Yu Xing is a student accountant, who currently spends much of her time on audit work. While at a client’s premises, one of the directors of the client company asks for ‘ten minutes’ of her time to discuss a tax problem he has. He is intending to dispose of his holiday home in the south of the country, as it is too
big for him and his wife, and he would like to know the tax implications.
Yu Xing studied capital taxes a few months ago, and can remember a little about the treatment of second homes. She believes the client will be impressed if she can give him some advice, and she also hopes that her employer will be pleased with her performance. In order to reassure the client, Yu Xing displays an air of confidence as she sits down to discuss the director’s taxation affairs with him.
Answers
It is clear, from the case study, that Yu Xing has not studied capital taxes extensively, and has had no practical experience. Any advice she gives will be unsupervised, and she does not appear to be intending to refer to any reference material or suitably qualified colleagues. Although her motives for assisting the client and exuding an air of confidence are honourable, they are misguided, as she is not competent to give such advice.
It is not uncommon for this sort of situation to arise. Clients will often try to get added value from the audit staff whilst they are on-site. It can be difficult to resist a client who is insistent that you should give your opinion. However, the danger is that any opinion offered is interpreted by the client as sound advice. In this case, Yu Xing is leaving herself and her employer vulnerable to criticism, should her advice be flawed.
Yu Xing should tell the client that she has no experience in capital taxes, and suggest the appropriate person in the practice for the client to talk to. If the client insists that Yu Xing should discuss the matter with him, Yu Xing should explain the limitations inherent in her advice; she should state that any opinions provided by her will need to be confirmed by one of her colleagues; and she should carefully document the discussion with the client and subsequent discussion with her colleague.
Here is what some other students thought:
'Well, she is a tax consultant and her advices maybe be wrong/misleading. Normally director should seek advice to a tax partner or a manager. This is unethical as over confidence can lead to mis information.'
'Yu knowledge in this case is limited and not updated as she remember a little on this subject therefore she is not competent enough to give advice on this matter. Yu should have politely declined and asked the client to consult some senior in her office or someone who is an expert on this matter. '
'She should have told the client she only knows avfew facts at the moments or that can they schedule for another time so she can give him good advice ... She is being incompetent and lack of diligence'
'I think that Yu Xing would not be acting diligently in assisting the client with his tax problem. If Yu is working for billable hours, then the time she would spend discussing the tax problem with the client cannot be charged and billed. Yu should not be providing any advice to the client as it relates to taxes as she might put the company and its directors in trouble if the client takes the advice and something goes wrong with disposing of his holiday home. The client could hold the company accountable for wrong tax advice, since Yu Xing is only a student accountant with more experience in auditing. With only a few months studies in taxes, Yu could be putting herself and the company in some legal problems. '
'The director can't ask for such help. If Yu Xing helps the director of the company ?which she is auditing as a member of the audit team, regarding tax planning/ tax implications which arises on disposing off his holiday home, then it would affect the Independence of Yu sing to audit that company. An Audit team should have no personal connection with client. If they have so, it would affect their independence. '
'She shall regain her knowledge first'