The issue at hand is that the client some information that is questionable and further clarification is needed. However, the client is not cooperative since she is not willing to provide any further information. Without the information, it may not be possible to complete the tax returns accurately. Besides, she needs the financial statement prepared within one week.
It is an ethical dilemma. Completing the financial statements and income tax returns without the information will result in misrepresentation of the financial position and financial performance of the company. Third parties including the bank will rely on the financial statements to make decisions. Therefore, it is essential that the information provided is as objective and accurate as possible. However, failing to prepare the financial statements and returns may result in lost income and loss of a client if the client goes to another accounting firm.
I would refuse to prepare the financial statements if the client refuses to cooperate and provide the required information. However, I will first try to reason with the client. I will inform him of the importance of providing the information and why it is important to provide accurate information. I will inform the client that failure to provide accurate information is not only an ethical issue but also a legal issue. Internal Revenue Code (IRC) 6662 provide that the Internal Revenue Service (IRS) can impose a fine to any taxpayer who acted negligently or disregarded rules of tax underpayment. The accuracy-related penalty is twenty percent of the under payed tax unless they can proof that they acted in good faith. Negligence by the tax payer can also result in a fine. IRC defines negligence as failure to undertake reasonable steps to comply with the provisions of the code. Negligence includes failure to keep accurate books of accounts. Clearly, in this case the client did not keep accurate books of account and is not willing to take reasonable steps by providing further information on the questionable transactions. Therefore, there is a risk of fine.
International Financial Reporting Standards also provide that financial statements should be prepared in accordance with the principal of faithful representation. Faithful representation requires that financial statements should be neutral, complete and free from errors. In other words, the financial statements should present an accurate position of the state of the business in a way that is verifiable. The business should be able to provide evidence to support each and every item in the financial statement. Therefore, the client should be able to provide evidence and explanations for all items that will be included. Neutral means that the information should be skewed to achieve certain premediated results. The behaviour of the client creates an impression that she is trying to hide something.
I will offer to assist the client in tracing the information. However, my duty is to prepare the financial statements and tax returns based on information that is provided by the client. It is the duty of the client to provide as accurate information as possible, supporting documents and furnish all explanations that may be needed for each and every item. However, if the client is adamant that she will not provide any explanations or supporting document, I will not accept to work on it. It may result in litigation and reputational loss.
IRS. (2015). Penatly and Interest. Retrieved from https://www.irs.gov: https://www.irs.gov/irm/part20/irm_20-001-005-cont01.html
Knubley , R. (2010, July). IFRS Conceptual Framework. Retrieved from http://www.ifrs.org: http://www.ifrs.org/Meetings/MeetingDocs/Other%20Meeting/2013/March/AP%203%20conceptual%20framework.pdf