The predecessor's signatures
A sole practitioner, Mrs Okafor, is approached by the directors of Brightline Schools Ltd to take over its tax affairs after its previous adviser died suddenly. The company has outstanding CIT returns for 2022 and 2023. On reviewing the files, Mrs Okafor finds that the 2022 return, signed by the late adviser as 'tax consultant', claimed NGN 35m of 'professional fees' supported by invoices from a company that the finance director admits was 'arranged to reduce tax'. The 2023 return was prepared but not filed. The finance director asks Mrs Okafor to 'just sign and file the 2023 return as prepared' and to represent the company in an upcoming FIRS review, saying 'the deceased adviser took the details to the grave'. The 2023 return includes the same NGN 35m expense. The company is otherwise profitable, with turnover of NGN 500m. Mrs Okafor has not yet accepted the engagement.
1. What ethical and professional considerations arise before accepting the engagement?
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Before accepting, Mrs Okafor should consider client acceptance and due diligence, integrity and professional competence.
The finance director's admission that the invoices were 'arranged to reduce tax' is a serious red flag. It suggests the 2022 return may be misleading and that the 2023 return repeats the same problem. Accepting the engagement on the basis of signing the 2023 return as prepared would associate Mrs Okafor with misleading information.
She should also consider: whether the company is willing to correct the position; whether the directors understand their obligations; whether there is any suspicion of fraud or money laundering that triggers a reporting obligation; and whether she has the competence and capacity to handle the FIRS review. She should document her enquiries, obtain the underlying invoices and contracts, and speak to the board rather than only the finance director. Acceptance should be conditional on a full and honest correction of the returns. If the client will not agree, she should decline.
2. How should she handle the 2022 and 2023 returns?
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She cannot simply sign and file the 2023 return as prepared. The NGN 35m expense is repeated and is likely to be disallowed if FIRS examines it. Filing it would expose the company to penalties and interest and expose Mrs Okafor to professional discipline.
For 2023, the return should be corrected before filing: remove the unsupported expense, or support it with genuine evidence if it exists. For 2022, the company should consider an amended return or voluntary disclosure. The directors should be advised in writing of the risks, including penalties, interest and potential criminal exposure if the invoices are false.
If the company refuses to correct the returns, Mrs Okafor should decline to act or withdraw. She should not sign a return she knows to be misleading, and she should document her advice and the client's response.
3. What should she do about the request to represent the company in the FIRS review?
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Representation is possible only on an honest basis. Mrs Okafor can represent the company if the returns are corrected and the company is prepared to disclose the issue to FIRS. She should not attend the review to defend a position she knows is unsupported.
Before the review, she should establish the facts, quantify the exposure, and agree a disclosure strategy with the board. At the review, she should be accurate and not mislead the tax authority. If the client insists on concealing the arrangement, she should decline the representation or withdraw.
Confidentiality does not permit her to assist in concealing false invoices. If she forms a suspicion of fraudulent conduct, she should consider whether a suspicious activity report or other disclosure is required, and take legal advice. The priority is to avoid personal association with misleading conduct while giving the client a clear opportunity to correct the position.