The Professional Ethics Task Force is looking for educational topics that will need to be addressed for the coming CPE year. If there is a particular subject area where you believe additional guidance would be beneficial to the membership, or wish to inquire further regarding a Professional Ethics issue, please contact the MACPA Regulatory Affairs Department at ethics@michcpa.org.

Before we look ahead, I would like to briefly revisit just a few topics that were more frequently brought to the attention of the Ethics Task Force in the past 12 months.

Independence issues were an important concern during the 2007-2008 CPE year. With the recent changes implemented by the AICPA in regard to gifts and entertainment, relating to ET Section 101 and ET Section 102, members have become increasingly more analytical as to the impact that social interaction with clients, vendors and employers will have on attest engagements. The AICPA issued a Frequently Asked Questions summary on ET Section 101-3 about a year ago that has proven to be a tremendous “self-help” tool for members questioning independence, integrity and objectivity situations.

Looking closer at the topic of independence, the AICPA has been debating the issue of client indemnification of CPA firms for damages incurred through the failure of an attest engagement. Currently, the inclusion of a statement in an attest engagement letter limiting a CPA firm’s liability has been challenged as a threat to independence; however, it has yet to be resolved by the AICPA that independence is threatened by such an inclusion in the engagement letter.

What is the impact to the CPA firm if the attest client requires, as a condition of the engagement, that the CPA firm indemnify the client for damages, losses and costs arising directly or indirectly to actions of the client? Would independence be impaired in such a situation? The answer...Yes! (ET Section 101.1A, ET Section 101.02 and interpretation 101-C of ET Section 101.02) Closer scrutiny may lead a member to reconsider undertaking the engagement. As the indemnification clause limiting CPA firm damages is resolved by the AICPA, this “reversal of fortune” limiting client liability will also be revisited.

Another issue that merits mention is that of completing tax returns for clients involved in divorce proceedings. This situation is common to all practitioners no matter what the firm size. When clients are getting divorced, long-term relationships and friendships are no excuse for complacency in providing professional advice to both parties. The optimum situation would be to disengage from both parties to avoid a conflict of interest, etc. Yet, this is not always possible. Individuals that are a party to a divorce proceeding will often request that the CPA complete their final joint tax return. If this should occur, the CPA needs to be exact and precise in preparing his or her engagement letter so that both parties understand the intent of the service to be rendered. Lack of proper documentation can lead to a multitude of potential ethics violations by a dissatisfied, former spouse including ET Section 301, Confidential Client Information and ET Section 102, Integrity and Objectivity. The involvement of the CPA must be unequivocally fair and independent of each party’s particular interests. (A sample engagement letter for such a relationship is available here.)

Implicit understandings of the CPA with the parties concerned can ultimately lead to ethics disaster.

Last but not least, the Professional Ethics Task Force does not become involved with outstanding fee issues. Payment for services rendered is an issue between the CPA firm and the client or former-client. The only situation that may precipitate the involvement of the Task Force is one concerning record retention and outstanding fees; however, each case would have to be reviewed on its own merit.

Top