Ethics and risk issues in FBAR preparation.

• Author: Wilson, Peter S.
• Position: Foreign bank account reporting

A number of ethics and risk management issues must be considered when preparing and filing FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBARs). At the outset, it is important to have a clear understanding with the client of the scope of the CPA's services.

Will the CPA prepare the client's FBARs, or will they be prepared by the client or a third party? Whose FBARs will be covered by the engagement--dependents, disregarded entities, and/or employee signatories for corporate client accounts? Whatever the agreed-upon scope, it should be documented in an engagement letter or another written communication to the client to avoid any misunderstandings.

In some cases a CPA may prepare some but not all of a persons FBARs, such as when FBARs are prepared for a corporate client's employees who are signatories on corporate accounts, but the CPA does not prepare FBARs for those individuals' personal accounts. It is advisable to confirm the limited scope of FBAR preparation for those individuals in writing and to advise them to consult their own tax advisers regarding any FBAR obligations for their personal accounts.

CPAs must meet their professional obligation of competence in preparing FBARs, which will require a working knowledge of filing requirements (see AICPA Code of Professional Conduct, Interpretation [section] 2.300.010, "Competence"). They must also ensure that their employees who prepare FBARs understand these requirements. The Treasury Department's Financial Crimes Enforcement Network (FinCEN) has published instructions for preparing and e-filing FBARs on the Bank Secrecy Act (BSA) e-filing website (BSA Electronic Filing Requirements for Report of Foreign Bank and Financial Accounts (FinCEN Form 114), available at tinyurl.com/ h3ppyoc), which include four pages of information on who must file and which financial accounts and instruments must be reported. Reviewing this document with employees involved in FBAR preparation is a good step in developing and maintaining an understanding of FBAR requirements.

CPAs must also satisfy a professional obligation of due care by exercising appropriate diligence in identifying items to be reported on the client's FBAR (AICPA Code of Professional Conduct, ET [section] 0.300.060, "Due Care"). While the FBAR itself appears straightforward, the primary risk in FBAR preparation is identifying accounts and instruments the client is required to report. Many CPAs rely on information the client...