Abstract
Every discipline is managed by its code of conduct. In accounting, there are various ethical dilemmas. Accountants should make decisions that adhere to the accounting code of conduct. This paper explores an ethical dilemma involving Cheepie, an accountant, who helped prepare her friend's tax returns. In this case, there are three ethical dilemmas. One ethical dilemma is the conflict of interests; by preparing tax returns for her friend, Cheepie could favor her friend even in tax non-compliance cases. There is also the issue of amended returns to the client and the contingent tax fee representations. The course of action, in this case, should be assessing how the conflict of interest may influence the judgment of the accountant based on the code of conduct. Also, the accountant should highlight the issues with the tax return. Finally, the accountant's services should be compensated based on the amount of time and labor spent by the accountant. The tax return process should be carried out formally as directed by accounting ethics.
Ethical Issues in Accounting
Ethical Scenario
In the case presented, Cheepie Freund is a close friend to the accountant and knows that the individual is a tax accountant working for a large local accounting firm. With the approach of April 15 th , Cheepie asks for accounting services associated with the preparation of tax returns. However, this request for accounting services was made in the middle of a gossip session or discussion between the accountant and Cheepie Freund. While the accountant is willing to help in the preparation of tax returns, there seems to be a conflict of interest due to the nature of the relationship that exists with Cheepie. The accountant schedules an appointment to be held later in the week. During this appointment, the accountant receives all the relevant details and proceeds to complete Cheepie’s returns while at home. During the tax returns preparation, the accountant makes a discovery that the tax return is highly complicated. Upon discovering the complicated nature of the tax return, the accountant decides to charge Cheepie $250 for the work. Based on her satisfaction with the accountant's work, Cheepie then decides to pay the accountant in cash.
Delegate your assignment to our experts and they will do the rest.
The close and personal relationship between Cheepie and the accountant presents several ethical dilemmas associated with the provision of accounting services. In this paper, there will be an assessment of the identified ethical dilemmas and the appropriate courses of action that should be taken. This will also involve identifying one course of action that will be most appropriate to the ethical scenario presented.
Ethical Dilemma
One of the main ethical dilemmas that the accountant faces is the conflict of interest in the preparation of the tax returns. As already identified, Cheepie is not a formal client but is instead a friend who informally seeks accounting services. Hence, a concurrent conflict of interests exists for two separate reasons. The first reason is that the representation of Cheepie by the accountant may directly adverse to the client (Wolfman et al., 2015). The second reason is that there is a considerable risk that the accountant's responsibilities will materially limit the representation of other clients to Cheepie due to the personal interests associated with Cheepie. This conflict of interest is observed when the accountant decides to prepare Cheepie’s tax returns at home as opposed to the formal area of work. Therefore, the ethical dilemma presented is that the representation of Cheepie during the preparation of tax returns may result in a concurrent conflict of interests.
Another ethical dilemma that is present in the scenario is the existence of amended returns by the client. Despite the close relationship that exists between the accountant and the client, rules concerning client confidentiality still apply. Accounting rules generally prohibit accountants from the disclosure of client information to other parties. As the information may be provided in informal discussions, also labeled as 'gossip,' it may be difficult to clearly outline what information should be held as confidential and which information can be shared. The accountant identified that Cheepie’s tax returns' preparation was 'complicated, which may have signaled the existence of non-compliance, errors, or omissions. As a practitioner, the accountant must advise Cheepie on the consequences of any such actions and be expected to disclose any form of non-compliance by Cheepie (Wolfman et al., 2015). This presents an ethical dilemma of what would be considered confidential.
The last ethical dilemma is associated with contingent fee tax representations. Fees paid to the accountant should be structured under the consideration of several factors, including time and labor needed, the novelty and difficulty of the questions addressed, the amount included, and the results obtained (Shajnfeld, 2009). In tax practice, there is a prohibition of contingent fees for the preparation of tax returns. In light of this limitation, there is an ethical dilemma on whether the accountant's fees to Cheepie are appropriate.
Courses of Action
Based on the identified conflicts of interest, there are several steps that can be taken to minimize any ethical questions that may arise from the services provided. For the first ethical dilemma, which is focused on the existence of a concurrent conflict of interest, there are several steps that can be taken. The first step should be to assess the degree of the threat established by the conflict of interest to determine if the threat is within an acceptable level. The significance of the threats structured by the professional service's performance in preparing tax returns should also be considered. The tax accountant should evaluate whether they reasonably believe that they can still competently and effectively represent their other clients (Wolfman et al., 2015). After the confirmation of the accountant’s capability to diligently provide effective services to all associated clients without adversely affecting any client, Cheepie should then be formally acknowledged as a client. The client, who is Cheepie, will also be expected to provide informed consent confirmed in writing at the time the practitioners identify the conflict of interests.
In the ethical dilemma of amended returns, the tax practitioner can clearly highlight the issues associated with the tax return, such as ommissions or errors, to Cheepie. This should involve a clear outline of why the omissions or errors are not awful while also highlighting their legal obligation to make the necessary authorities aware of any of these ommissions. While ensuring that the private information of Cheepie is protected as confidential, the accuracy of Cheepie’s tax information should be maintained.
The last course of action is related to the contingent tax fee representations associated with the scenario. To correct this ethical dilemma, the tax practitioner should ensure that fees enforced are unconscionable and are in line or correlate to the services that have been provided (Shajnfeld, 2009). As contingent fees are prohibited for the preparation of original tax returns, the tax practitioner should ensure that the existing standards are strictly followed.
Decision and Criteria
Based on the analysis of the ethical scenario, existing ethical dilemmas, and available course of actions, a combination of the first and third-course actions has been identified as the most appropriate solution for the scenario. To minimize the ethical dilemmas that are associated with the scenario and the effect that this may have on the level of professionalism, Cheepie should be formally acknowledged as a client by the tax practitioner. This involves ensuring that any and all discussions and appointments held with Cheepie are conducted in a formal manner. This will ensure that there is no contesting conflict of interest and establish that the duty of confidentiality can be accurately applied. The third course of action, which involves the application of the necessary fees, will be effectively implemented once Cheepie is identified as a formal client.
Conclusion
When providing tax services, practitioners are expected to utilize common sense and strive to make the most ethical decision in each scenario that they may encounter in tax practice. In this case, the tax practitioner should ensure that the relationship with Cheepie is formally acknowledged. This involves ensuring that all discussions and appointments are formally conducted and that the services rendered to her can be provided in a professional manner.
References
Shajnfeld, A. (2009). A Critical Survey of the Law, Ethics, and Economics of Attorney Contingent Fee Arrangements. NYL Sch. L. Rev. , 54 , 773.
Wolfman, B., Schenk, D. H., & Ring, D. M. (2015). Ethical Problems in Federal Tax Practice . Wolters Kluwer Law & Business.
