Tax: A new professional standard for accountants providing taxation services is soon to take effect, writes Channa Wijesinghe.
In October last year the Accounting Professional and Ethical Standards Board (APESB) issued APES 220 Taxation services as part of its mandate to revise and reissue professional and ethical standards for members of the professional accounting bodies in Australia.
APES 220 will replace professional statement APS 6 Statement of taxation standards, issued in June 1982.
CPAs who provide taxation services should familiarise themselves with the requirements of APES 220 and implement changes to their systems and processes to ensure they comply with this standard by 1 July 2008.
Scope of APES 220
The standard defines taxation services as any service provided by a member to a client or employer in relation to ascertaining tax liabilities, entitlements or obligations. It includes:
preparing a return, notice, statement, application or other document for lodgement with a revenue authority, and responding to queries
preparing tax calculations to be used as the basis for accounting entries in the financial statements
providing tax planning and other tax advisory services
assisting a client or employer in the resolution of tax disputes
Although APS 6 only applies to members in public practice, APES 220 will also apply to members in business or commerce who provide taxation services to their employers.
APES 220 has been written to reflect the requirements of APES 110 Code of ethics for professional accountants, issued by APESB in June 2006.
Consequently, requirements pertaining to the public interest obligation of members and the fundamental principles of the code, as they apply to taxation services, are also referred to in the standard.
Impact on all members
APES 220 has a new requirement that all members who provide taxation services must ensure that their own tax matters (and those of related entities) are in order.
The standard stipulates that, although members have an obligation to obtain sufficient information from a client or employer to perform taxation services, they will not be held responsible for the veracity of the information provided. Members will need to consider the use of estimates in their tax work, and whether it is reasonable in the particular circumstance to use estimates. Members must not provide a taxation service to a client or employer if it is based on false or materially misleading information.
APES 220 requires members to handle confidential information in a proper manner and not to disclose it to third parties unless there is a legal obligation to disclose. Further, when disclosure occurs, the member must inform the client or employer as soon as practicable, provided there is no legal prohibition against such notification.
In respect of tax schemes and arrangements APES 220 has a general prohibition that members must not promote or assist in the promotion of schemes or arrangements that are not based on a reasonably arguable position under the existing tax law. However, the provision of advice to resolve tax matters in relation to these schemes or arrangements is not prohibited.
Members are required to appropriately document the work performed in relation to the taxation services as stipulated in the standard.
Impact on members in public practice The standard introduces a requirement for practitioners to document and communicate the terms of engagement, in line with the proposed standard APES 305 Terms of engagement. It is not necessary for this to be in the form of a letter, as other forms of documentation will be acceptable.
When a member provides a tax lodgement service to a third party, APES 220 requires the member to perform sufficient reviews before lodging the relevant returns or documents.
In circumstances where a client is unwilling to correct a material understatement on a previously filed return, APES 220 stipulates that the member needs to consider their engagement-continuance policies to determine whether they continue to act for the client.
In terms of the handling of client trust money, APES 220 requires a member not to allocate tax refunds to settle any outstanding fees unless a member has prior written authority from the client.
Channa Wijesinghe CPA is senior project manager at the APESB.
For further information visit the APESB's website to access APES 220 and the 'Basis for conclusions' document to obtain a comprehensive understanding of the standard.
