1. What questions should I ask my prospective Tax Accountant?
The tax industry is constantly changing and tax professionals are subject to various federal and state regulations, not only domestically but globally. Tax Accountants come from a wide a variety of backgrounds and have different attitudes about the US tax system. One should seek an experienced, competent professional who specializes in the areas you need help with and someone who believes in helping you minimize your taxes. Referrals are your best bet. Ask everyone you can think of: family, friends, business owners, financial advisors and attorneys. Be wary of the professional who promises you big refunds or that says you can deduct everything. You, not the accountant, are ultimately responsible for the information on your tax return. Here are some questions you can ask to help ensure you find an experienced, trustworthy tax accountant:
What licenses or designations do you have?
How long have you been in the tax business?
What tax issues do you specialize in?
Do you have the knowledge and experience to handle my tax situation?
What are your fees?
Do you outsource any of your work? Do you perform the work personally? If not, what is the review process? Who signs the returns?
How long, approximately, will it take to finish my taxes?
Do you believe I'm paying too much, too little, or just the right amount of tax?
How many hours of annual continuing professional education do you and your staff obtain related to taxation?
2. Do you outsource any tax, accounting or consulting services?
We realize the business world is constantly evolving and has become a global community so we may utilize all available tools and resources including outsourcing, particularly if it helps the firm with cost containment. Presently, we do not outsource any firm services.
3. How can I be assured of the confidentiality when I interact with you?
Professional standards have long recognized that a member CPA "shall not disclose any confidential information without the specific consent of the client". The main exception to that rule occurs when the CPA is responding to a "validly issued and enforceable subpoena or summons" or complying "with applicable laws and governmental regulations". The Internal Revenue Code is even more specific in prohibiting disclosure. It can be deemed a misdemeanor for any tax return preparer to release any tax information obtained or generated in the course of a preparer-client relationship, unless the preparer has express client consent, or a court order has been issued. Further, our firm has internal procedures designed and equipment installed to ensure that all private documents are routed through a secure server so that your information is not compromised in any manner.
4. Who monitors or scrutinizes the quality of your firm?
In order to be admitted or retain their membership in the American Institute of Certified Public Accountants (AICPA) firms who are engaged in the practice of public accounting in the United States or its territories are required to enroll in an AICPA approved practice-monitoring program if the services performed by the firm are within the scope of the AICPA's practice-monitoring Standards and the firm issues reports purporting to be in accordance with AICPA professional standards. CPA firms that perform audits or issue reviewed or compiled financial statements are required to undergo a peer review every three years to maintain their firm license to practice public accounting. The Peer Review Program is designed to educate the firms, assist them in further enhancing the quality of performance in accounting and auditing services and allow the firm to communicate with their colleagues on the objectives of the accounting profession. The firm experienced their last peer review for the year ended April 30, 2007 which resulted in an "Unmodified Report" certifying that Chokshi, Mund & Raczkowski, P.C.'s policies and procedures conform to AICPA professional standards for quality accounting and audit services.
5. Who are the various tax preparers in your industry?
The Federal tax law is administered primarily by the Internal Revenue Service, a bureau of the United States Department of the Treasury. The U.S. tax code is known as the Internal Revenue Code of 1986 (title 26 of the United States Code). It is considered to be a labyrinth and is ever constantly changing and becoming more complex. Complexity generally arises from two factors: the use of the tax code for purposes other than raising revenue, and the feedback process of amending the code. More than sixty percent of Americans hire a tax preparer. The Selecting the right preparer could make the difference between sitting at home and sleeping at night enjoying the advantages of knowing that your tax return has been prepared accurately and your tax liability minimized or contemplating in an Internal Revenue Service (IRS) office, nervously explaining every expense you have claimed for at least the past three years, if not more.
There are different types of tax preparation professionals, with varying levels of education, experience and appropriateness to your personal tax situation. Our industry is not government-regulated. Anyone can print a business card and call him or herself a tax preparer. Here's an overview of the most common tax preparation professionals in our industry:
The professionals at the national tax preparation chains or similar businesses are trained to some extent, but their training and experience could be at any level. Many of these preparers are paid not much more than minimum wage plus commission, and may be preparing tax returns as a second job. If your return is a fairly basic, then this could be an appropriately inexpensive option. These preparers can accompany you to a meeting with the IRS if the need arises to help you explain information on your return. However, only enrolled agents, attorneys and CPAs have legal standing to represent a taxpayer before the IRS. If there is any complexity to your return, or tax situations specific to your industry or personal circumstances, this might not be your best option.
