The American Institute of CPAs' Accounting and Review Services Committee clarified a standard on financial statement preparation as part of a client advisory services engagement.
The new Statement on Standards for Accounting and Review Services No. 27, "Applicability of AR-C Section 70 to Financial Statements Prepared as Part of a Consulting Services Engagement," says that a CPA is not required to apply AR-C Section 70, "Preparation of Financial Statements," when the preparation of financial statements is not the primary objective of an engagement that's performed in accordance with CS Section 100, "Consulting Services: Definitions and Standards." The new statement will be issued in early April.
"This clarification represents a sea change for the CAS practice," said Erik Asgeirsson, the president and CEO of CPA.com. "That isn't an understatement. It was born in the assurance area, but it's now in the consulting and advisory area."
While weighing the potential change, the committee determined that financial statements issued when a CS Section 100 service is performed present no harm to the users of that statement. The revised language clarifies that while the section is not required to be applied, the accountant is not precluded from applying AR-C Section 70, in whole or in part.
"It makes a lot of sense for firms to put their CAS services under the consulting services CS 100 standard," Asgeirsson told Accounting Today. "What they're doing now is providing strategic support for their clients, which is going to be much, much more than just providing the financial statement."
The clarification represents a major stage in the development of CAS from its origins with write-up services two decades ago, he added, and reflects its move away from the assurance services umbrella.
"It has evolved with technology into this ability to provide strategic outsourced accounting services with a lot of business insights and a lot of efficiencies — and one of the byproducts that you receive as part of modern CAS is the financial statement," he said. "Now firms can do it with a lot more flexibility under the consulting services standard, while still maintaining the quality you get from leveraging a licensed CPA firm."
CPA.com plans to release a number of resources — including a FAQ, video discussions, engagement letter templates, and more — in the near future to help firms figure out what, exactly, the clarification means for their CAS practices.
"Our goal is to ensure that accountants have the necessary knowledge, tools and resources to serve their clients efficiently and to the best of their ability," said Sue Coffey, CEO of public accounting at the AICPA, in a statement Monday. "As CAS grows as a service area, natural questions arise as to how to best apply certain standards. Clarifying these standards allows accounting professionals providing these valuable services to do so confidently."
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