AN ETHICAL ANALYSIS OF THE ACTIONS OF A THIRD PARTY TAX PREPARER: AN
The purpose of this research is to analyze, within an ethical context, the responsibilities of a third party tax preparer in American society. This analysis is applied to an hypothetical situation. Further, the analysis considers fiduciary responsibility, obligations to the tax system, and philosophical principles.
Assume that a certified public accountant (CPA) has been engaged to prepare the financial statements and the federal income tax return for a construction firm. Assume further that the construction firm is a publicly held company. Lastly, assume that percentage of completion (POC) estimates for work in progress (WIP) are made by the construction firm, and that it is not possible for the CPA to physically verify the firm's POC estimates.
In this hypothetical situation, the CPA determined that the POC estimates appeared to be unreasonably low, considering the firm's inventory levels, direct labor expenditures, and so forth. The effect of the lower POC levels was to lower before tax profit for the period, and, thus, to lower (1) the firm's federal income tax liability, and (2) the amount of income allocable to the common stock holders of the construction firm.
The action taken by the CPA in this situation was two fold. First, the incongruity of the POC estimates was brought to the attention of responsible parties within the construction firm the management. Second, when the firm's management elected to stand by its POC estimates, the CPA refused to certify either the firm's financial statements, or its federal income tax return. Further, the CPA included a disclaimer on the statements and the return, which explained the reason for non certification.
The CPA could have taken the position that her or his moral, ethical, and legal responsibilities were discharged when the incongruity of the POC estimates were brought to the attentio...