CLIENT RECORDS AND WORKING PAPERS
Applicable Statutes or Administrative Rules
OAR 801-030-0015(2) Client Records and Working papers
Licensees may not withhold client records and working papers described in the rule, based on the client´s refusal to pay the licensee´s fees.
ORS 673.380 requires licensees to provide to a client or former client any records belonging to or obtained from or on behalf of the client, and a copy of the licensee´s working papers, to the extent that the working papers include records that would ordinarily constitute part of the client´s records and are not otherwise available to the client. The requirement to return client records and working papers differs depending on whether or not the licensee has issued the work product that is the subject of the engagement.
A client´s request for return of records that is made within a reasonable time and that occurs prior to the issuance of tax return, financial statement, report or other document prepared by a licensee: the licensee shall furnish, within a reasonable time to the client or former client any accounting or other records belonging to, or obtained from or on behalf of the client, that the licensee received for the client´s account or removed from the client´s premises.
EXPLANATION: If the CPA or PA received any records owned by the client, the records must be returned. Client records do not include the work product or working papers of the CPA/PA.
A client´s request for return of records that is made within a reasonable time and that occurs after the issuance of a tax return, financial statement, report or other document prepared by a licensee: the licensee shall furnish within a reasonable time to the client or former client:
- A copy of a tax return, financial statement, report or other document issued by a licensee to or for such client or former client;
- Any accounting or other records belonging to or obtained from or on behalf of the client that the licensee removed from the client´s premises or received for the client´s account; and
- A copy of the licensee´s working papers, to the extent that the working papers include records that would ordinarily constitute part of the client´s records and are not otherwise available to the client.
Working papers, for this rule, include but are not limited to all statements, records, schedules, general ledgers, journals, trial balances and depreciation schedules made by a licensee incident to or in the course of rendering services to a client or former client. Working papers are and shall remain the property of the licensee in the absence of an express agreement to the contrary between the licensee and the client.
EXPLANATION: The licensee is required to provide a copy of the work product that was issued for the engagement and return any records obtained from the client. The requirement to return working papers may vary; for example, if the client has a complete accounting system including a general ledger, sub ledgers, a fixed asset accounting process and maintains their own account analysis and reconciliations, only copies of the adjusting entries with explanations and any supporting working papers would be necessary.
The client may have a general ledger, but may depend on the CPA/PA to adjust and close the general ledger. In that event, copies of both adjusting entries, with explanations and any supporting papers, and closing entries would be provided to the client.
If the client does not have a general ledger and only provides the CPA/PA with transaction summaries that the CPA/PA uses to prepare a working trial balance, copies of the adjusted working trial balance, transaction entries, adjusting entries with explanations and any supporting working papers, and closing entries would be provided to the client.
If the CPA/PA prepared the fixed asset depreciation schedule because the client does not have one, or because the CPA/PA adjusted the client´s schedule, a copy must be provided. If the CPA/PA prepared a bank reconciliation for the client because the client did not do one, a copy must be provided.
If the CPA/PA determines and prepares schedules of account balances that the client does not ordinarily prepare, and the CPA/PA reported on such schedules, copies must be provided to the client. Examples of such schedules include, but are not limited to:
|Investments||Prepaid expenses||Accounts payable|
|Accrued liabilities||Owners´ equity||Current portion of long-term debt|
|Accounts Receivable||Income tax expenses and payable||Bad Debts|
If the client determined the account balances and provided schedules, copies of the schedules with the CPA/PA notes and conclusions are not required to be provided. Copies of the CPA/PA notes, or conclusions on any accounts or transactions, are only required to be provided to the client if the account balances or transactions reported on cannot be understood without consulting the CPA/PA notes or conclusions.
The decision on whether to provide copies of all or part of the accountant´s work papers depends on whether the client´s records include the same information as the licensee´s work product. The client must have sufficient documentation to explain or prove transactions or events that are reported by the CPA/PA in the client´s tax returns or financial statements when called upon to do so. If the documentation is sufficient and can be used for such explanation and proof, no copies are necessary. If the documents are not sufficient, copies are required.
