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Washington State Board of Accountancy Revises Rules on Client Records

by Mark Hugh, CPA | Mar 06, 2018
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Recently, the Washington State Board of Accountancy revised its rules on client confidential information, client records, and client record requests. The new changes became effective February 24, 2018.

Client records and client record requests require extreme caution and thorough understanding and compliance with Board rules. Former clients may not be gracious in their requests of the predecessor CPA or may owe outstanding fees, and predecessor CPAs often respond to these requests in a passive aggressive fashion. This results in frequent complaints to the Board and disciplinary action of the predecessor CPA.

With the revisions, the Board is adopting parts of AICPA interpretations with clearer definitions regarding who can request records and strengthening existing language regarding requirements to provide electronic records.

Before the Change

Before the change, there were two applicable AICPA standards, one on failure to return client records and one on disclosing information to persons associated with a client. And four applicable Board rules, one on confidentiality, one on client record requests, one on professional standards, and one containing definitions.

  • On failure to return client records, AICPA ET Section 1.400.200.06 provides that a CPA who has provided records to an individual designated or held out as the client’s representative, such as the general partner, majority shareholder, or spouse, is not obligated to provide such records to other individuals associated with the client.
  • On divorcing spouses, AICPA ET Section 1.700.030, requires when a CPA is engaged to prepare a married couple’s joint tax return, both spouses are the client, even if the CPA was engaged by one spouse and deals exclusively with that spouse. If the married couple is undergoing a divorce and one spouse directs the CPA to withhold joint tax information from the other spouse, the CPA may provide the information to both spouses.
  • On confidentiality, Board rule WAC 4-30-050(3) requires that a CPA cannot disclose any confidential communication or information without the specific consent of the client.
  • On failure to return client records, Board rule WAC 4-30-051 is comprehensive and more restrictive than the AICPA interpretation. For example, records cannot not be withheld in exchange for outstanding professional fees, and while the AICPA interpretation uses “work product” to describe what records must be provided, the Board rule subdivides “work product” into individual client records prepared by the CPA.
  • On professional standards, Board rule WAC 4-30-048 requires that if any professional standards differ from the requirements in Board rules, Board rules prevail.
  • On definitions, Board rule WAC 4-30-010 did not contain any definition of an authorized person for client confidentiality or client record requests purposes.

After the Revisions

With the new revisions, the Board is adopting AICPA definitions on who is an authorized person for confidentiality and record requests, and the interpretation on divorcing clients. In addition, the Board is strengthening existing language that if electronic records exist and must be provided to a client, they must be provided electronically.

The Board recognized the difficult and adversarial situation that may arise for a well-intentioned CPA when a former client or a successor CPA requests records. If a disagreement arises over what records can be provided or the timing, often former clients will file a complaint with the Board to force the predecessor CPA to provide the records. Now that the Board is involved by the complaint, if the predecessor CPA has not closely followed Board rule WAC 4-30-051, the Board has no choice but to formally discipline the CPA. This situation resulting in disciplinary action occurs multiple times every year at the Board.

The Board also recognized to protect the confidentially of client records and protect CPAs from inadvertently breaching confidentiality by releasing records to unauthorized persons, clearer definitions were needed. Not every owner of an entity is entitled to access the CPA’s records. For example, authorized persons for a corporation are only the corporate officers, a majority shareholder, or another party designated by the officers or that shareholder. If a partnership has a designated tax matters partner, only that partner or another party designated by that partner is authorized to received tax records.

On divorcing spouses, while the AICPA interpretation notes the CPA “may” provide information to both spouses because both are considered the client, the Board adopted the language that the CPA “must” provide the information to both spouses.

On electronic records, even though a CPA was already required to provide existing electronic records electronically, in practice electronic records were being provided to a successor CPA in a non-electronic format, such as a paper copy of electronic tax depreciation schedules or a paper copy of a general ledger rather than a QuickBooks electronic data file. While a CPA is not required to create electronic records where none exist, and is not required to convert them from one electronic format to another electronic format, the Board strengthened existing language that if electronic records exist in a certain format, the CPA is required to provide them in that electronic format and cannot supplant existing electronic records with a different format.

Record requests by former clients carry high professional and high disciplinary risk. Board rule WAC 4-30-051 is comprehensive and more restrictive than the AICPA interpretation. Because Board rules prevail in any conflict in professional standards, with every record request, a predecessor CPA should carefully review and follow the minimum requirements of revised Board rule WAC 4-30-051.

Mark Hugh headshotMark Hugh, CPA, is the principal of Mark Hugh PLLC. He is a CPA member of the Washington State Board of Accountancy. You can contact him at mark@markhugh.com.

Check out Mark's recent blog on the Board's revised rules on Cloud Services, here. Or listen to his interview with Ashley Kittrell, WSCPA Government Relations Coordinator, here.

Make sure you’re in compliance with all WBOA rules by taking your required Washington State ethics courses via the WSCPA. Learn more here.

2 Comments

  1. 2 C Hallett 15 Mar
    This concerns the paragraph "On electronic records, even though a CPA was already required to provide existing electronic records electronically, in practice electronic records were being provided to a successor CPA in a non-electronic format, such as a paper copy of electronic tax depreciation schedules or a paper copy of a general ledger rather than a QuickBooks electronic data file. While a CPA is not required to create electronic records where none exist, and is not required to convert them from one electronic format to another electronic format, the Board strengthened existing language that if electronic records exist in a certain format, the CPA is required to provide them in that electronic format and cannot supplant existing electronic records with a different format."

    Not sure what happens if there is software or spreadsheet software that was developed by the CPA and used in house as a trade secret to an industry that CPA may be representing. I believe the rule if strictly interpreted could damage a CPA firm. Would a CPA have to release their internal software in these cases? I can see the Quick Books determination (and believe some CPAs are more skilled than others); however, for self created software, this seems odd to me. But, what do I know?
  2. 1 Mark Hugh 15 Mar
    Hi Chuck,

    That situation is already covered in the Board rule, among other types of records, there's two definitions:

    1.  Client records prepared by the CPA. If the preparation of these records is complete, these records must be provided to the client.

    2.  CPA working papers. These include, but are not limited to, audit programs, analytical review schedules, statistical sampling results, analyses, etc. These records are not required to be provided to the client, but you can give them if you want.

    The client is entitled to the data, but they aren't entitled to the tool, which is considered part of the CPA working papers. Excel is a programming tool, and self developed spreadsheets are software developed for internal use. Those don't have to be provided, as long as the client gets the data, which they may already have as part of the issued work product. 

    Thanks!

    Mark


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