Clarification proposed for CPAs’ financial statement preparation engagements

The AICPA Accounting and Review Services Committee (ARSC) voted Thursday to expose for public comment a proposed revision that would “make explicit” that a CPA preparing financial statements as a byproduct of a consulting services engagement performed in accordance with CS Section 100 is not required to apply AR-C Section 70, Preparation of Financial Statements.

Questions have arisen in practice regarding whether AR-C Section 70 is required to be applied in situations in which controllership or CFO services are performed under the consulting standards and financial statements are created as a byproduct of that. ARSC believes that in such situations, AR-C Section 70 is not required to be applied, although it can voluntarily be applied.

“The practical difference for CPAs is that if they perform the engagement outside of AR-C Section 70, the quality management standards do not apply and the engagements are not included in the population subject to peer review. The ARSC believes that excluding such engagements does not adversely affect quality because financial statement preparation is not an attest service. Furthermore, in such situations, practitioners are still required to follow the AICPA Code of Professional Conduct,” said Mike Glynn, CPA, CGMA, AICPA associate director–Audit and Attest Standards and ARSC staff liaison.

CS Section 100, Consulting Services: Definitions and Standards, states that the general professional standards of professional competence, due professional care, planning and supervision, and sufficient relevant data apply to consulting services.

The exposure draft of the proposed Statement on Standards for Accounting and Review Services (SSARS) is expected to be published later this month. Public comments are requested by Dec. 20.

If issued as final, Applicability of AR-C Section 70 to Financial Statements Prepared as Part of a Consulting Services Engagement would amend SSARS No. 21, Clarification and Recodification, as amended, AR-C Section 70.

The exposure draft reads in part that:

ARSC believes that the public interest would not be adversely affected if a CAS [client advisory services] engagement that includes the preparation of financial statements for the client’s use is performed in accordance with CS section 100 instead of AR-C section 70 because

1. services performed in accordance with CS section 100 and services performed in accordance with AR-C section 70 are both nonattest services in which no opinion, conclusion, or any form of assurance is provided, and
2. the safeguards included in CS section 100 would minimize the risk that a user would be misled by the CAS practitioner’s association with the financial statements that the CAS practitioner prepared as part of a CAS service.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.