AICPA Looks to Amend Standard on Financial Statement Preparation

The AICPA is seeking to amend its standard related to financial statement preparation, which would clarify that a CPA wouldn’t be required to apply AR-C Section 70, Preparation of Financial Statements, when financial statements are prepared as a byproduct of a client advisory services (CAS) engagement.

The exposure draft of the proposed Statement on Standards for Accounting and Review Services (SSARS) can be reviewed here. Public comments on the proposed amendment to AR-C Section 70 will be accepted until Dec. 20.

CAS, which includes controllership and CFO services, has grown significantly over the past several years. In many of these engagements, the outside accountant assumes management-level responsibilities that could run all the way to functioning as the client’s outsourced CFO. If the accountant prepares financial statements as part of such services, those financial statements are a byproduct of the broader engagement, the AICPA said.

There’s currently significant diversity in practice as many accountants consider the service to be performed under the consulting services standard, CS Section 100, Consulting Services: Definitions and Standards. Other accountants consider the financial statement preparation as a separate service and perform that part of the engagement in accordance with AR-C section 70.

According to the AICPA, either pathway is acceptable. But “if the accountant chooses, or believes they are required, to follow AR-C section 70, there are additional requirements that the accountant would have to comply with that an in-house CPA or an accountant who performed the full engagement as a consulting services engagement would not,” the AICPA said.

The AICPA’s Accounting and Review Services Committee (ARSC), which is responsible for AR-C Section 70, determined there’s no perceivable harm to users of the financial statements if the full engagement is performed in accordance with CS Section 100. The proposed amendment clarifies that while the accountant is not precluded from applying AR-C Section 70, the accountant may perform the engagement in accordance with CS Section 100.

“The practical difference for CPAs is 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,” Mike Glynn, an associate director with the AICPA’s Audit and Attest Standards Team and staff liaison to the ARSC, said in a statement. “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.”

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