CPA confusing requirements

So this is where you are clearly wrong. Use of the term "CPA", "public accountant", "certified public accountant" is regulated by the State just like the term "attorney at law". You can't call yourself a CPA in a State you are not licensed, just like you cannot call yourself an attorney where you are not licenses. Both regulated by the state, both have required exams, but the State's have chosen to accept the unifrom CPA exam (which was not the case in all states 25 years ago).

I conceed the fact that one can perform an financial statement audit of a company so long as they do not use any of those terms in their report. Thus, you cannot provide attestation services and issue a report that states independent "public accountant" or "certified public accountant". Just like one can practice certain parts of law these days, such as para-legals, they just can't use the term "attorney at law", nor can they represent clients in court. However, they prepare forms and provide interpertations of less complex issues. Now, would I go to a para-legal to prepare arcticles of incorporation - No.

If you actually took a law class, you would know the in the eyes of the federal gov't there is just the federal and state levels. Anything not regulated by the federal gov't is regulated by the states.. Doctors, lawyers, accountants. You have to be licenced in the state you practice. Once can practive natural healing, prepare legal forms or tax returms, but they cannot call themselves a doctor, lawyer or public accountant (respectively) without the state license.

Thus, a CPA is not allowed to represent or perform work as a CPA when traveling out of the home state. This is not a hard issue to understand. In fact, all the regional firms and Big 4 do not allow the CPA designation on their cards becuase staff travel to various states while performing the audits of public companies. Even though the firms are licensed in every state, individuals are not.

Anyways, there must be huge demand for financial audit opinions by those who can't use the terms "CPA" or "certified public accountant". Please share with me, who? This could be an untapped market. This is your point isn't it? One can perform financial audits without using the "public accountant" or CPA title? So, yes, but it wouldn't be worth the paper is was written on!

"brecker" wrote

I doubt that the use of the word "audit" is allowed due to the misleading implications for the user.

If you can't perform an audit, you can not use that word in any report you might generate to the client.

That's absolutely so... If it were not the case, then students in accounts would have no way to get any audit hours required to collect a CPA designation.

... But just because you can perform the audit doesn't mean you can sign off on it.

A student-in-accounts can't sign off on anything of "official public interest." They can initial working papers, which then need to be reviewed by someone who *does* the legal standing to sign off on an audit.

The right comparison is that someone who hasn't got the "legal credentials" of a locally-valid CPA designation or some suitable equivalent has roughly the same "legal credentials" as a student in accounts, which is to say, Not So Much.

Those required hours are under teh direct suprevision of someone who holds a license.

You can't go out and to work on your own and expect that to qualify toward your certificate or license.

Agreed.

Well, he could at least do a "review".

In November of last year, bill 94 was passed that changed the Accounting Act to allow CGA's and CMA's to obtain public accounting licenses in Ontario. That distinction is not made in most other provinces right now. In Ontario, at the moment, you must be a CA and have 2500 hours of audit experience, under the supervision of a licensed CA, and you must pass UFE's, in order to get your license. That is, in order to sign off on audits of a publicly traded corporation.

You do not need a license to provide bookkeeping and accounting services such as review engagements, informal audits or file tax returns. However, any financial statements produced by someone *without* a license or without review and/or official attestation must be accompanied by a "notice to reader".

Stephanie

If you are just preparing taxes using the numbers provided by your client, and you are relying on them for a reasonable amount of accuracy, how do you know whether or not the information is either erroneous or falsified? Who pays the price if the client gets audited by the CRA or the IRS and they cooked their own books?

To knowingly do so also violates the CICA Code as well.

So, unless you perform some sort of audit/review, you are relying on your client not to embellish (falsify) their figures. How many clients are willing to pay the extra over and above tax prep fees to have a review or audit? Few, I'll bet.

In Ontario, if you claim an accounting designation where you have none, you are liable for a fine of up to $10,000.00. Among other things, which I believe also includes that you can *never* obtain one after being fined for making such a claim.

Stephanie

In certain circumstances, yes, a paralegal *can* represent a client in court. Eg. traffic court & family court.

But they *can* call themselves a "naturopath", "paralegal" or "general accountant" or "accounting technician".

No, one cannot perform an "audit" and attest to it without the appropriate license. But that does not mean that ones without the license cannot perform "audit" procedures to ensure accuracy & reliability of others' work.

What if Repairs and Maintenance expense of a building is unusually high, compared to the previous year. You look at the G/L and you see three entries for $ 25,000. You look at either the journal and under the entry it says payment for XYZ or you look at the checkbook register and you see a check written to ABC company for XYZ. You don't know what XYZ is or who ABC is.

What you seem to be saying is you would put down the expense down on the return as Repairs and Maintenance. I'm saying the information is in front of me and I'm pretty sure this is some sort of misclassification, so I'm going to go further and look for the invoice and if it is not available, I am going to ask the client for it.

If it is as I expect, some sort of capital improvement, I will reclassify it. This misclassification was probably a mistake and the client will be greatful for the level of service you provided them. If they are trying to cheat, then should do a better job at covering their tracks.

I would call this event an audit, because you are finding material mistatements. It doesn't follow the audit procedures outlined by GAAS, but never the less, it meets the technical definition of an audit.

