The Hindu Business Line : AICPA ethics panel moots outsourcing disclosure rules

AN ethics committee of the American Institute of Certified Public Accountants (AICPA) has proposed bylaw changes to its code of professional conduct to require accounting and tax businesses in the US to disclose to clients the outsourcing of to third-party service providers.

The amended bylaws will apply equally to work outsourced to third-party service providers located in the US or abroad.

As of now, the AICPA allows its members freedom in deciding whether a client should be told about any work outsourced to third parties. It is understood that the AICPA is re-evaluating the obligations of its members in this regard in the context of the increase in outsourcing tax and accounting services abroad as also the ongoing debate in the Congress, the media, and state and federal regulatory bodies about the responsibility of businesses to disclose to clients the outsourcing of services or production to other countries.

According to Mr Robert Becton, Vice-President of the AICPA, "firms, most notably in India, are offering these services" and "it is economical for many accounting firms to send data entry and other back-office work to third-party providers so the firms can focus on the higher-end needs of clients."

The Professional Ethics Executive Committee (PEEC) of the AICPA had initiated a project early this year to assess whether its code required any modifications and had recently released its exposure draft for review with an October 8 deadline for comment .

The proposed amendments relate to:

The ethics ruling under Rule 102, Integrity and Objectivity, to require that a member inform the client that the member's firm is using a third-party service provider for professional services — before sharing confidential client information with the service provider.

The ethics ruling under Rule 201, General Standards, and Rule 202, Compliance With Standard, to clarify, to clients, the application of rules 201 and 202 to members who use a third-party service provider for professional services, making clear the PEEC's position that the member is responsible for all work performed by the service provider.

Revisions to Ethics Ruling No. 1, "Computer Processing of Clients' Returns," under Rule 301,Confidential Client Information, to update and broaden the application of the ethics ruling beyond that of an outside tax-service bureau, and make it applicable to any third-party service provider used by the member.

The disclosure of confidential client information to a third-party service provider for the purpose of providing professional services to clients, or for administrative support purposes, will not be in violation of Rule 301 under the amended bylaw.

However, AICPA members will be required to enter into a contractual agreement with the third-party service provider to maintain the confidentiality of the client's information. The member will also have to use reasonable care in determining that the third-party service provider has appropriate procedures in place to prevent the unauthorised release of confidential client information.

According to Mr Becton, the proposed changes will addresses a transparency issue while also strengthening the trust between CPAs and their clients, some of whom may have reservations about having their information shared with third-parties.

The PEEC has scheduled an open meeting for October 28 and 29 to review responses to the proposed changes.

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