An Enrolled Agent (EA) is licensed by the federal government, and will be either a former IRS employee (must have worked at least five years at the IRS in certain positions) or will have passed a comprehensive IRS exam. The IRS requires EA’s to complete 72 hours of continuing professional education, reported every three years, to maintain their EA status. If there are questions about your return, an EA can represent you with the IRS. Many EA limit their work to a given tax area, so you should inquire about an agent's area of expertise.
Certified Public Accountants
While all CPA’s are accountants, not all accountants are CPA’s. To become a CPA one must have a college degree in Accounting or related field or obtain the appropriate educational background. A CPA has passed a state's qualifying exam for accounting and is required to continually obtain continuing professional education. CPA’s may or may not be an expert on matters of taxation. However, if considering a CPA, be sure to inquire about his or her experience in tax matters, and how he or she keeps up with changes in the tax law. Also, a CPA can represent a taxpayer before the IRS.
A Tax Attorney must have a Juris Doctor (J.D.) degree and be admitted to the state bar. Those are the minimum requirements for practicing law. They have chosen tax as their field of specialization. A Tax Attorney may be a specialist on the latest tax laws and in tax disputes, but generally is less qualified in the preparation of actual returns, so inquire about experience and knowledge in this area. Their services are especially in demand when confronted with potential criminal issues, concerns with protection of privilege and other complex services.
The IRS has recently announced that it will impose professional standards on paid tax preparers starting in 2011. These standards will include passing an exam, meeting continuing education requirements of at least 15 hours per year, registering with the IRS, and paying an annual registration fee. However, CPA’s, Enrolled Agents and Tax Attorneys will be exempt from these requirements, given the professional standards to which they already are subject.
6. What type of services can a CPA provide to financial statements?
Public Accountants are qualified to provide a range of services related to financial statements. Among the services are reviews and compilations, which are less comprehensive than audits, which generally are required for publicly owned companies. Statements on Standards for Accounting and Review Services are issued by the Accounting and Review Services Committee, which is the senior technical committee of the American Institute of Certified Public Accountants designated to issue pronouncements in connection with the unaudited financial statements or other unqualified financial information of a nonpublic entity. Following provides a brief background relative to the levels of services for financial statements.
The most basic level and least expensive of service is a compilation. As the name suggests, an accountant will compile information supplied by the business or management and present it in financial statement format. The data reflects management’s representations of the business’s financial condition, with the accountant offering no explanation or analysis of the data or any degree of assurance as to its accuracy. Procedures required by the accountant for a compilation are limited but include familiarity with the accounting practices of each client’s particular industry, a general understanding of the client’s business transactions and the form of its accounting records, and determining whether the form and content of the financial statements are appropriate and if there are any obvious material errors. Accountants are not required to make inquiries or perform other procedures to verify, corroborate or review information supplied by the entity.
The next level of accounting service is a review and more expensive than a compilation but less than an audit. Here the accountant will ask the client about certain aspects of the financial statements and test management assumptions by applying analytical procedures as well as identify any potentially questionable items or trends in the financial statements. With a review the accountant provides a limited degree of assurance as to the accuracy and reliability of the financial statements; specifically that no material changes are necessary for the statements to comply with generally accepted accounting principles (GAAP). If it is determined that the statements do not conform to GAAP, this will be disclosed in the accountant’s report. A review is less in scope than an audit in as much as a review does not involve obtaining an understanding of internal control, assessing control risk, testing accounting records and obtaining corroborating evidence to support the financial information depicted in management’s financial statements.
The most comprehensive level, expensive and time consuming service an accountant can provide with regard to financial statements is an audit. This provides the highest level of assurance from an accountant that the information presented in a client’s financial statements is fairly stated. The accountant will express his or her opinion as to the accuracy and reliability of the financial statements, specifically whether they are free of material misstatements and presented fairly in accordance with GAAP. The independent accountant/auditor will test the financial transactions and internal control systems upon which the financial statements are based, following standards administered by the American Institute of Certified Public Accountants. He or she will also confirm the client’s stated assets and liabilities with outside parties, review and evaluate internal controls, and inspect all transactions and their supporting documentation. It’s important to note that while the accountant will express an opinion as to the fairness of the financial statements and the statements themselves are the representation of management, not the accountant. There are a number of different reasons a company might want to hire an accountant to perform an audit, including to satisfy requirements in loan documents or help a potential lender evaluate credit, to satisfy regulatory agency requirements, or to provide detailed financial information to owners, executives, and shareholders