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AICPA to Clarify Applicability of Standards to Financial Statements Prepared as Part of a CAS Engagement

Sep 23, 2024 · 2 min read

AICPA to Clarify Applicability of Standards to Financial Statements Prepared as Part of a CAS Engagement

When financial statements are prepared as a byproduct of client advisory services engagements, accountants are not required to apply AR-C Section 70.

NEW YORK (September 23, 2024) — The American Institute of CPAs (AICPA) is seeking comment on a new exposure draft that aims to amend the standard related to financial statement preparation. The amendment will clarify that a CPA is not 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.

Public comments will be accepted until December 20.

Client advisory services, which includes controllership and CFO services, have been an area of significant growth over the past several years. In many of these engagements, the outside accountant assumes management-level responsibilities that may 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 by-product of the broader engagement.

There is 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. Either pathway is acceptable – however, 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’s Accounting and Review Services Committee (ARSC) is responsible for AR-C section 70. ARSC determined there is 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,” said Mike Glynn, an associate director with the AICPA’s Audit and Attest Standards Team and staff liaison to the ARSC. “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.”

The exposure draft of the proposed Statement on Standards for Accounting and Review Services (SSARS) can be reviewed here.

If approved and issued as final, the amendment, titled 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.

About the American Institute of CPAs

The American Institute of CPAs (AICPA) is the world’s largest member association representing the CPA profession, with 400,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. AICPA sets ethical standards for its members and U.S. auditing standards for private companies, not-for-profit organizations, and federal, state and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent and drives continuing education to advance the vitality, relevance and quality of the profession.

Contact:
Ranica Arrowsmith
Ranica.Arrowsmith@aicpa-cima.com
(212) 596-6117

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