FBAR preparation and ethical risks

By Alistair M. Nevius

Practitioners must consider a number of ethics and risk management issues when preparing and filing FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). At the outset, it is important to have a clear understanding with the client of the scope of the CPA's services.

Will the CPA prepare the client's FBARs, or will they be prepared by the client or a third party? Whose FBARs will be covered by the engagement? Will it include dependents, disregarded entities, or employee signatories for corporate client accounts? The agreed-upon scope should be documented in an engagement letter or another written communication to the client to avoid any misunderstandings.

CPAs must meet their professional obligation of competence in preparing FBARs, which will require a working knowledge of filing requirements (see AICPA Code of Professional Conduct, Interpretation §2.300.010, "Competence"). They must also ensure that their employees who prepare FBARs understand these requirements. The Treasury Department's Financial Crimes Enforcement Network (FinCEN) has published instructions for preparing and e-filing FBARs on the Bank Secrecy Act (BSA) e-filing website (BSA Electronic Filing Requirements for Report of Foreign Bank and Financial Accounts (FinCEN Form 114), available at www.fincen.gov, which include four pages of information on who must file and which financial accounts and instruments must be reported. Reviewing this document with employees involved in FBAR preparation is a good step in developing and maintaining an understanding of FBAR requirements.

CPAs must also satisfy a professional obligation of due care by exercising appropriate diligence in identifying items to be reported on the client's FBAR (AICPA Code of Professional Conduct, ET §0.300.060, "Due Care"). While the FBAR itself appears straightforward, the primary risk in FBAR preparation is identifying accounts and instruments required to be reported. Many CPAs rely on information the client provided in the tax return organizer to identify foreign accounts and filing requirements, but CPAs should also consider other factors that suggest that a client is more likely than not to have a foreign account, and follow up when appropriate.

A CPA inevitably must rely to a large extent on his or her clients to provide information to identify accounts to prepare accurate FBARs. The chances for success in identifying foreign accounts are therefore higher when the client is engaged and understands the importance of accurate and timely filing of FBARs. CPAs may want to provide a brief summary of FBAR filing requirements and the potential penalties for missed filings in the engagement letter, with the tax organizer, or in another communication to promote client understanding and engagement. Clients who do not provide timely, complete, and accurate information regarding foreign accounts (or any tax matter) create risks to themselves and to their CPAs.

The filing date change from June 30 to April 15 may create challenges for FBAR due diligence (Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, §2006). While a six-month extension for an FBAR filing is now available, CPAs must perform FBAR due diligence prior to April 15 to file the FBAR or to seek an extension. Due-diligence work that was performed in May or early June in prior years could potentially be required during tax season.

For a detailed discussion of the issues in this area, see "Tax Practice Responsibilities: Ethics and Risk Issues in FBAR Preparation," by Peter S. Wilson, CPA, J.D., in the November 2016 issue of The Tax Adviser.

Alistair M. Nevius, editor-in-chief, The Tax Adviser


The Tax Adviser is the AICPA's monthly journal of tax planning, trends, and techniques.

Also in the November issue:

  • An update on consistent basis reporting for estates and beneficiaries.
  • An analysis of patent box proposals.
  • A discussion of working with students.

AICPA members can subscribe to The Tax Adviser for a discounted price of $85 per year. Tax Section members can subscribe for a discounted price of $30 per year.

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