Correct. This includes any changes in the rules and interpretations

(See Rule 0020-3-.02 in the course material.)

3. A: Correct. Prior to being released, the completed tax return is considered to be part of the CPA’s workpapers and is the property of the CPA. Accordingly, the tax return need not be released to the client. The CPA may set the terms for releasing the tax return. Such terms may include receiving payment for some or all fees.

B: Incorrect. Prior to being released, the completed tax return is considered to be part of the CPA’s workpapers and is the property of the CPA. Accordingly, the tax return need not be released to the client. The CPA may set the terms for releasing the tax return. Such terms may include receiving payment for some or all fees. The client has no right to pay only a portion of the fees and demand release of the tax return.

C: Incorrect. Prior to being released, the completed tax return is considered to be part of the CPA’s workpapers and is the property of the CPA. Accordingly, the tax return need not be released to the client. The CPA may set the terms for releasing the tax return. Such terms may include receiving payment for some or all fees. The client has no right to demand the release of the return prior to paying fees as required by the CPA.

D: Incorrect. Both the Board of Accountancy and the AICPA have extensive rules relating to CPA workpapers and the return of client records. In fact, failure to return client records is one of the most common complaints received by the Board of Accountancy.

(See Rule 0020-3-.11 in the course material.)

4. A: Incorrect. Rule 0020-3-.11 requires the return of all client records upon request.

See Rule 0020-3-.11.

B: Correct. Rule 0020-3-.11 requires the return of all client records upon request. In addition, the licensee must provide a copy of the working papers to the extent that such working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client. However, the licensee may demand payment prior to releasing the work papers.

C: Incorrect. Rule 0020-3-.11 requires the return of all client records upon request. In addition, the licensee must provide a copy of the working papers to the extent that such working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client. The depreciation records are part of Doe’s workpapers but are also considered part of the client’s records and must be made available to the client but only after payment of fees.

D: Incorrect. Rule 0020-3-.11 requires the return of all client records upon request. In addition, the licensee must provide a copy of the working papers to the extent that such working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client. The depreciation records are part of Doe’s workpapers but are also considered part of the client’s records and must be made available to the client. Doe has no obligation to provide access to any workpapers that are not considered client records.

(See Rule 0020-3-.11 in the course material.)

5. A: Incorrect. The prior year tax return has already been issued and therefore must be provided upon request. Doe may require payment of a reasonable charge for copying the return but may not hold the return hostage pending payment of other outstanding fees. The current year depreciation is considered to be part of Doe’s work product and is the property of Doe. Since the current year tax return was never provided to Plumber, the depreciation records are not considered client records and Doe need not release them.

B: Correct. The prior year tax return has already been issued and therefore must be provided upon request. Doe may require payment of a reasonable charge for copying the return but may not hold the return hostage pending payment of other outstanding fees. The current year depreciation schedule is considered to be part of Doe’s work product and is the property of Doe. Since the current year tax return was never provided to Plumber, the depreciation records are not considered client records and Doe need not release them.

C: Incorrect. The current year depreciation is considered to be part of Doe’s work product and is the property of Doe. Since the current year tax return was never provided to Plumber, the depreciation records are not considered client records and Doe need not release them. The prior year tax return has already been issued and therefore must be provided upon request. Doe may require payment of a reasonable charge for copying the return but may not hold the return hostage pending payment of other outstanding fees.

D: Incorrect. The prior year tax return has already been issued and therefore must be provided upon request. Doe may require payment of a reasonable charge for copying the return but may not hold the return hostage pending payment of other outstanding fees. The current year depreciation schedule is considered to be part of Doe’s work product and is the property of Doe. Since the current year tax return was never provided to Plumber, the depreciation records are not considered client records and Doe need not release them.

(See Rule 0020-3-.11 in the course material.)

6. A: Incorrect. Problems like this do occur, but they are not unavoidable. A good engagement letter would have specified when payment was due and otherwise specified the expectations and obligations of both CPA and client. Also, good communication goes a long way in avoiding problems.

B: Incorrect. Although this is true, it is not the best answer. A good engagement letter would have specified when payment was due and otherwise specified the expectations and obligations of both the CPA and client. The fact that Doe’s practice is limited to preparing tax returns is not an excuse for not using an engagement letter. Although sending out a separate engagement letter might seem awkward, Doe could incorporate it into the annual client organizer that Doe sends out to clients.

C: Incorrect. Although this is true, it is not the best answer. Good communication goes a long way in avoiding problems. Plumber could have disclosed the fact that his gambling problem has left him broke but that he no longer gambles and hopes to begin making payments to Doe and the many others that Plumber owes debts to.

D: Correct. Using an engagement letter along with effective communication could have avoided this problem. A good engagement letter would have specified when payment was due and otherwise specified the expectations and obligations of both CPA and client. By communicating that a gambling problem had left him broke but that he no longer gambles and hopes to begin making payments to Doe, Plumber could have avoided this mess. Likewise, if Doe had communicated his displeasure in not receiving payment from Plumber instead of holding the tax return hostage, Doe might have avoided this mess, helped a client, collected some of the past due debt, and saved valuable billable hours.

(See Rule 0020-3-.11 in the course material.)