If you got busy this summer and missed the fact that AICPA issued proposed changes to the requirements for Compilations and the Independence requirements related to them, fear not; you now have more time to learn about them and provide input if you are so inclined. While the exposure drafts were originally issued in June with a deadline for comment by the end of August, AICPA has now extended the comment period to November 30 to give members more time to offer their thoughts. You can find the proposals here and here.
The key issues in the proposals revolve around when a CPA must issue a compilation report and what services are considered to be attest and non-attest and may affect independence. The proposals were issued by the AICPA Accounting and Review Services Committee (ARSC) and the AICPA Professional Ethics Executive Committee (PEEC).
Under the proposals, a CPA may prepare financial statements for a client without providing compilation services or a compilation report as a “non-attest” bookkeeping service. Compilation services would still be available to clients who want that service and current standards for providing compilation services would remain. The proposed changes would also require a CPA who prepares financial statements, but is not engaged to perform a compilation, review or audit, to request that the client/management include a label or notation that makes clear that the financial statements were not compiled, reviewed or audited. Alternatively, CPAs can attach a disclaimer to the financial statements to indicate when they have not been compiled, reviewed or audited.
Under the current rules, the triggers for whether a compilation report must be issued are (a) the creation and submission of a financial statement to the client, or (b) the client contracts for the compilation service. The proposed changes would only require the compilation report if the client requests it.
A problem with the current standard is the word “submission” as it is not defined and, in many bookkeeping arrangements with clients, is no longer relevant. Many bookkeeping services are now being performed via cloud computing or other remote service platforms, so it is no longer clear when a CPA “submits” or is just involved in the preparation.
The PEEC noted in its proposal that this view is also consistent with the GAO, which recently revised its standards to say that financial statement preparation is not part of an audit engagement, but rather is a non-attest service. But if a CPA performs an attest service (compilation, review, audit) and prepares the financial statements (non-attest service), they need to determine if the client/management has sufficient skill, knowledge and experience to assume responsibility of overseeing the preparation of the financial statements. If they don’t, the CPA would not be independent.
The proposals are an attempt to bring the standards and ethics rules in line with the current practice realities for CPAs, while at the same time protecting the public. That can be a challenge and an opportunity for people to differ on the answers and the approaches. TSCPA will be weighing in on the proposal through our Professional Standards Committee (PSC). When the PSC issues a comment letter, we will share that with members, as always.
The National Association of State Boards of Accountancy (NASBA) has already weighed in and you can see their comment letter here. If you have an interest in this issue, I encourage you to provide your own input by submitting a letter or e-mail to AICPA.