Letters

Clients Entitled to Full Disclosure
I’m writing in response to the article, “Legal and Ethical Considerations Regarding Outsourcing” (JofA, Mar.04, page 31). Every client of a CPA firm has a reasonable expectation that personal information will be safeguarded and maintained under direct control of the CPA. Clients also should reasonably expect the work done on their books, returns and related financial matters will be performed under the direct supervision of the CPA.

If this is not the case—as with foreign outsourcing—the client is entitled to a disclosure of how the information is going to be shared and who is going to do the work.

Then there is the long-term damage this kind of activity would have on the profession as the training jobs for entry-level accountants are outsourced. This is another topic that we should explore.

Rather than dodge these issues, the AICPA should put them on the table and see what the membership thinks.

Paul H. Kositzka, CPA
Alexandria, Virginia

Attest Letters
With all of the mortgage refinance activity of the past year, I have received numerous calls from mortgage lenders requesting letters attesting to my tax clients’ past and future income. When I explain that having prepared a tax return for our mutual client I cannot write the letter—with or without the client’s permission—the reaction I often receive is indignation. Apparently, there are CPAs who are writing these letters, and the caller wonders why I can’t “get with the program.”

I believe this type of letter attests to a client assertion, which requires I adhere to the standards for an attestation engagement. Notwithstanding adherence to professional standards, the nature of the assertion often is unsupportable and not one I would provide an attestation to. If other CPAs are receiving similar requests, they need to be aware these letters are subject to professional standards.

Lawrence Magill, CPA
Sarasota, Florida

Editor’s note: You are absolutely correct. If the mortgage broker and lender really want an attest report from a CPA, then the CPA has an obligation to perform that engagement and follow the appropriate professional standards.

Lenders usually ask for as much assurance as they can get—without knowing the cost or consequences. Typically, once the CPA explains what this would entail, they quickly back off. Most of the time, a simple letter from the CPA (with the client’s agreement), acknowledging the income reported to the broker or lender is the amount reported to the IRS on the tax return, will suffice.

Deficits, Taxes and Savings
As a CPA who works with clients to help them plan their financial futures, I am troubled by President Bush’s $2.4 trillion budget proposal and its projected deficit of $364 billion for fiscal year 2005. Common sense would suggest that deficits of this magnitude are unsustainable and not good for our long-term economic health. It’s only a matter of time until whichever party controls the White House and Congress will be forced to take more drastic steps to address the deficit problem. Only through a combination of spending cuts and tax increases will the deficit problem actually be solved.

If past trends continue, the government’s efforts to reduce the deficit will lean far more heavily on tax increases than on spending cuts. Already a “stealth” tax increase—the alternative minimum tax or AMT—is ensnaring more and more middle-income Americans. If Congress does nothing to index for inflation the income level subject to the AMT, even more Americans will be forced to pay it, which originally was intended to tax only the wealthiest taxpayers. Unfortunately, even this unintended AMT “windfall” would not be enough to generate the needed revenue to balance the federal budget. Congress would then have to raise regular income tax rates and close many of the legal “loopholes” to truly solve the problem. In a worse-case scenario, Americans might lose many tax-advantaged savings incentives—IRAs, 401(k)s—and face higher tax rates. I believe it is part of our responsibility as CPAs to encourage clients to make better use of the tax-advantaged savings and investment tools allowable under current tax law. Only by saving and investing, rather than spending, will ordinary Americans be prepared to face the tough times that appear to lie ahead.

J. Peter Doyle, CPA/PFS, CFP
Fox River Grove, Illinois