A number of ethics and risk management issues must be considered when preparing and filing FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBARs). 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—dependents, disregarded entities, and/or employee signatories for corporate client accounts? Whatever the agreed-upon scope, it should be documented in an engagement letter or another written communication to the client to avoid any misunderstandings.
In some cases a CPA may prepare some but not all of a person's FBARs, such as when FBARs are prepared for a corporate client's employees who are signatories on corporate accounts, but the CPA does not prepare FBARs for those individuals' personal accounts. It is advisable to confirm the limited scope of FBAR preparation for those individuals in writing and to advise them to consult their own tax advisers regarding any FBAR obligations for their personal accounts.
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 the client is required to report. 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.
For example, does the client regularly travel abroad or own property in a foreign country? Does he or she have dual citizenship or close relatives who live outside the United States? Does the client have signature authority over his or her employer's accounts, and does the employer have international operations? Each of these factors increases the chances of a client's having ownership of or signature authority over a foreign account, so if a client meets these criteria, it may be advisable to have further discussions with him or her to avoid potential misunderstandings and missed filings. When training employees regarding FBAR requirements, it is critical to address the factors that increase the chances of an FBAR requirement so that those employees can assist in spotting clients with a higher likelihood for FBAR obligations.
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 forFBAR 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 either file the FBAR or seek an extension. Due-diligence work that was performed in May or early June in prior years could potentially be required during tax season.
Adding work to what is already the busiest time of the year for many CPAs could increase the chances for errors, since there may be less time available for analysis or discussions with clients. To address this risk, CPAs should consider whether some FBAR due diligence (which is not dependent on completing a trial balance or receiving Forms W-2, Wage and Tax Statement, or Schedules K-1) could be performed in December or January when more time may be available.
Thomas Purcell is a professor of accounting and the chair of the Department of Accounting at Creighton University in Omaha, Neb. Mr. Purcell is also chair of the AICPA Tax Practice Responsibilities Committee. Heidi Ridgeway is a director of Tax Practice Policy & Quality at Grant Thornton LLP in Chicago. Peter Wilson is a partner for Tax Quality and Risk Management at RSM US LLP in Washington. Ms. Ridgeway and Mr. Wilson are members of the AICPA’s Tax Practice Responsibilities Committee.