Is my previous accountant required to provide my new accountant with an electronic copy of my QuickBooks bookkeeping records?
While the Board does not have a rule that specifically addresses QuickBooks, there is Board advice indicating the following:
If the client owns the QuickBook software, then all QuickBooks electronic records belong to the client. This situation may occur when a client pays for software that is maintained in the CPAs office.
If the CPA owns the QuickBooks software, then the Board considers the electronic records to be the CPAs working papers. Although the CPA is not required to provide a client with a copy of the software's electronic file, the CPA is required to provide the client with a paper copy of the ending balances. The paper copy required to be provided to the client would most likely include a trial balance, general journal, payroll records and any other journals that the CPA might have kept for the client. This requirement would most likely fall under OAR 801-030-0030, when a client has no other method to obtain information pertaining to their ending balances.
The Board has offered guidance to licensees serving the cannabis industry.
COMMISSIONS, CONTINGENT FEES & REFERRAL FEES
Applicable Statutes of Administrative Rules
OAR 801-030-0005(3) and (4) describes the circumstances when licensees are prohibited from paying or receiving commissions, referral fees and contingent fees. The prohibitions apply when the holder of a permit or any partner, officer, shareholder, member, manager or owner of the firm performs any of the following services for a client who is also the subject of the commissions, referral fees or contingent fees:
- audit, review or agreed-upon-procedures of a financial statement;
- examination of prospective financial information, or
- compilation of a financial statement if the compilation report does not disclose a lack of independence between the client and the licensee.
The prohibitions also apply during the period in which the certified public accountant, public accountant or firm is engaged to perform the services listed, including the period that is subject of the report and the period covered by any historical financial statements involved in the listed services.
What is meant by "during the period"?
The period of prohibition begins at the time the licensee has accepted an engagement to perform attest or compilation services, includes the period covered by the engagement, and extends through the report date on the engagement. If the licensee is engaged to do attest or compilation services for a subsequent period, there would be no period of time that the licensee is not covered by this prohibition. The prohibition could extend until it is implicit that the firm is no longer providing attest or compilation services for the client, especially if the firm has been providing such services on an on-going, periodic basis. Issuing a letter of resignation would be considered reasonable documentation of the termination.
OAR 801-030-0005 describes the written disclosure that is required for transactions involving commissions, referral fees or contingent fees that are not prohibited. Licensees are required to keep copies of written disclosures for a period of six years after performance of the services. This requirement is subject to audit by the Board of Accountancy.
INACTIVE OR LAPSED STATUS
Applicable Statutes or Administrative Rules
Click HERE to review the Inactive Licensee Guidance Matrix and Retired Licensee Guidance Matrix
Licensees are sometimes unclear about the difference between “lapsed” and “inactive” license status. A CPA or PA permit may lapse if the licensee fails to renew, or submits a renewal that is deficient. This may occur by accident, or it may also be a deliberate choice made by the licensee. A licensee who no longer plans to perform public accounting services, and does not intend to use the CPA or PA designation may choose to allow the permit to lapse by indicating on the renewal application that he or she does not intend to renew.
A problem occurs, however, if a permit becomes lapsed inadvertently because the licensee either forgot to renew or did not meet the renewal requirements. In this situation, the licensee may not continue to offer public accounting services or use the CPA or PA designation until the permit is reinstated. Licensees who continue to practice public accountancy or to hold out during the period of lapse are subject to civil penalties of $5,000 per violation, suspension or revocation. ORS 673.320 The period of lapse is retroactive to July 1 of the applicable renewal cycle.
The holder of a lapsed license is not required to provide the Board with updated address information, and the Board does not forward license renewal forms or other information to lapsed licensees. There are no fees or CPE requirements attached to a lapsed license. However, the holder of a lapsed license may not perform public accounting services, or use the license designation or display a CPA certificate or PA license.
