A closer look at proposed revisions to the AICPA tax standards

An exposure draft was issued recently by the AICPA for the Statements on Standards for Tax Services (SSTSs).

April Walker, CPA, CGMA, lead manager on the AICPA’s Tax Practice & Ethics team, talks with Henry Grzes, CPA, also a Tax Section lead manager, and Dave Holets, CPA, a partner in the Crowe National Tax Services Group and chairman of the SSTS Revision Task Force, about the details of the proposed changes, including what’s new in the proposals.

The episode is a collaboration between the Journal of Accountancy podcast and the AICPA’s Tax Section Odyssey podcast.

The deadline to comment on the proposed revisions is Dec. 31.

What you’ll learn from this episode:

• An overview of the Statements on Standards for Tax Services, or SSTSs.
• Several reasons that the revisions are proposed now, more than 20 years after they became enforceable standards.
• An explanation of the changes in the proposed standards.
• The focus areas of three newly proposed standards.
• Specific requests from Holets about commenting on the proposed standards.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript:                                                            

Neil Amato: Hey, listeners. Welcome back to the podcast. This is Neil Amato with the Journal of Accountancy. This episode is a collaboration between the JofA podcast and the AICPA’s Tax Section Odyssey podcast. Host April Walker, a CPA who is a lead manager from the Tax Section, is talking to two other CPAs, Henry Grzes and Dave Holets, about proposed revisions to the Statements on Standards for Tax Services, or SSTSs for short. That conversation is coming up right after this brief sponsor message.

April Walker: Hello, everyone, and welcome to this collaboration between the JofA podcast and the AICPA’s Tax Section Odyssey podcast. I’m April Walker, a lead manager from the Tax Section. We’re releasing this episode on Global Ethics Day, Oct. 19, which was created as an annual moment to empower ethics through the actions of individuals and organizations.

Fittingly, we’re going to be discussing the recent exposure draft issued by the AICPA for the Statements on Standards for Tax Services, or SSTSs for short. I have with me today my colleague Henry Grzes, who is also a lead manager from the Tax Section, and also Dave Holets, who is a partner in the Crowe National Tax Services Group. He is the chairman of the SSTS Revision Task Force.

Walker: Welcome Henry and Dave.

Henry Grzes: Thanks, April.

Walker: Henry, someone might be listening and thinking, what exactly are the SSTSs is and why are they being revised now?

Grzes: Well, SSTSs are, they stand for the Statements on Standards for Tax Services, and they are the tax standards that all AICPA members who provide tax services need to adhere to. Also nonmembers of the AICPA who are licensed in a state that has adopted the AICPA Code of Professional Conduct, are also bound by these tax standards.

They have their genesis in best practices, which go back to the ’60s and ’70s, and back in 1999 they were converted to enforceable standards effective Jan. 1, 2000. As to the reasons why they’re being revised now, although there have been a couple of revisions over the years since they became enforceable standards.

These standards have pretty much remained the same. They were created as best practices, and clearly the world has changed dramatically in the period of time since the ’60s and ’70s. It was determined that this is the right time for a thorough review of these existing standards to determine whether or not they’re still relevant and also to consider other subjects for possible new standards to be included in this group of standards for all tax practitioners.

Walker: Great. Thanks, Henry. That’s a great overview. Dave, I’d like for you to talk to us a little bit now about what are the changes that are proposed in these standards?

Dave Holets: Sure. Since the last significant modification to the standards was in 2010, there has been a lot of changes to the profession and the working environment. That includes a number of changes to technology. We’ve seen even more than I would say we have in the past, that tax professionals are moving more and more towards offering different types of services beyond just compliance, whether that’s consulting or providing tax representation services.

The existing standards that are out there are the first thing that were looked at by the task force. We looked through these standards to go through if there were any items that needed updating to make sure everything was still relevant.

I do have to say, we definitely found, as we were looking at the standards, that the standards that are there have really held up to the test of time. We didn’t have to make a whole lot of changes to them. Just to remind everybody listening about what the items out there are already.

That includes a standard about tax return positions, a standard about answering questions on tax returns. This is the question that asks things like, “Have you filed any 1099s this year, etc.?” A section about procedural aspects of preparing tax returns.

This one also includes reliance on information provided by clients or other third parties. The use of estimates and preparing a tax return, departure from any previously concluded position because of an administrative proceeding. What to do if you know of an error in a return from a prior year or even in a current year that’s being prepared.

Then also a section on advice to taxpayers or what’s turned into a standard on consulting. It’s really, again, still very similar to what was there already. Those standards continue to exist. They’ve been modified somewhat just as needed for either minor clarifications or things that have changed over time.

