Art of Accounting: Content vs. issue tax return review disagreement
Last week, I wrote about who should fix tax return errors — the preparer or reviewer. Today I’ll discuss another tax review disagreement: I recommend eliminating the tick and tie review in favor of an issue review.
There are two major types of tax return reviews: a content review and an issue review. The content review is where reviewers check all of the preparer’s input. Basically they tick off what they see and tie in the entry with what the client provided, i.e., they tick and tie. The issues review is where the reviewer examines tax issues and tries to uncover planning opportunities.
I know a lot of accountants who will not abandon the ticking and tying because they say they do not want to make a mistake. Here is where we differ in goals. To them a mistake is where something the client gave us is entered incorrectly or not at all. To avoid this, they have their most qualified tax professionals recheck everything the low-level preparers do. Those that do the issues review do not want to make a mistake of passing over opportunities to help the client save on taxes and to better plan for their financial well-being. Those are the types of mistakes I also do not want to make. Note that there are two different meanings of mistakes.
My contention is that it is difficult for a reviewer to do both. Ticking and tying is a wearying process, often creating reviewer fatigue and precipitating a laxity by the reviewer, making them miss finding errors. Further, when a preparer knows that everything they do will be rechecked, I believe it takes an edge off of their performance, also leading to laxity in their data entry. Additionally, if a client left off sending something, there is a likelihood the reviewer will miss this omission because it is not something they can tick and tie against. And if the client is entitled to make an IRA or a retroactive SEP contribution, this probably would not be discovered (except by accident) since it is not a tick and tie item. Tick and tie doesn’t create value for the client.
The reality is that mistakes will be made. The question becomes where you want the mistakes made — by incorrectly entering something the client provided, or by missing or overlooking an opportunity to uncover a tax-saving or planning instance that would really justify using your firm.
By the way, the error of not entering something correctly will eventually be corrected, perhaps with some embarrassment, but in the long run the client will not lose anything. The error of a missed opportunity will never be found, and the client would never be able to recover what they might have lost.
You decide how you want to provide value to your clients. To comfort the skeptical, the issues reviewer could spot check selected items.
The above was adapted from my new book, "How to Review Tax Returns: The Field-Tested Update."
You can download my free tax season checklist Word file, with 120 tasks, by clicking here. If for some reason you have a problem downloading it, send me an email at GoodiesFromEd@withum.com. Enjoy, and have a great tax season.
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Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People List. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, and “Managing Your Tax Season, Third Edition.” Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com along with the Pay-Less-Tax Man blog for Bottom Line. Ed is an adjunct professor in the MBA program at Fairleigh Dickinson University teaching end user applications of financial statements. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 743-4582 or firstname.lastname@example.org.