Upon the discovery of the mistake, you should take the responsibility of reporting the mistake to the supervisor, of which you did and is commendable. You should inquire how the mistake came about and how the firm can take responsibility of the mistake. You should try to share with his supervision in the firm on ways through which the mistake can be rectified. You have the ethical requirement of being transparent and should not in any way utilize the mistake to your own advantage. You also have an ethical requirement keeping the information regarding the mistake within the firm; you should not leak the information to the people outside the firm as this may be very detrimental to the operation of the firm. You also have the ethical requirement of asking the person who committed the mistake on how the mistake can be rectified. This is in line with the quote a taxpayer “should” file an amended tax return and pay any tax due (Treas. Reg. §§ 1.451-1(a) (Soled & Goodman, 2010).
The mistake could bring a potential liability to the firm in terms of reputation since the firm would taken responsible in any case the client realized that he had to pay more tax. This would bring down the reputation of the firm and hence may lose its potential clients. You should not report the mistake to somebody else other than Norm; this is because in any organization there is bureaucracy to be followed. There is the leadership larder that has to be adhered to, it is for this reason that you need only to contact the person who is just above you, and in this case it is your supervisor Norm. Failure to follow this chain of bureaucracy may lead to some internal wrangles in the firm between you and your supervisor. It is the responsibility of your supervisor to take action from there on, failure to which he will be held responsible. Reporting to the supervisor was the most prudent form of action from you.
According to section 10.51(a)(4) a client’s failure to file an amended return to correct an error or omission can cast a dark shadow (Soled & Goodman, 2010). According to the code of conduct and to the ethics governing the forms operation and the customer’s relationships, you should report the matter to the internal revenue services, the (IRS). This is also according to the mandates of body to ensure that there is tax collection and to oversee the various benefits programs of the customers. It is clear that there was a case of lack of transparency while preparing the tax return of the firm confirmed by the fact that the matter was also overlooked during the tax review process of the firm.
Also, remember that the audited returns must be filed at all times since the records are very crucial for accountability. Also take into account your image if you don’t take this matter with a lot of urgency and seriousness that is required of it.
Since the matter is raising a lot of concerns and suspicions, the questions that can be asked include
What were the circumstances that caused this particular $50000 not to be accounted for while the tax return was being prepared?
Give a clear clarification why this matter was not raised anywhere within the firm and at the same time it was not addressed to the IRS in time according to the regulations. Why this issue was not even raised again.
What did you expect to happen when the IRS discovers by themselves that there is some money that was not accounted for? What image will the firm have when the clients also discover such news without any prior notification?
References
Soled, J & Goodman L. (2010). Tax Return Preparation Mistakes. Retrieved from: http://www.journalofaccountancy.com/issues/2010/jun/20102524.html#sthash.8AmDNk R5.dpuf
