer’s estimates may be used provided that they are not presented in a manner that implies that they are more accurate than is the case. Before using estmates in the preparation of a return, the CPA should determine that:
- It is not practical to obtain exact data
- The estimates seem reasonable based on the CPA’s knowledge
In order for a CPA to provide written tax advice, the CPA:
Must not be currently under suspension or disbarment from practice before the IRS;
Must file a declaration with the IRS indicating the CPA is currently qualified as a CPA and authorized to represent the party.
Correct! To practice before the IRS, a CPA must not currently be under suspension or disbarment from practice before the IRS and must file a written declaration with the IRS indicating that the CPA is currently qualified as a CPA and authorized to represent the taxpayer. A CPA who is not currently under suspension or disbarment may provide written advice without filing a written declaration.
State Board of Accountancy
AICPA
NASBA
SEC
- Correct! Each state, through its state board of accountancy, determines its requirements for obtaining a CPA certificate, practicing public accounting in that state, and for maintaining the license or certificate. This includes establishing requirements for CPE.
- AICPA establishes professional standards and ethical requirements for CPAs;
- NASBA, the National Association of State Boards of Accountancy, establishes guidelines for the state boards;
- SEC establishes rules and guidelines for publicly-held entities.
CPA Certificate
vs
CPA License
Correct! A CPA certificate is issued by the AICPA as a result of an individual passing the CPA exam and having a certain amount of experience. In some states, a CPA certificate is also considered a license to practice. In many states, however, in addition to the CPA certificate, a CPA must obtain a license in order to practice in those states.
Section 10.27 - Fees
(Contingent fees may be charged when?)
A contingent fee may be charged in relation to:
- An administrative examination or a challenge to an original return, or a claim for refund. (NOT for prep of Original Return)
- Services related to claim for credit or refund in connection w/ statutory interest or penalties charged by the IRS
- Services related to a judicial proceeding under the IRC.
Section 10.31 - Negotiation of Taxpayer Checks
A tax preparer may NOT endorse or otherwise negotiate a government check issued in relation to a Federal tax liability.