You seem to be waffling again. Now, you are saying you would make inquiries and if not satisfied with the responses, you would get rid of your client. Which one is it? Do you audit your client's books for misstatements or not?

But you would make inquiries. You just wouldn't do a test of balances is what you are saying.

It is regualted by the Board of Accountancy, whose head is appointed by the Govenor. They only have the right to grant licensure and take it away. If there are statutes that regulate the accountanting industry, it would be news to me.

You say that these statutes exist. I doubt you have a complete law library in your home or office, so you must have found these statutes on-line. If this is true, why haven't you provided a link?

If such statutes do not exist, then an out of state CPA should be able to perform their duties with impunity.

I think it was Benjamin Franklin who said, " "'Tis the object of an ignorant man to talk of other people; the determination of an average man to speak of things; and the goal of an intelligent man to discuss ideas."

My point is I knew that you didn't need licensure to conduct an audit, for which you called me an idiot and Paul Thomas called me a criminal. Now, both of you have changed your tune. My other point was and still is that an out of state CPA should be able to perform his job with impunity. You still disagree with my second point, but refuse to show any evidence to the contrary.

You keep trying to turn this into something personal, which seems really strange to me. The whole topic has little relevance to my own life, it is just something I find interesting, not that it is any of your business.

Sometimes the numbers look suspicious. Maybe the person made a lot of mistakes last year. Maybe you don't trust their accountant. I don't know what the IRS defines as "knowing", but in common law you can be found negligent for not taking any effort to protect your clients. I don't know how much effort you should take, but you must take some.

I also have no idea, what other tax preparers do. My only experience has been with one firm and I was told there to find and fix any errors I found. This included asking clients about suspicious items and asking for additional documents, but not questioning the validity of client's statements only questioning them to clarify any problems I found with their returns.

"Chinvat" wrote

The obligations of a tax preparer go only as far as making inquiries of the client. If you don't believe the client, tell them to go elsewhere.

If you don't trust your client, maybe the client should be looking elsewhere.

Easily correctable through inquiries of the client.

You also should suggest adjusting entries to the books of any buisness if necessary.

I ~~AM~~ their accountant.

They d §10.21 Knowledge of client's omission.

Each attorney, certified public accountant, enrolled agent, or enrolled actuary who, having been retained by a client with respect to a matter administered by the Internal Revenue Service knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client is required by the revenue laws of the United States to execute, shall advise the client promptly of the fact of such noncompliance, error, or omission.

If you have concerns as the the validity of the data provided by the client, make inquiries of the client. If their response is not to your satisfaction, fire them. If their response leads you to believe there are material errors on prior years returns, advise them of your concerns about the apparent errors.

You don't have to audit your client to determine the reasonableness of the data provided.

And you do not have to audit the client to figure it out.

Which are more closely related to review work than audit work.

Asking the client is SOP. Shaking down the customers, vendors, lenders, and employees in an "audit" styled format is uncalled for.

Be found negligent, by who? The jury? How are they going to find a tax preparer guilty of negligence when he or she prepared the information based on the support or trial balance given to them by the client (who would have to be the plaintiff in a tort action).

What is the plantiff going to say - "Hey I am an idiot and you should have fixed my errors or attempts to avoid tax". There is usually an engagment letter that outlines the scope of the services and a representation letter that the client signs to affirm they have given all the information requested and reviewed the tax and compilation, if any. After that, it is usally hard to sue unless there was an error made by the tax preparer. Not doing additional inquiry does not constitute an error.

"Matthew" wrote

Engagement letters are common for tax work while a rep letter is found in review and audit work. A good tax engagement letter outlines the scope of the work, and who is responsible for the raw data (the client) and who is responsible for the return preparation (the CPA or tax preparer).

Ordinary negligence is failure to excercise a degree of care that an ordinary prudent person would excercise. Gross negligence is failure to excercise even a slight care in the circumstances.

It's not clear by these definitions what a judge would decide. I don't know what the precedents are in these cases and have no law library. I could see how a judge would side with the plantiff and higher courts can overturn any precedent and often do in cases bordering on negligence. When I was taught accounting ethics, I was told you should avoid any grey areas, since precedents get changed; this way you can never get yourself in trouble.

You guys seem confident that review is not part of tax prep and since I've only worked for one public accounting firm, I have to assume this is correct. Though it really seems it should be part of the process. How sure are you that you are not the only people not doing reviews, not the other way around?

What I'm really concerned with now assuming what you say is correct, is how do I market this to potential employers? When I worked for a public accounting firm my job was to find/fix any errors in their books, make any adjusting entries, close the books and create the F/S. Then I would take that data and enter it into Lacerte getting the returns as best as I could. A EA would review it, taking care of any advanced issues.

I worked on all entities, except very few individuals. I have been telling employers that I was a tax preparer. They would ask me questions about taxes that I couldn't answer, because my tax knowledge isn't that advanced. Also, the F/S I prepared weren't considered F/S, because all the data wasn't sufficiently verified. The firm wouldn't sign off on any F/S unless they were reasonably sure the data was accurate. Meaning (I think) one of the CPAs had to do the work as they don't trust a Staff Accountant with the reputation of the firm.

Anyone with any advice on what I could say about my experience to potential employers?