Rules 301 and 302, Essay Example

Rule 301

According to the American Institute of CPA’s, ET Section 301 states that accountants are legally required to protect the private information of their client’s, unless they are specifically asked to violate these terms. This rule should not conflict with other already established policies, although accountants are exempt from this legal protection if they are specifically asked to testify in court. Furthermore, it is necessary for accountants to engage in essential ethical decision making when faced with these cases in order to ensure that the appropriate action is taken. This rule will be considered violated if accountants use private client knowledge for personal gain of any kind.

Although rule 301 aims to protect the clients using broad terms, it lists several examples of situations in which it is essential to ensure that information remains private. In the first instance, ET section 301.01 explains that it is necessary for the client to provide consent for the disclosure of information. This should not be interpreted as a manner to prevent a member’s professional practice from being reviewed by official authorization committees. However, accountants are able to use this data for review concerning purchases, sales, or mergers of the member’s practice. While this information can be legally disclosed, it is important for the member to ensure that this information cannot be tied back to the particular client; all identifiers must be removed.

Rule 302

ET Section 302 summarizes policies regarding contingent fees. A CPA is unable to require contingent fees depending upon the particular services that are provided. Services that must be excluded from this process include audits, the compilation of a financial statement, the examination of prospective financial information, and the preparation of tax returns. Specifically, the rule defines a “contingent fee” as a payment method that is created to allow the money to be awarded only after a specific result has been determined by the services. However, it is legal for accountants to charge money for services based on their complexity. To ensure that accountants are able to adequately consider the legal policies regarding the contingency fee, it is essential for them to prioritize IRS policies that are more restrictive, and then to follow these rules as a second priority.

An example of a situation in which a contingency fee would not be permitted is when accountants are hired by corporations to prepare their taxes. Just as the accountant is unable to charge the corporation based on the amount of money that is saved, the corporation is unable to pay the accountant more to ensure that more money is saved. Therefore, the contingency fee can be impacted by neither member of the relationship in this situation. An example of a situation in which a contingency fee would be permitted is when tax disputes and litigation are on the table. While the administrative aspects of these cases are typically dealt with on an hourly basis, it is completely legal for cases that reach the court to be charged based on a contingency fee, which often provides benefit both to the accountant and the client. Ultimately, while contingent fees are not allowed under the Circular 230 for tax preparation, accountants are able to use them to handle audits and challenges of tax returns. Often, the use of contingent fees are more reasonable when there is more at stake, which is supported by accounting law.