But they are there generally. They’re going to look very similar to what they were before. They are arranged a little differently now. Instead of just having numbered standards, these are now focused on the area that they’re covering. That includes a general section of standards, a section of standards focused on tax return preparation. One focused on consulting services and then one focused on tax representation services.

There are also three new standards in there. Those include a standard related to data protection, a standard related to reliance on tools, and that includes both tax preparation software and tax research software, or any other kind of tool that CPAs use in providing tax preparation services. Then the other new standard is one on tax representation services.

Walker: Gotcha, thank you, Dave. It’s nice to know that what is it they say? That the more things change, the more they stay the same, that at least that holds true a little bit for these standards, but then obviously things needs to be updated. Thanks for talking through what has been proposed.

Henry, can you walk us through any standards or topics that were considered to be added to the SSTSs with this revision process?

Grzes: Yes. The task force looked at a variety of subjects when they were considering adding standards to this group of existing standards. And the goal was that we did not want to propose standards that would be duplicative in nature in the sense that if the standard was already somewhere else, but we didn’t want to adopt a separate standard for tax practitioners.

For example, conflict of interests. The AICPA Code of Professional Conduct covers the subject of conflict of interests quite extensively. We didn’t feel that there should be a separate conflict of interests standard associated with tax work. The AICPA Code of Professional Conduct does a good job of it.

It was decided that we would just leave well enough alone, so to speak. There were other subjects, like involving client data, not so much from a data protection standpoint, which is proposed, but documentation. The task force looked at it but, ultimately, determined that something like this is not something that could be standardized.

You can make recommendations as to best practices or what you would think would be reasonable as far as document retention and things along those lines, but as far as converting it into an actual standard, that would be difficult to do.

That was not proposed. Those are two pretty good examples of subjects, and there were others also, that were looked at but were ultimately not adopted.

Walker: Great. Thanks, Henry. All right, so we will provide a link to the SSTSs, what I’m calling the hub page, where people can find more information and resources around these proposed standards. But, Dave, can you talk about what type of resources will be found on this resource page?

Holets: Sure, April. The first and the main document that’s out there is a combined exposure draft and invitation to comment document. This includes really all the information that members will need to review to see what’s happening with the proposed standards and the invitation to comment.

It includes a history of what’s gone in the past. A document that maps the old standards to the new standards so you can see where the existing standards work in the new structure. It also has the full proposed standards document in there. Then it goes into an invitation to comment with background. That invitation to comment covers tax quality management. There are also included in the documents some targeted questions that are set up to provide comments on the standards. Then also on the page, there’s a timeline that walks through when the next steps are expected to happen and what those steps are.

Then there’s also a frequently asked questions section on the same page as well.

Walker: Great. You’ve brought up a good point. Partly why we’re recording this podcast is because we really do want our listeners and our AICPA members and all interested parties to take a look at these documents. Also we want comment from everyone who has something to share.

Can you talk about how people can submit comments on them? Also, more importantly, we’re due date focused. When are these comments due?

Holets: Sure. First to answer, the comments are due Dec. 31 of this year, 2022. We did try to make sure there was plenty of time to avoid any of the normal tax filing deadlines and get them sufficiently past. The form to comment is included on the same hub page. When you go a little bit past the exposure draft document, you should see it there. There are two different ways you can submit your comments. There is online form that you can use that will prompt specific questions. Or, if you prefer, there is an email address on there. You can just send your questions directly to that email. Both of those will be addressed by the task force.

Walker: Perfect. One other thing you mentioned, Dave, and I would like Henry to comment on the invitation to comment. Talk to us about what that is. What does that mean, invitation to comment, and what are the subjects that we’re asking for comment on specifically?

Grzes: Yes. You had mentioned that we have a combined document out there. Part 1 is the proposed revisions to the standards themselves, and Part 2 is this invitation to comment dealing specifically with the subject of quality management in tax.

The ITC, invitation to comment, is separate and independent from the actual proposed revisions to the standards, and it presents an item for consideration that requires additional research and investigation and thus will require additional time to define and potentially implement. Depending on the nature of the comments received in response to the ITC, the AICPA will pursue additional research to determine the appropriateness of future modifications to the SSTSs or other guidance.

At this time, it’s not known if or when any of the changes resulting from the ITC will be implemented. Now, the specific subject being asked about is quality management. As part of the process to update the SSTSs, the task force engaged in extensive discussions around the importance of quality management and how important the concept is in ensuring that CPAs are the premier providers of tax services.

