ccounting professionals have long recognized that true professionalism requires not only a high level of technical competence but also adherence to high ethical standards in the application of that competence. This concern for ethical conduct is what many believe distinguishes the profession from others that may be providing similar services. In addition, like most professionals today, accountants are also managers who are required to deal with the ethical dilemmas associated with managing or working within a business firm. CPAs involved in tax preparation and planning are no exception. Like all accounting professionals, tax practitioners need an environment characterized by professional competence and integrity to appropriately discharge their professional responsibilities. Clearly enunciated codes of professional ethics provide a foundation for this environment. However, the inherent conflicts between the public interest (for tax practitioners this is probably the IRS) and the interests of the client, the client and the tax practitioner, and the tax practitioner and his or her firm, provide the potential for a variety of ethical problems.

A national survey of 1,000 members of the AICPA Tax Division was designed to examine conflicting interests. The purpose of the study, which was conducted in November 1997, was to determine the extent to which 54 issues related to professional responsibilities and the business environment are viewed as presenting ethical problems for CPA tax practitioners.

The Survey

The 54 statements included in the survey form are varied in their form of presentation. Some reflect ethical conflicts that must be faced, many reflect unethical behaviors in response to ethical dilemmas, and a few are general situations that may give rise to ethical dilemmas as well as other problems. These statements will be referred to as "issues" to simplify the discussion. Survey participants were asked to indicate the extent to which each issue presents a problem in the tax profession by rating each issue on a five-point scale with 1 indicating it is "not a problem" and 5 indicating it is a "major problem." The participants were also asked to indicate and rank the top two ethical issues facing the tax profession today from among those listed in the survey instrument and to indicate and rate any other ethical issues that present problems to the profession. Demographic data regarding the nature of the tax practitioner's job and firm was also gathered. The average age of the respondents was 46, and they averaged 19 years in the tax profession.

Survey Results

Exhibit 1 provides the mean ratings for each of the 54 ethical issues and their rank based on the issues' mean rating relative to the other issues. For example, Issue #1 is rated 2.42 on average by the respondents and has the 11th highest mean rating.

None of the issues had a mean rating above 3.0 (the midpoint on the rating scale). This suggests that no single issue or set of issues is seen by virtually all CPA tax professionals as presenting a major problem. For a profession that is necessarily concerned with and dedicated to ethical conduct, these results are both expected and reassuring. At the same time, the significant percentage of respondents who rated certain issues with a 3, 4, or 5 indicates that some issues do deserve the attention of the profession. The top five issues were rated 3, 4, or 5 by more than 50% of the respondents, and the next five issues received a rating of 3 or higher from more than 40% of the respondents. These 10 highest-rated issues appear to be especially important to the tax profession and thus will be the focus of our discussion.

Top 10 Ethical Issues Facing
Tax Professionals

As indicated in Exhibit 1, the top 10 ranked issues are--

* accepting a client's deduction amount with partial or no documentation (#39),

* misrepresenting or concealing limitations in one's abilities to provide services (#32),

* not determining the accuracy of oral or written representations made by the client (#47),

* failure to identify the client's needs and recommend services that meet those needs (#30),

* undue reliance on prior years' tax returns and workpapers (#8),

* failure to carefully plan and supervise tax engagements (#9),

* lack of knowledge or skills to competently perform one's duties (#29),

* exploitation of the IRS audit selection process (i.e., playing the audit lottery) (#38),

* failure to obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed (#2), and

* not performing or not completely performing all the work necessary in order to come under budget (#49).

All 10 issues relate directly to the professional conduct of the tax practitioner; none of them are concerned exclusively with the tax practitioner's role as an employee of an organization (e.g., #24--abuse of expense accounts). Four of the top 10 issues (#'s 29, 30, 32, and 49) relate to the responsibilities of professionals in general, whereas six (#'s 2, 8, 9, 38, 39, and 47) reflect problems with various specific responsibilities of tax professionals.

These latter problems may allow firms to work within their budgets, but this efficiency may sacrifice the professional expertise for which the CPA tax practitioner is valued. In addition, it may come at the expense of professional development for the practitioner. The key findings also suggest that when competition is strong, practitioners may be tempted to misrepresent their capabilities (#32) and take on work where they lack the knowledge or skills to perform their duties (#29).

As shown in Exhibit 2, many of the top 10 issues are related to guidance provided to CPA tax practitioners by several key sources--the AICPA's Statements on Responsibilities in Tax Practice, Treasury Department Circular No. 230, and the IRC.

The Role of Education,
Regulation, and the Firm

While problems do exist, the ethical environment for the tax profession appears to be in reasonably good shape. Issue means produced by the study of CPA tax practitioners suggest that there are no severe ethical issues encountered throughout the profession. However, there are a number of issues, primarily related to the conduct of professional responsibilities, that significant percentages of practitioners are encountering or perceive to be problems in the profession. Whatever the cause of these ethical problems, they must be addressed by those in the profession. There are roles to be played both by professional associations at the national and state levels and by the firms within which tax professionals work.

The AICPA and state associations can help in dealing with ethical issues facing the tax profession in several ways. Greater development of continuing professional ethics education should be a priority for the profession. This education needs to address not only what the ethical response to a situation might be, but also those strategies that tax accountants can use to foster and implement ethical policies and practices within their firms.

The profession should also investigate the potential advantages (and disadvantages) of making professional codes and guidelines enforceable. For example, the profession might consider making the Statements on Responsibilities in Tax Practice (SRTPs) enforceable. However, since the sanction provided by this action would be limited to loss of membership in the AICPA, the profession might find it beneficial to go even further and push for more state boards of accountancy to integrate the SRTPs into their codes of conduct. Similar measures have been taken in Arizona, Colorado, Florida, Idaho, Kentucky, North Carolina, and Washington. The comprehensive approach would put the CPA tax practitioner in jeopardy of losing the CPA license if the SRTPs are violated.

While there are roles to be played by the professional associations in addressing ethical issues faced by the tax profession, previous research by the authors on both accountants and nonaccountants indicates that accountants and other professionals look for support in dealing with ethical problems within their own organization before they look to the profession itself. This suggests that tax accountants in positions of responsibility within their firms have both the opportunity and the responsibility to foster an ethical environment within the firm. Since no single ethical issue appears to present a problem for all members of the tax profession, those in managerial positions must be prepared to identify and effectively handle on an individual basis those situations where ethical dilemmas arise for them and their subordinates during the course of their work. Also, regardless of their level in the firm, those managers must recognize that their perception of the seriousness of certain ethical issues may differ significantly from that of their subordinates and must be prepared to deal effectively with such situations when they arise. *

Scott A. Yetmar, PhD, CPA, is an assistant professor of accounting and a member of the Responsibilities in Tax Practice Committee of the AICPA Tax Division. Robert W. Cooper, PhD, is the Employers Mutual Distinguished Professor of Insurance and Garry L. Frank, PhD, a professor of public administration. All are with the College of Business and Public Administration, Drake University. The authors gratefully acknowledge support from the Kelley Insurance Center at Drake University.

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