Letters

A Wake-Up Call for CPAs
In “Truth and Transparency: The Federal Government’s Financial Condition and Fiscal Outlook” (JofA, Apr.04, page 26), David M. Walker, Comptroller General of the United States, sounded an alarming wake-up call indeed. He correctly noted that not only is our federal government’s financial condition poor, but it is getting worse. Furthermore, he stated that budgetary trickery and inadequate reporting practices mask the true seriousness of the situation. Most striking was his statement of fact that the federal accumulated deficit totals more than $24,000 for every man, woman and child in the United States.

Clearly, in an environment where only incomplete information is available, uninformed or misinformed voters cannot properly evaluate prospective candidates or their policy proposals. I cannot imagine a politician successfully campaigning for office if the public at large realized such a candidate’s policies would result in our government’s borrowing almost $100,000 for every family of four in this country. However, this is precisely the position in which we find our federal government today.

We as CPAs possess a unique skill set that enables us to interpret and understand the situation to which our government representatives have led us. Mr. Walker correctly noted that the issue is not about political affiliation but about the financial future of our nation and our children. We must be the ones to answer Mr. Walker’s call to action by educating and leading the public to demand better from our representatives. Future generations are depending upon us.

Joseph Vap, CPA
Louisville, Kentucky

No Attorney-Client Privilege for Expert Witnesses
I am concerned the article “Attorney-Client Privilege: CPAs and the E-Frontier” (JofA, Apr.04, page 64) might lead readers to conclude the attorney-client privilege applies to expert witnesses. Nothing could be further from the truth.

While it is true in certain situations when an attorney retains a CPA that the work performed may be protected by the attorney-client privilege, this is not the case once the CPA is designated as an expert witness. Furthermore, in most jurisdictions, all work, including work performed before the CPA is designated as the expert for a case, becomes subject to discovery.

As a result practitioners who may be designated as experts need to be aware their workpapers and everything they discuss or write about a case are potentially discoverable. That includes discussions with the attorney for whom they are performing the services and all written materials and electronic items sent to or received from that attorney. Since privilege and discovery are legal matters, CPAs should discuss such issues with the attorneys who retain them.

I am also concerned by the suggestions in the article that engagement letters be obtained from the lawyer and that they state all CPA workpapers are the attorney’s property. Engagement letters are legal contracts, and practitioners should be sure that provisions important to CPAs are included in them. That might not happen if the engagement letters are obtained from the lawyer. AICPA Consulting Services Practice Aid 96-3 is a good resource that discusses communicating understanding for litigation services work and includes sample engagement letters.

Before agreeing that all CPA workpapers are the attorney’s property, CPAs should check with their own attorneys or their professional liability carriers. If a practitioner’s work is ever questioned, it is important that he or she have ready access to the workpapers in order to be able to defend the work that was performed.

Practitioners who perform litigation services work should be familiar with AICPA Consulting Services Special Report 03-1, Litigation Services and Applicable Professional Standards (referenced in the article), as well as the relevant consulting services practice aids listed in that special report.

John M. Caron
Reback, McAndrews & Kjar LLP
Manhattan Beach, California

One Key Requirement Needs Emphasis
The checklist “A Practical Guide to Complying With SAS No. 99’s Key Requirements” (JofA, May04, page 24) was well-done. However, I would like to point out one of the key requirements of SAS no. 99 is that “the auditor should incorporate an element of unpredictability in the selection from year to year of auditing procedures performed” (paragraph 50). This is an important part of SAS no. 99 that should be emphasized.

Chuck Manganiello, CPA
AuditWatch of FL/PA
Palm Harbor, Florida

Author’s reply: Due to the nature of the article, space did not permit listing or discussing “unpredictability” among “overall” or “specific” responses to risks encountered.

“Unpredictability” has been in the professional audit literature for decades prior to SAS 99. It manifests itself in many forms, such as random sampling or year-to-year audit procedure variation, and is a very important concept.

Thomas E. McKee, CPA,
PhD, CIA, CMA
Visiting professor
College of Charleston
Charleston, South Carolina

Control Is the Issue
The article “Independent Contractor or Not” (JofA, May04, page 89), while addressing a real issue on which many CPAs must regularly advise their clients, is a prime example of where oftentimes JofA articles fall short and thus become of limited value.

While the article lists the 20 common-law factors, by far the most important factor and the most heavily weighted by the IRS, local payroll jurisdictions and courts is control. This concept is not mentioned until the end of the article. There it uses the term “exercising excessive control…

that will put the contracting party at risk of reclassification.” This is misleading. Excessive control is not the criterion; it is merely control.

Advising clients of the “potentially ruinous costs of changes” is not enough. They must be advised that to classify service providers as independent contractors they must contractually and practically act as if there’s an independent contractor relationship.

In the case study of a country club golf caddie, who was perfectly happy as an independent contractor until he got hurt, there should be some recommended actions. For example, there should be a contract between the caddie and the country club stating the relationship: The caddie can substitute another caddie if he so wishes, he is not covered by workers’ compensation or unemployment and he holds himself out to the public as a caddie.

The method of payment should be set up in such a way that it is clear the country club is merely providing a service to the caddie. The country club should have independent contractor guidelines applicable to all club-related service providers (from gardener to golf pro) that address conduct to members and guests, dress code and so forth.
The country club must be willing to step up to the obligations created by an independent contractor agreement—that is, by having less control.

The article also could have addressed the obvious conflict between satisfying the safe harbor requirements of section 530 of the Revenue Act of 1978 and a state or local determination that an employment relationship had been created.

The purpose of this letter is not to be specifically critical of this particular article. I could raise the same issue in any number of articles I have read over the past years. I would prefer more solution-based articles such as those I often find in “Technology Q&A.”

Karl S. Reinecker, CPA
Malibu, California