A licensee who does not intend to perform public accounting services, but wishes to maintain a licensed status with the Board may elect to renew as “inactive”. This licensee will receive a renewal application and other information from the Board. Inactive licensees pay a renewal fee for inactive status, and report 32 hours of CPE. An inactive licensee may not perform public accounting services, but may use the CPA or PA designation, so long as it is followed by the term “inactive” or “retired”.
Both inactive and lapsed licensees are subject to civil penalties or other disciplinary action if they perform public accounting services or hold out as an active licensee while inactive or lapsed. Both may be reinstated to active status, although the requirements are somewhat different for each.
Licensees who elect to renew the CPA or PA permit to “inactive” status do so by checking the “inactive” box on the renewal application. Licensees with an inactive license have the following restrictions:
- Except as expressly authorized in writing by the Board or provided for in this rule, the licensee does not perform or offer to perform for compensation or remuneration in Oregon or for an Oregon client, services involving the use of accounting or attestation skills, including but not limited to issuance of reports on financial statements, management advisory, financial advisory or consulting services, preparation of tax returns or the furnishing of advice on tax or tax planning matters.
- An inactive licensee may be employed by a governmental unit or private industry employer in which accounting skills are used or required; provided, however, that an inactive licensee may not be employed by more than a single governmental entity or private industry employer at any one time. For purpose of this provision, affiliated entities under common control may be considered a single employer.
Licensees may use the title “Certified Public Accountant” or “Public Accountant”, or the designations “CPA” or “PA” only if it is followed by the term “inactive”.
Inactive licensees must report 32 hours of Continuing Professional Education (CPE) each two-year renewal period, including 4 hours of Oregon-specific ethics from a sponsor approved by the Board. A minimum of 8 hours can be taken in non-technical subjects.
A CPA or PA license becomes lapsed if the licensee fails to meet the requirements for active renewal, or does not file a renewal application. A licensee who does not wish to engage in the practice of public accountancy may choose to allow the license to lapse, rather than be subject to renewal applications and fees as “inactive”. After sending a Notice of Lapse, the Board does not direct any correspondence to lapsed licensees.
Lapsed licensees are subject to the same practice restrictions as licensees who hold an inactive license, however lapsed licensees may not use the CPA or PA designation in any form.
The requirements for reinstatement of a lapsed license are described in OAR 801-040-0090.
OUT-OF-STATE CPAS PROVIDING SERVICES IN OREGON
Applicable Statutes or Administrative Rules
An out-of-state firm with one or more Oregon licensed CPAs provides professional services to clients in Oregon. Other CPAs who are not licensed in Oregon assist with the project. The work project may require the physical presence of unlicensed staff in Oregon. The final work product is signed by an Oregon licensed CPA who is associated with the firm.
Question: Are staff members who do not sign off on final work product required to be licensed in Oregon if they assist with engagements for Oregon clients? The same question is presented when public accounting firms in Oregon assign unlicensed individuals to assist with engagements that are supervised by an Oregon CPA.
Short Answer: No
Discussion: ORS 673.320 requires an Oregon license to perform attest services; ORS 673.320 (11) describes circumstances when professional services may be performed in Oregon by CPAs who are not licensed in Oregon. Neither this section of the statute nor administrative rules consider the licensing requirement for staff members who perform work for an engagement that is supervised (and signed) by a CPA who is licensed in Oregon.
The objective of the licensing requirement is to assure that persons who profess special competence in public accountancy have demonstrated their qualifications to do so. The situation described presents little risk of harm to the public if the engagement is supervised, reviewed and signed by an Oregon licensee. The scope of authority of staff members working on such engagements should be well-defined and any activities beyond the scope of authority may be unlicensed practice.
Unlicensed staff members should be advised not to provide answers to client questions that are unrelated to the specific engagement. Responding to unrelated questions would be beyond the scope of authority of the engagement, which is unlicensed activity.
