Technology QC issues in tax practice.

• Author: Valenti, Stephen P.
• Position: Audit quality control

In the aftermath of Enron and the enactment of the Sarbanes-Oxley Act of 2002 (SOA), CPA firms have recognized the importance of reapprising their audit quality control (QC) standards. However, limiting such efforts to audit services is shortsighted, especially when one combines the SOA's effect with the recent revisions to IRS Circular 230, state CPA licensing requirements and, most importantly, the AICPA's Statements on Standards for Tax Services (SSTSs) (available at www.aicpa.org/download/tax/SSTSfinal.pdf). These pronouncements clarify that failing to enhance tax practice QC systems could expose professionals to liability. Fortunately, numerous technological tools and resources for enhancing these systems are available through the AICPA and various publishers and software makers.

Firms of all sizes need to evaluate their tax practice QC systems. This column offers information on technological resources and how to apply them.

Background

Since 1997, AICPA Professional Standards have defined five QC elements for accounting and auditing:

* Independence, integrity and objectivity;

* Personnel management;

* Acceptance and continuance of clients and engagements;

* Engagement performance; and

* Monitoring.

These elements form the foundation of any CPA firm's QC system, whether accounting, auditing or tax. Although a tax practice is not required to have a QC system under either the AICPA Professional Standards or Circular 230 (for professionals practicing before the IRS), the AICPA has urged firms to adopt one. Its Guidelines for Voluntary Tax Practice Review adapted the five QC elements for accounting and auditing to tax practice by making only one modification--changing "independence" to "advocacy." This was an appropriate change: although independence is critical to accounting and auditing, it is not always required in tax practice. Rather, a tax practitioner/adviser is frequently called on to be a client's advocate.

Guidelines addresses the QC systems appropriate to (1) sole practitioners, (2) local firms without a tax department, (3) local firms with a tax department and (4) medium-sized firms with a tax department.

Implementing a QC System

A strong QC system reasonably assures a firm or sole practitioner that he or she is complying with ethical requirements while, at the same time, limiting liability exposure. QC systems should be reviewed periodically to ensure compliance and encourage enhancement and change, when necessary. Outside reviewers should be periodically evaluated as well, as is the case with accounting and auditing.

QC manual: Every firm should have a tax practice QC manual, outlining in-house policies and procedures and providing checklists for various services. The AICPA'S Tax Practice Quality Control Guide assists Tax Section members in creating such a manual and implementing a QC system; see www.cpa2biz.com/ResourceCenters/Tax/Tax+Practice/default.htm. The AICPA also offers Tax Practice Guides and Checklists, in both...