Introduction to IT Compliance for CPAs in 2024

Entering 2024, CPAs face an increasingly complex landscape of IT compliance. This complexity arises from new technologies and emerging cyber threats, including phishing attacks and integrating multi-factor authentication for enhanced network security. Ensuring compliance with IT requirements is not just crucial but imperative for accountants. This article sheds light on why it is important to stay informed about these requirements, the impact they have on the profession, and the necessity for CPAs to integrate them into their practice seamlessly.

Technological advancements, including cloud computing and accounting automation, have not only automated traditional accounting tasks but also migrated sensitive data to the cloud, emphasizing the need for robust client data protection and data encryption methods. This shift, while boosting efficiency and accessibility, simultaneously elevates the risk of cyber threats. Consequently, accounting firms find themselves in a balancing act—leveraging new technologies for improved operational efficiency while adhering to compliance standards to safeguard data.

The cybersecurity landscape has been particularly challenging over the last year, with accounting firms grappling with:

• Malware and ransomware
• Phishing schemes
• Breach of sensitive financial information
• A rise in cyberattack incidents
• Vulnerabilities introduced by remote work platforms

(Source: Ace Cloud Hosting)

Chris Farrell underscores the significance of compliance by stating, “It’s good business to comply with the FTC Safeguards Rule and IRS Publication 4557, as it only takes one breach to destroy a firm’s reputation.” This accentuates the importance of adhering to legal mandates for CPAs to be CPA compliant, particularly under the FTC Safeguards Rule and IRS Publication 4557, like the FTC Safeguards Rule and IRS Publication 4557 in cultivating trust in an increasingly digital era. The FTC’s Safeguards Rule mandates financial institutions under its jurisdiction to secure customer information comprehensively, while IRS Publication 4557 lays out specific guidelines for accounting firms and tax preparers, including the necessity of a written data security plan. A significant amendment to the Safeguards Rule in 2021 also introduced mandatory data breach reporting for incidents impacting 500 or more individuals—a stark indicator of the evolving compliance landscape which accounting professionals must navigate.

(Source: Federal Trade Commission and source)

Ultimately, IT compliance transcends mere rule-following. It embodies creating a culture anchored in security, trust, and innovation. By deeply understanding and adeptly applying IT compliance measures, CPAs can not only safeguard their practices and client relationships but also fortify their standing in the profession.

Understanding IT Compliance Requirements for CPAs in 2024

For accounting professionals preparing for the fiscal challenges of 2024, understanding IT compliance, including the CCPA updates and 501 compliance, is crucial. It’s not just a legal requirement—it’s a strategic asset. The FTC Safeguards Rule and IRS Publication 4557 are key regulations. They set detailed requirements for managing and protecting sensitive client information.

The FTC Safeguards Rule, under the Gramm-Leach-Bliley Act, which embodies a significant part of technology regulations in the accounting industry, mandates rigorous standards for securing client data. It applies to accounting firms that offer tax, Client Accounting Services (CAS), or payroll services to 5,000 or more clients. Non-compliance can lead to investigations and fines up to $43,000 per day. Best practices include:

• Using strong passwords
• Locking up sensitive paperwork
• Training staff on data security
• Developing a comprehensive security system
• Securing disposal of sensitive information
• Implementing safeguards based on business nature and information type

IRS Publication 4557 guides tax preparers on safeguarding taxpayer data. It mandates appointing a person responsible for information security and creating a Written Information Security Plan (WISP). However, it doesn’t have the FTC’s strict vendor management requirements.

Differences and overlaps between these regulations include:

• IRS Publication 4557 focuses on taxpayer information. The FTC Safeguards Rule covers a broader range of client data with more detailed protective measures.
• Compliance with IRS Publication 4557 may not meet all FTC Safeguards Rule requirements, especially in vendor management and annual security reporting.

Chris Farrell states, “The FTC Safeguards Rule also applies to firms only providing CAS or Payroll Services with 5,000 or more clients.” This highlights the FTC rule’s wide-reaching implications.

For CPAs, understanding these regulations helps avoid penalties and build client trust. Keeping up with IT compliance also establishes firms as secure handlers of financial information.

The cost of implementing compliant systems versus the penalties of non-compliance is detailed below:

Investing in compliance is a legal necessity and a smart business strategy to avoid the consequences of non-compliance.

