week 6 assignment

ACCT 540

Week 6 Assignment

Confidential Client Information Rule (Section 1.700.001)

The AICPA Code of Professional Conduct introduces a new Confidential Client Information Rule (Section 1.700.001), which was implemented to help expand the guidance on upholding the confidentiality of client information. The nature of accountants’ work requires that they obtain access of their clients’ confidential information. Such information could easily give the accountant an advantage and quickly produce monetary profits for the accountant, at the expense of the client, of course. Not to mention, doing so would require the accountant to defy the code of ethics. The Confidential Client Information Rule was put in place because the personal integrity of the public accounting firm is essential to the implementation of the attest function. A member in public practice must obtain specific consent of the client before disclosing any confidential client information. Formerly 301.01, the Confidential Client Information Rule stated this, but failed to state the method that the member in public practice should use in order to obtain the consent. The new Confidential Client Information Rule (Section 1.700.001) introduced by the AICPA Code of Professional Conduct includes eleven interpretations under the initial rule in order to provide further guidance on the issues of confidentiality. These eleven additional interpretations are centered on the ethics rulings that were established on the former code. The new Confidential Client Information Rule has incorporated a new Conceptual Framework that will help members to evaluate possible threats to compliance with the rule and to identify any safeguards that may be implemented to mitigate the threat. If a member cannot confirm that safeguards were implemented in order to reduce threats, then the member will have violated the Confidential Client Information Rule.

Contingent Fees Rule (Section 1.510.001)

The Contingent Fees Rule (Section 1.510.001) prohibits members of the public practice of accounting from offering services on a contingent fee basis in certain circumstances. Contingent fee engagements are not permitted if the services offered to the client also includes performing audits or assessments of forthcoming financial information. For example, a public accounting firm is not permitted to offer consulting services to an audit client. The CPAs may provide services for contingent fees for other clients that are having their audits taken care of elsewhere. If a prospective new client asks a public accounting firm for assistance with the company’s cash disbursement system, then the CPA firm may offer services for a contingent fee as long as the CPA firm does not also audit the company’s financial statements. For example, the public accounting firm could restructure the disbursements system and collect a fee that is contingent on the cost savings recognized by the client in handling future cash disbursements. The CPA firm’s fee imposed on the client could be, for instance, ten percent of the company’s next four years of cost savings. Furthermore, a public accounting firm is not permitted to impose a contingent fee on a client for preparing tax returns or preparing claims for tax refunds. This has to do with the fact that when a CPA firm prepares a tax return, they are also giving advice to clients on how particular items should be treated on the return. The Contingent Fees Rule also prohibits a public accounting firm from filing an amended return in order to correct the reporting income on a tax return that was originally over-reported. Some examples of when contingent fees would be permitted under the Contingent Fees Rule include representing a client in a Private Letter Ruling and protesting a tax authority assessment.

References

American Institute of Certified Public Accountants. (1900). Code of Professional

Conduct, Contingent Fees Rule (Section 1.510.001). Jersey City, N.J: American Institute of Certified Public Accountants. Retrieved August 12, 2015.

American Institute of Certified Public Accountants. (1900). Code of Professional

Conduct, Confidential Client Information Rule (Section 1.700.001). Jersey City, N.J: American Institute of Certified Public Accountants. Retrieved August 12, 2015.

Blatch, M. (2015, March 1). AICPA's revised confidentiality rule and Sec. 7216.

Retrieved August 15, 2015.