The Round Number
A junior preparer, Dana, is finishing a return for a landscaping client. The client's actual records show $7,140 of vehicle expenses, but the client says 'just put $9,000, everyone rounds up, and I'll bring the log next year.' Dana's supervisor is on leave and the filing deadline is tomorrow. Dana's firm has a written policy requiring contemporaneous substantiation for vehicle expenses and prohibiting estimates without client acknowledgment. Dana is also aware the client has been audited twice before. She is tempted because the refund difference is small and the client is a long-standing account.
1. What should Dana do, and what professional standard governs?
Read the worked answer
Dana must not enter $9,000. The figure is not supported by the client's records, and 'I'll bring the log next year' is not substantiation.
Governing standards:
- Integrity and objectivity: a preparer may not knowingly sign or file a return containing a position without a reasonable basis.
- Due diligence / reliance on client information: the preparer may rely in good faith on client records, but here the records contradict the claimed figure - that destroys good-faith reliance.
- Firm policy independently prohibits unsupported estimates.
Correct action: prepare the return using the documented $7,140. If the client insists on $9,000, Dana should escalate to the supervisor (or a designated reviewer) rather than file, and document the conversation. If the client still insists and no reasonable basis exists, the firm should decline to file that position.
2. The client has been audited twice before. How does that change the analysis, if at all?
Read the worked answer
It raises the risk but does not change the rule. The standard is the same regardless of audit history: no unsupported figure.
What it does change:
- It strengthens the case for strict documentation - a repeat-audit client is more likely to face scrutiny, so a $1,860 unsupported overstatement is a poor bet.
- It is a red flag for the firm's risk assessment and should be noted in the file.
It does not justify inflating the number, and it does not justify refusing the engagement outright - the client is entitled to representation on properly supported figures.