Tax practice quality control document.

• Author: Scutellaro, Joseph F.
• Position: Business accounting and auditing

Editor's note: Mr. Holub chairs the AICPA Tax Division Tax Practice Management Committee. Mr. Scutellaro is a member of that committee and its Voluntary Tax Practice Review subcommittee.

If you would like additional information about this article, contact Mr. Holub at (813) 229-2321 or Mr. Scutellaro at (732) 240-7377.

Many firms (including ones with separate tax departments) do not have separate Tax Practice Quality Control Documents (TPQCDs). Every firm that undergoes a peer review must have a Quality Control Document (QCD) for its accounting and auditing practice; according to the AICPA Code of Professional Conduct, Article VI--Scope and Nature of Services (ET section 57.03),"members should practice in firms that have in place internal quality-control procedures to ensure that services are competently delivered and adequately supervised." Effective Jan. 1, 1997, AICPA Professional Standards Section QC was updated, based on the May 1996 AICPA report, "Recommended Framework for Establishing a Required or Voluntary Quality Control System." This report was the basis for QC Section 20, "System of Quality Control for a CPA Firm's Accounting and Auditing Practice," which replaced QC Section 10. Also effective Jan. 1, 1997, QC Section 30, "Monitoring a CPA Firm's Accounting and Auditing Practice" was added.

QC Section 20 was a major change from existing QC Section 10, replacing the nine elements of Quality Control with five elements:

* Independence, integrity and objectivity;

* Personnel management;

* Acceptance and continuance of clients and engagements;

* Engagement performance; and

* Monitoring.

These five elements are the foundation of any QCD, accounting and auditing or tax. However, as can be seen from the rifle, there is no requirement in AICPA Professional Standards, not even in the "Statements on Responsibility in Tax Practice" to have a quality control system for a tax practice. Even if we look at Treasury Department Circular No. 230 (which governs the practice of attorneys, CPAs, enrolled agents, enrolled actuaries and appraisers before the IRS), there is no mention of a quality control system for any of the professionals practicing before the Service. Of course, practitioners are not required to be independent with respect to their clients when they provide tax services; however, they must maintain their integrity and objectivity.

Need for TPQCD

Thus, the first question is why a TPQCD is needed. The answer is multidimensional:

1. To reduce exposure of a firm's professionals to clients, especially clients who do not want to pay their bills and those who might consider suing.

2. To reduce the firm's (and its professionals') exposure to preparer penalties and disciplinary procedures or both under Circular 230 or other regulatory authorities.

3. To adopt controls and procedures to improve the firm's...