AICPA moves to amend financial statement standard

As it’s become increasingly popular for external CPAs and even CFOs to help run a company’s financial operations, the American Institute of CPAs is looking to clarify the standard for how financial statements prepared as part of an external client advisory services engagement are treated.  

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The move is designed to address the uncertainty, confusion and diversity of practice with respect to the subject, said Mike Glynn, associate director of audit and attest standards and staff liaison for the AICPA’s Accounting & Review Services Committee.  

Currently, some CPAs who prepare financial statements as part of an outsourced engagement subject the financial statement portion of the engagement to guidelines under AR-C section 70 of the AICPA’s standards, Glynn said. Others can be found adhering to the professional standard for consulting services, or CS section 100, he said. 

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“Either way is acceptable — however, the CPA who performs the financial statement preparation piece in accordance with AR-C section 70 has added requirements around the AICPA’s quality management standards and potentially peer review that would not apply had the complete engagement been performed in accordance with CS section 100,” Glynn wrote in an emailed response to CFO Dive questions. 

The AICPA has published an exposure draft of the proposed change related to financial statement preparation. Its specifies that a CPA is not required to apply the AR-C Section 70 standard when the statements are a byproduct of client advisory services engagement, AICPA said in a release. Public comments will be accepted until Dec. 20. 

Financial statements are defined in part as “a structured representation of historical financial information including disclosures intended to communicate an entities’ economic resources and obligations at a point in time or the changes therein for a period of time in accordance with a financial reporting framework,” Glynn said. 

In many client advisory services engagements, which can include controllership and CFO services, the outside accountant assumes management-level responsibilities, the release states. 

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“Practically speaking, these entities and companies are hiring these outsourced CFOs etcetera to be more efficient and they’ll leave the accounting to the professionals,” Glynn said, adding that the amendment would largely put those folks on the same footing as they would be if they were in house.

The AICPA’s Accounting and Review Services Committee RSC asserts that the change does not adversely affect quality because financial statement preparation is not an attest service, and because practitioners are still required to follow the AICPA Code of Professional Conduct, according to the release. 

There are many different names for outsourced accounting services, ranging from CAS to business process outsourcing and virtual CFOs. But the whole category of external financial services providers has grown in recent years as the emergence of cloud accounting has more easily enabled small and medium-sized companies to tap outside help, according to Erik Asgeirsson, president and CEO of CPA.com, a subsidiary of the AICPA that provides technology solutions to accounting firms in the U.S. and globally. 

“In many ways it’s allowed these small to midsized businesses to enter the information age in a way that is comparable to the largest corporations, ” Asgeirsson said in an interview. “It’s quite exciting. The cloud’s the great equalizer.”