by Seth Fineberg

New York -- The American Institute of CPAs and its Professional Ethics Executive Committee in early May could revise a 30-year-old code dictating CPAs’ legal and ethical responsibilities regarding outsourcing of services -- which primarily has meant tax prep work -- quelling at least some of the mounting concerns over the issue.

Because of continuing questions and growing attention in the press, the PEEC, at its Jan. 22 meeting, appointed a task force to study whether their rulings need to be revised. The results of that research are expected at its next quarterly meeting, scheduled May 6 to 7.

The AICPA claims that it has received numerous inquiries from its members regarding their responsibilities when it comes to outsourcing client engagements, particularly to offshore entities -- with India being the most prevalent.

“There has been lot of press lately on the issue, and more members asking what their responsibilities are in regards to outsourcing,” said AICPA general counsel Richard Miller. “Many members are unfamiliar with the laws and we need to confirm where we are in our own ethics if they decide to outsource. We thought it was a good idea for a task force to look into a 30-year-old rule.”

The AICPA, however, did not have any figures regarding the number of CPAs or firms currently engaged in outsourcing.

In 1973, the AICPA’s Professional Ethics Division addres­sed the use of third-party providers under its Code of Professional Conduct.

The code does not require members to advise clients regarding their use of a third-party provider, and advising the client of such use “is at the sole discretion of the member unless the client questions the member regarding such practice.” The code continues to note that, whether or not cl­i­ents are advised of the use of third-party providers, “members are not relieved of their responsibilities to comply with the code.”

The code also states that a member remains responsible for ensuring the accuracy and completeness of the services provided by the third-party provider. Specifically, it re­quires all professional services to be performed with professional competence and due professional care.

The PEEC has 20 members who come from both inside and outside the profession, including public accounting, law, government, academia and industry. The task force consists of PEEC members.

While the study is being conducted, Miller and senior vice president of member and public interests Alan And­erson att­­em­pted to update members on the institute’s position on outsourcing in an article titled “Legal and Ethical Considerations Regarding Outsourcing” that is scheduled to appear in the March issue of the AICPA’s monthly publication, the Journal of Accountancy.

“The whole point of the article wasn’t to argue any particular point, just to raise facts about what is in place now,” Miller said. He continued to note that outsourcing in general is not entirely at issue, since the profession has outsourced many things over the years. What is of concern is the use of offshore services and CPAs’ obligations to their clients.

Some in the profession are applauding the AICPA’s actions and expect that, if there is new wording, it will contain specific language to address the use of offshore entities.

“I’m hopeful they will make the right changes to it. The original ruling dealing with outsourcing is just outdated,” said Mitchell Freedman, of Sherman Oaks, Calif.-based MFAC Financial Advisors. He is also a leading member of a group called CPAs Reforming Our Profession. “The other issue is that when there is a big breach of some kind and it gets into the mainstream press, CPAs will be inundated with another PR disaster that could have been prevented by having the AICPA take a proactive stance. I’m glad that’s what they are doing.”

Freedman and others in the profession also believe that the issue of outsourcing or “offshoring” of information is a tenuous one and will not be entirely put to rest by changes in the AICPA’s ethics code.

Practice management consultant and PDI Global Inc. president Allan Koltin believes that there is no easy answer to the outsourcing issue in the profession, as it involves both technological and philosophical arguments. Even so, many of his clients do outsource tax services to offshore entities and are slowly discovering the financial benefits of doing so.

“There really are two schools of thought. The right side says our clients wouldn’t be happy if they knew we were sending things offshore like confidential financial data, while on the left you have those who have done it for years and see no problem,” Koltin explained. “I wouldn’t be surprised if there was wording [in the AICPA code] about transferring client financial information to another country or offshore entity.”

Indeed, offshore tax services such as Outsource Partners International, with its main operations in India, have been enjoying the increased interest in their offerings, particularly among CPAs who are looking for a time- and money-saving solution during tax season.

The three-year-old company now has over 50 CPA firms of all sizes using its services, primarily for tax work. Chairman and chief executive Clarence Schmitz said that he urges all of his clients to disclose the fact that they are outsourcing tax returns.

“The whole issue of offshoring is gaining more controversy. Many feel against it because they have a philosophical view that they just don’t want work going somewhere else. Security issues can be dealt with,” Schmitz said. “We advise our clients there’s no point in trying to hide it and suffer any embarrassment later. They don’t have to name us, but we do advise they say they outsource some portion of returns to a third party and that party engages in it offshore.”

Schmitz also believes the current AICPA code is valid and that it is ultimately up to the CPA to decide on disclosing about outsourcing.

“I’m a CPA myself and spent 25 years with KPMG, so I know your clients are most important,” he said. “From a business or moral standpoint, there is a duty to tell them, lest they cause some problems down the road.”

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