Outsourcing of tax preparation to foreign countries is in the news again. The AICPA Professional Ethics Executive Committee with the help of a task force it had appointed, issued an exposure draft on outsourcing.

Under the proposal, a CPA must inform the client that he or she may be using a third-party service provider when providing professional services to the client, prior to sharing confidential client information with that service provider. The proposal indicates that the CPA is responsible for all work performed by the service provider.

Under the proposal, when disclosing confidential client information to a third-party service provider for professional services or administrative support purposes, the CPA must contract with the provider to maintain the confidentiality of the information. The CPA would need to use reasonable care to determine the provider has appropriate procedures to prevent the unauthorized release of the information.

This AICPA proposal is in marked contrast to a recent proposed amendment to the California Board of Accountancy regulations, which provides:

"In the event that confidential client information may be disclosed to persons or entities outside the United States in connection with the services provided, the licensee shall so inform the client in writing and obtain the client's written permission."

I expect the debate to continue on what CPAs should be disclosing to their clients about outsourcing, especially outsourcing to foreign countries. I also expect discussions on the cost savings that outsourcing offers, as well as the easing of staff pressures that might result.

What I haven't heard enough of is how CPA firms can work outsourcing effectively into their business model. I expect many California firms will quickly find that out if the California Board of Accountancy's regulations are finalized.

While the AICPA proposal regarding foreign outsourcing is to be a kind of "Don't tell unless you are forced to by a direct question of the client" policy, California specifically requires the client's permission.

So, I foresee that if finalized, California CPA firms, whether they outsource or not, will change their marketing. If they don't outsource, they will probably proclaim "All returns are done by tax experts within our firm." If they outsource, they can advertise the time and cost savings that is being passed along to the client. I would also expect other nonCPA tax preparers to try and advantageously position themselves with regard to outsourcing.

What is really good is if that happens, after one tax season of required client consent, we would quickly see whether outsourcing is really viable for the business model of the CPA firm.

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