Oral Advice: Handle With Care
Source: Journal of Accountancy
In this article, Joseph Wolfe and Sarah Beckett Ference discuss why, when, and how CPAs should document oral advice they offer to clients. Citing the experience of the AICPA Professional Liability Insurance Program and describing real-life scenarios, the authors explain how undocumented advice can become a liability for your firm. Without documentation, there's a risk that clients will claim they received and acted on bad advice or that they were not given the advice actually offered.
The authors recommend that CPAs make notes in their working paper files when offering general advice. However, when offering clients specific oral advice, the authors encourage CPAs to document the advice in follow-up correspondence. CPAs should include the following in their documentation:
- Date of the discussion and participants,
- Facts made known in the discussion,
- Advice offered,
- Related tax and accounting considerations,
- Appropriate disclaimers,
- A clear statement that legal advice is not being offered, and
- Recommendations for the client to follow up on details, obtain legal counsel before making a decision, etc.
In the case of a CPA offering unsolicited advice, notation in the working paper file will likely be sufficient if there is little risk associated with the advice. However, unsolicited advice that is higher risk should be documented in correspondence.
The authors recommend that consulting engagement papers document the discussions held and that specific advice be documented in a written report.
To properly document oral advice offered on the subject of taxes, the authors list specific standards and interpretations that CPAs should consult, including the AICPA's Statements on Standards for Tax Services and Treasury Circular 230.
For the complete article, read “Write it down: The importance of documenting oral advice.”
From Journal of Accountancy, October 2013, www.journalofaccountancy.com/Issues/2013/Oct.