The new AICPA ethics requirements for members who outsource work have some rather interesting twists. First, unlike an earlier proposal, the disclosure is mandatory. Also, the definition of third-party service providers has been broadened beyond an outside tax service bureau to any third-party service provider, including independent contractors (other than those that provide outside administrative support) to the CPA firm.

Under the new rules, AICPA members will have to inform their clients, preferably in writing and before providing confidential client information to the third-party service provider, that the firm will use such a third-party service provider.  The new rules clarify that AICPA members are responsible for all work performed by the service provider. 

Moreover, AICPA members using third-party service providers are required to enter into a contractual agreement with the third-party service provider to maintain the confidentiality of the client's information. They must also be reasonably assured that the service provider has appropriate procedures in place to prevent the unauthorized release of that information. If the AICPA member doesn't enter in a confidentiality agreement, specific client consent should be obtained prior to disclosing confidential client information to the third-party provider

The new requirements don't apply to the upcoming tax season as they are effective for professional services performed on or after July 1, 2005, except for services performed pursuant to agreements in existence on June 30, 2005, that are completed by December 31, 2005.

Implementation Twist? The AICPA sees fit to adopt a harsher outsourcing rule than was expected, broadens it to cover all services, adopts very specific steps that must be followed when outsourcing, and delays implementation until mid-2005. To be sure, many firms won't be analyzing the new ethic requirements until after April 15th of next year. When they do, careful study should be made of the scope of services that are covered. In the age of joint ventures, alliances, and the breadth of services offered by firms today, I think practitioners will be surprised to learn how much they will have to disclose to clients. Firms that don't outsource a single tax return, but use other professional service providers, take heed.

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