2024 Technology Regulations for Accounting Professionals

The influx of emerging technologies, particularly generative artificial intelligence (GenAI) like ChatGPT, Microsoft AI Copilot, and cloud-based productivity applications such as Microsoft Teams and QuickBooks, has transformed the accounting field. Technologies such as ChatGPT, Bard, and Claude automate and streamline accounting processes. This change has sparked discussions on revising regulatory frameworks to ensure data integrity and security.

One significant impact of these technologies is the challenge of ensuring secure accounting practices. GenAI tools can sometimes produce “AI hallucinations” or inaccurate data. This issue has led to the development of forensic AI audit tools. These tools help detect and correct data anomalies, ensuring the accuracy of financial records and maintaining client trust.

With the advent of AI-driven tools in accounting software, CPAs must understand the regulatory challenges, accounting for CCPA compliance and adapting their technology stack accordingly. The growing sophistication of cyber threats makes enhanced security measures essential.

The FTC Safeguards Rule, under the Gramm-Leach-Bliley Act, outlines a regulatory framework specifically tailored for accounting firms. This regulation becomes particularly pertinent for firms handling financial data for a certain threshold of clients, necessitating a strategic approach to information security. Firms are required to appoint a designated individual to oversee their information security program, create and implement a comprehensive information security plan, and ensure ongoing training and adherence to policies safeguarding Personally Identifiable Information (PII) and client data. Moreover, there’s a mandatory verification process to ensure that software vendors and third-party service providers comply with these stringent security standards, as detailed in the insights on expanded data protection needs.

Given the extensive coverage on cybersecurity threats and mitigation strategies in the Essential IT Compliance Checklist for CPAs in 2024, this section will not delve into these specifics. Instead, it emphasizes the overarching need for accounting professionals to integrate robust cybersecurity measures into their workflows. The dynamic tech landscape of 2024, enriched by GenAI and other innovations, presents new efficiencies and innovative capabilities, matched by an equal need for vigilant data security and regulatory compliance.

Essential IT Compliance Checklist for CPAs in 2024

In 2024, Certified Public Accountants (CPAs) need to address evolving IT compliance requirements. A strong IT compliance strategy is crucial for securing client data and upholding trust. Below is a checklist to help your firm stay compliant and secure.

1. Create and Implement a Written Information Security Plan (WISP): A WISP outlines your firm’s policies and procedures for protecting Personally Identifiable Information (PII) and Customer Information. It’s essential for guiding your firm’s data protection strategies. Ensure it’s reviewed and updated regularly, particularly with significant changes in your organization or technology.
2. Designate a Qualified Individual for Information Security Oversight: According to the FTC Safeguards Rule, appoint someone responsible for assessing security risks. This person will also create, implement, and maintain security measures. They need to report annually to the firm’s board of directors for oversight.
3. Vendor Compliance and Data Protection Strategies: Make sure software vendors and third-party service providers meet strict security measures. This includes conducting due diligence before hiring new vendors and regularly reviewing existing vendors for compliance.
4. Annual Review and Training in IT Security for All Staff:, fostering a learning culture in cybersecurity CPA practices Cybersecurity requires ongoing education and alertness. Annual reviews of your WISP and regular training for all staff are essential. This approach not only meets compliance requirements but strengthens your firm’s defense against cyber threats.

Additionally, CPAs in 2024 must comply with various specific IT regulations, including:

• The California Consumer Privacy Act (CCPA) regulations, which include guidelines on privacy policies and employee training.
• The Financial Accounting Reporting (FAR) section tests of the CPA Exam on accounting principles and financial reporting skills.
• The 2024 REG CPA Exam revisions, covering Ethics, Professional Responsibilities, and Federal laws and regulations.

Financial firms face cybersecurity threats such as:

Incorporating these guidelines into your firm’s compliance strategy is crucial. IT compliance is not solely about following regulations; it’s about proactively protecting your client’s data and maintaining the integrity of your services.

References:

11 Cybersecurity Threats Accounting Firms Should Watch in [2024] (acecloudhosting.com)

FTC Safeguards Rule: What Your Business Needs to Know | Federal Trade Commission

Confused about IRS Pub 4557 vs FTC Safeguards Rule, and Which Applies to Your Firm? – CPA Practice Advisor