Send bad news

You just landed a management position with a CPA firm! You are reviewing a tax return for a returning
high net worth client and you have discovered an error. This is a high-profile client for the firm that has
provided many referrals.
The firm you work for provides bookkeeping and tax preparation services to this client. You have
discovered that the bookkeeper has been reporting the unrealized gain/loss to the income statement when
reconciling the investment account. To further compound the problem, the tax preparer and prior
manager have been reporting the unrealized gain/loss activity as an adjustment to revenue on the Tax
Return. Also, the error goes back 5 years, when the firm started working on the account (yes, the
accounting and tax return were correctly prepared by the prior accountant). The amount of revenue
recognized from unrealized gain/loss averaged $175,000 annually over the last 5 years.
This client’s preferred mode of communication is through e-mail. Draft an email in a letter form to the client
explaining the error and the consequences. (Don’t forget about the statute of limitations for amended
returns!) Write only one page.

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