Staff members who are licensed in another jurisdiction should also be advised not to hold out as a CPA or PA in Oregon. This can be avoided by including the state of licensing each time the CPA or PA designation is displayed or used
USE OF CPA OR PA DESIGNATION
Applicable Statutes or Administrative Rules
May a CPA or PA work as the employee of a Licensed Tax Consultant and sign tax returns using the "CPA" or "PA" designation?
There are no provisions in the Oregon Accountancy Act or Oregon Administrative Rules that prohibit a CPA or PA (licensee) from working for a licensed tax consultant (LTC). However a licensee should consider the following provisions in determining whether or not it is appropriate to use the CPA or PA designation when signing tax returns prepared in the course of such employment:
ORS 670.320 prohibits the use of the title or designations "certified public accountant" or "public accountant" or the abbreviations "CPA" or "PA", or any other title, designation, words, letters, abbreviation, sign, card or device tending to indicate that the person is a certified public accountant or public accountant except by those persons holding a valid CPA certificate or PA license and permit issued under ORS 673.
ORS 670.320 also prohibits any business organization from using the CPA or PA title or designation, or any other title, designation, words, letters, abbreviation, sign, card or device tending to indicate that the business organization is composed of certified public accountants or public accountants unless the business organization is registered under ORS 673.160.
OAR 801-030-0005 (5) (a) allows licensees engaged in a business or occupation other than the practice of public accountancy or performance of attestation services to use the "CPA" or "PA" designation in oral or other communication such as business cards, stationery or comparable forms so long as the use of the designation does not indicate in any way that the licensee is authorized to perform public accountancy or attestation services as part of the licensee´s other business or occupation.
If the CPA or PA who wishes to sign tax returns using the CPA or PA designation holds a valid, active permit issued under ORS 673, and if the LTC business organization does not use any terms, descriptions or titles that would indicate that the business organization is composed of CPAs or PAs, the remaining question is whether the use of the CPA/PA designation in a particular instance would indicate to the public that the licensee is authorized to perform public accountancy services as an employee of the LTC. The answer to this question must be determined based on the facts of each situation.
The fact that a CPA is preparing taxes within an LTC firm may not be sufficient by itself to suggest that the licensee is authorized to perform public accountancy or attest services as part of the LTC business. Nevertheless the licensee must determine whether the CPA or PA designation may be used based on the specific circumstances. Facts that may affect the decision are representations made by the LTC, other services performed by the licensee or by the LTC, or whether disclaimers are provided to the client.
VERIFYING CLIENT INFORMATION FOR LENDERS AND LOAN BROKERS
Over the past few months, the Board has received numerous phone calls and e-mails from CPAs who have been asked by lenders and loan brokers to provide letters verifying that clients are self-employed, financially sound, profitable, creditworthy, or a combination of such attributes.
There is a strong temptation to comply, especially when the CPA is familiar with the finances of a long-term client who appears to be financially sound. The CPA wants to help the client and is put in a very difficult position – he or she is told that the client will not qualify for a loan unless he or she provides a letter to confirm or verify certain types of information about the client.
Some lenders and brokers ask for a statement verifying the accuracy of the client’s tax returns or verifying tha t any funds used from the client’s business make a down payment for a loan will not affect the business. Some lenders and brokers go as far as providing a “canned” letter for the CPA to sign.
The motives behind the lender’s requests are important to understand. The client wants to cooperate with the lender in order to get the loan approved, while the broker wants to make the client happy and earn a commission, neither or which will happen unless the loan is approved. The lender’s motive however, is not necessarily so simple.
Normally, when a lender grants a loan to a borrower, it relies on many factors to determine the advisability of extending credit to the borrower. These factors include, but are not limited to, assessing the creditworthiness of the customer, collateral, primary sources of repayment, as well as market conditions. However, some lenders have been attempting to shift onto the CPA the burden of responsibility for assessing the information supplied by the borrower in the event the borrower defaults on the loan and the lender incurs a loss.
The CPA should be concerned about providing what is in effect an attest letter based on nonattest work. He or she may be providing a false sense of assurance to the lender or broker by complying with the request. If the client defaults on the terms of the loan, the lender could argue that it relied on the CPA’s letter (in lieu of other due diligence steps and as a result suffered a loss. The CPA may then be at risk for a lawsuit.