Based on discussions, members agreed that quality is a key market differentiator in their practices. However, the implementation is inconsistent, and the environment in which members operate is dynamic. Given the importance of this topic, the AICPA is inviting members and stakeholders to comment on the questions raised in the ITC around quality management.

The task force and the Tax Executive Committee will consider all comments to determine the best approach to address quality within the tax function going forward.

Walker: Dave, let’s just clarify. Does this mean that a quality management standard is being contemplated at this point, and, if not, what are our next steps related to this issue?

Holets: No, at this point, there is no quality management standard being contemplated. As Henry already laid out, we as a task force, as well as the committees involved in reviewing and approving the standards, went through a lot of discussions around quality management. We all agreed and have definitely heard from others that quality is a key point of services being provided by CPAs, especially tax preparation services.

The thing that we were struggling to come up with was whether this is something that could or should be included in the standard and whether that would provide any additional benefits to members if that would be something that might be used should there ever be government regulation in this area.

We were not able to come to a clear conclusion as a group, which is why we’re looking to members to really provide their thoughts on this. That’s really the point of the invitation to comment is to understand from members, first of all, do you think quality management is a topic, it’s something that we do need to focus on? Then how do you think we should be as a group addressing this?

Is this something where we do need a standard in place? If we do, what type of standard might that be? Would it be a very broad open-ended standard? Would it be a very detailed standard? Or is this something where you think we’ve got a lot of things already in place. Maybe there’s just some additional guidance that you think would be helpful.

Here we’re really just looking for members to give us their feedback on what they really think would be the most beneficial for the AICPA to provide related to quality management.

Walker: Great. Henry, we talked through the timeline for submitting your comment generally on the standards and also the quality management. But what is the timeline? What are our next steps on this project?

Grzes: As we mentioned earlier, the deadline for comments is Dec. 31, 2022. During the period of time that this set of standards are out there for public comment, the task force will be reviewing the comments received on a regular basis.

They will provide a revised set of standards to reflect any changes that were recommended via the public comment period to the AICPA’s Tax Executive Committee [TEC] in early 2023. At some point before May 31, 2023, the TEC will convene a meeting to discuss in detail the standards and potentially vote to adopt these revisions.

If a vote is taken and the proposed revisions are adopted, they will become effective Jan. 1, 2024. Now, those are the revised standards. The invitation to comment and the discussions around that will be summarized to the TEC, and the task force will be providing a recommendation to the Tax Executive Committee as to how to best implement quality management in practices to be considered by the TEC going forward.

Walker: Fantastic. I think we’ve covered what we want people to do. Look at the standards, absorb them, comment. Dave, do you have any closing comments that you would like to make just as we’re wrapping up this project that’s been going on for quite a few years actually.

Holets: Yeah. Unfortunately, we can thank a lot of that on COVID.

Walker: Right.

Holets: April, I guess to your point about what we want people to do and making comments, the main thing that I really want everyone to hear is that point is that we want your comments and we want them both good and bad. I will say a lot of the time, when asked for comments, people are more likely to give negative comments, it seemed, than positive.

But we are absolutely looking for things that you like out of the standards as well. We’d really like to hear from members. If you think something is a good standard, we want to hear that, too. We certainly want to hear things that you say. You have a concern related to a specific area, but don’t limit it to that. Please just provide comments both sides, good or bad.

Walker: That’s helpful. Maybe as a sandwich, like they say, here’s the good, here’s the bad, and here’s some more good. Henry, you have been the captain of the ship along with Dave over the past few years, and just wanted to give you some time if you wanted to have some closing thoughts.

Grzes: Sure. Once again, just encouraging members and interested stakeholders to take a look at the document itself. The fact that these are standards means that they’re not going to be revised on a regular basis. As Dave indicated earlier in the podcast, the last revision was effective 2010, and here we are in 2022.

If these revisions are passed, they’ll be effective in January of 2024. This is an opportunity for members to have their say in the future of the profession in a very important way. I would encourage everyone to take the time and submit your comments so that we have a broad and extensive group of comments to consider as we make any changes to the draft and present them to the Tax Executive Committee.

Walker: Thank you so much, Henry and Dave, for writing this really great update for everyone. Again, this is April Walker from the AICPA Tax Section. This podcast has been a collaboration with the Tax Section Odyssey and the JofA podcast. Thank you for listening. This community is your go-to source for technical guidance and resources designed especially for CPA tax practitioners like you in mind.

You can find us wherever you listen to your podcasts. We encourage you to subscribe so you don’t miss an episode. You can also visit us at aicpa.org/tax and find our other Odyssey episodes as well as JofA episodes. Thank you so much for listening.