Editor's note: This article is a sidebar to "A Fresh Approach for Compilation and Review."
Based on concerns expressed by stakeholders in compilation and review engagements, the Accounting and Review Services Committee (ARSC) turned to the AICPA’s Private Companies Practice Section (PCPS) for help in its consideration of how to proceed with any potential changes to the standards for compilation and review engagements. ARSC and the PCPS formed the AICPA Reliability Task Force, which was comprised of CPA practitioners, and representatives from AICPA standard-setting bodies including ARSC, the Auditing Standards Board, and the Professional Ethics Executive Committee. The task force also included representatives from state boards of accountancy, academia and banking, and financial statement preparers. The group was charged with considering whether a recommendation should be made to ARSC to revise standards for compilation and review engagements to reflect the current needs and expectations of the business community.
The task force concluded that third-party users of compiled or reviewed financial statements perceive a difference between independence impairment caused by financial or relationship interests that do not improve the quality of financial information and independence impairments caused by accountants performing certain services that are designed to improve the quality or reliability of financial statements. The third-party users advised that they viewed an independence impairment caused by the accountant owning a piece of the client or the client’s close relative working for the client as something that would cause them to place less reliance on the financial statements. However, those same users advised that they viewed impairments caused by the accountant helping the client in keeping their books and preparing more reliable financial statements as a “good thing” and something that should not preclude the accountant from expressing a review conclusion on those financial statements.
After considering the issues, the AICPA Reliability Task Force recommended that ARSC consider revising its standards to permit an accountant to express a review conclusion when the accountant’s independence is impaired due to the performance of an internal control service. ARSC then took the recommendations and formed its own Reliability Task Force. The recommendations from that task force form the basis for the proposed new guidance for compilation and review engagements.
To test the AICPA Reliability Task Force recommendations, the PCPS recently commissioned research that led to the report An Empirical Test of the Reliability Framework: Evidence from Banking Professionals. In the report, F. Todd DeZoort and Mark H. Taylor describe the results of their research on commercial bankers’ perceptions of a CPA’s integrity, expertise, independence, objectivity and reliability, and how that affects judgments about risk. The researchers also looked into whether the type of engagement and the CPA’s provision of nonattest services had an impact on a banker’s impression of financial statement reliability. The results of the research were considered by ARSC before approving the proposed standards.
Also see "ARSC's Work Plan to Revise SSARs."