Even an apparently harmless verification of client information, such as self-employment, carries much more risk that it appears to, especially if the CPA prepared tax returns based on information provided by the client without performing procedures to verify the information.
The CPA should communicate to the client and the lender (if the client has authorized such communication) that although the CPA would like to comply with the lender’s request, the services rendered in this situation were limited to the preparation of tax returns from the information that the client provided to the CPA.
Since the CPA has not audited, reviewed, or otherwise verified the information provided by the client, the CPA is not in a position to make any conclusions or assurances regarding the accuracy or completeness of the information, nor is the CPA able to forecast the future ability of the clients to repay a loan. However, if the client agrees, the CPA may offer to send a copy of the tax returns or client payroll records so that the lender may compare the records in its possession with the returns prepared by the CPA.
The bottom line is that the CPA should speak with his or her client, verify all information, review all applicable attest and assurance standards, and check wit h his or her professional liability insurance carrier before providing any information to a lender or loan broker.
KEEPING THE TITLE "CERTIFIED PUBLIC ACCOUNTANT" INVIOLATE
Why we should keep the use of the Title “Certified Public Accountant” inviolate? (contributed by Dennis Cunning, Retired CPA)
In many ways the relationship between the practicing Accountant and the client rivals the trust and intimacy level of Doctor/ Lawyer and client. In innumerable instances the client is required to reveal and share not only dreams but also personal shortfalls in the explanation of their financial condition. For this reason the Accountant must, of necessity, be conversant with the Codes of Professional Conduct detailing Independence, Integrity and Objectivity (OAR 801-030-0005), Competence and Technical Standards (OAR 801-030-0010) , Responsibilities to Clients OAR (801-030-0015), and Other Responsibilities and Practices (OAR 801-030-0020), and the various and numerous sub-sets therein.
It cannot be said that any portion of the Codes holds more importance than others rather that the totality of all of the parts are necessary to make each part material and effective. The Board, by its’ Certification, is affirming that the practitioner utilizing the title ‘Certified Public Accountant’ (CPA) is versed in all of the standards and is held accountable to them all. In this manner, the client is ensured a consistent standard of competency and professionalism.
Regardless of the reason, should a practitioner not have an active status then the use of the ‘CPA’ or any variant thereof is inherently misleading as the safeguard afforded the status has been breached. It cannot be argued that some status factors are less significant than others because the public representation is that each and every factor in the composite is in place. The Statutes are explicit on the subject. ORS 673.320(3) states unequivocally that “A person shall notassume or use the title or designation “Certified Public Accountant” or the abbreviation “C.P.A.” or any other title, designation, words, letters, abbreviations, sign, card or device tending to indicate that the person is a certified public accountant unless the person holds a valid certificate of certified public accountant issued under ORS 673.040 and a permit issued pursuant to ORS 673.150”.
Similarly, ORS 673.220(1) provides no material distinction respecting inactive status as “(T)he Oregon Board of Accountancy may grant inactive status to any licensee who does not hold the licensee out to clients or the public as a certified public accountant or a public accountant and does not engage in the practice of public accountancy…”.
Any diminution of the significance of the title and symbol affects more than just the offending practitioner and the particular client. It serves to devalue the distinction and safeguards afforded by the historic respect our profession has enjoyed, and diminishes the confidence so carefully nurtured in our clientele.
In sum total, we must all remain diligent in ensuring that no one practitioner be allowed to misuse the privilege to use the title “Certified Public Accountant” and symbol “CPA”, and thereby diminish for the rest of us the stature the term has earned. As our respective practices change we must carefully assess our new relationship to what we are allowed to call ourselves. We certainly don’t lose our professional stature by retiring, for example, however it would be misleading not include the term “retired” or “inactive” when referencing our prior accountancy activity.
If you have a question that has not been answered here, please contact the Board office by email at email@example.com or by phone at 503-378-4181.