Financial reporting standards and the future of Client Advisory Services

The AICPA recently issued an exposure draft of proposed changes to the AR-C Section 70 financial statement preparation standard specifying that a CPA is not required to apply the AR-C Section 70 standard when the statements are a byproduct of client advisory services (CAS) engagement. In these instances, practitioners could elect to conduct their CAS services under the Consulting Services Standard (CS Section 100). If issued as final, the proposed changes will be effective for the preparation of financial statements for periods ending on or after December 15, 2026, but early implementation would be permitted, allowing a firm to adopt this change in mid-2025

We’re excited that this proposal addresses recommendations that our SSARS21 Task Force project team put forward after extensive interviews and surveys with CAS, QC and client relationship leaders and team members, as well as other invested parties including insurance providers, into the hurdles that may be hindering the future success of CAS practices.

Here’s why we feel this proposal is important for CAS practices and the profession, and how you can support the effort (hint, it’s likely a lot easier than you think!).

1. Proposed changes provide much-needed clarity for CAS practitioners.

   One of the biggest hurdles our task force uncovered is the significant confusion among CAS practitioners around whether AR-C Section 70 is required when the firm is not specifically engaged to create a financial statement for their client, but the transaction processing and data analytics they are providing may ultimately conclude with a financial statement.

   When the standard was created, CAS was not yet a service the profession provided, because the cloud-based technology that gave rise to CAS didn’t yet exist. At the time, no one envisioned that CPA firms would become the accounting back office for their clients at such a rapid pace, working in more of an industry CPA capacity than a public accounting role. But this is now a fast-growing area, and we need to provide clarity as to the rules for engagement to address the ambiguity and maintain public trust in the services being provided.

   The proposed change helps clarify that a CPA is not required (but can if they choose) to apply the AR-C Section 70 standard when the statements are a byproduct of client advisory services engagement. Under this change, CAS engagements can simply be framed as consulting services delivered under the Consulting Standards. This change also provides important guidance to the Quality Control function, as CAS has been positioned within many firms’ QC systems due to the lack of clarity on this topic. Engagements conducted within CS Section 100 are not required to be included under the firm’s QC umbrella.

2. Quality will be maintained through the professional standards of the CPA profession.

   Based on the Task Force’s findings, most CAS practices have taken actions that they believe protect them from SSARS21. This includes a range of actions including explicitly stating in engagement letters that the firm is not being engaged to prepare financial statements, creating non-CPA entities to perform the work, having consulting personnel prepare budgets and/or projections and not following the requirements of such work if derived from financial statements, and more.

   But what the profession doesn’t realize is that between SSARS-21 and the AICPA Code of Conduct, firms are making interpretations like these that are not fully supported by our standards and code. Getting ahead of the issue and changing the standards allows the choice for practitioners to either follow AR-C Section 70 or CS Section 100 and be in compliance.

   This is extremely important in our foundational role of protecting the public interest, as the public is better off when these services are carried out by CPAs that adhere to our standards and code of professional conduct including, but not limited to, integrity, objectivity and due professional care.

3. The changes will facilitate the continued evolution of CAS.

   For this service line to evolve, we need clarity for CPAs as to how to navigate the work our clients are asking us to perform in the way they are asking us to perform it, while simultaneously keeping in clear view our standards and Code of Conduct put in place to protect public interest.

   Through our discussions, it’s clear that firms are committed to shifting towards augmenting transactional and controller-level services with higher level advisory services. When CAS practices are engaging with multiple clients to deliver the full scope of offerings that are defined within CPA.com’s CAS Maturity Model and CAS Vision, firms—especially smaller firms—will be handcuffed when trying to deliver the fractional CFO role they have been hired to perform and still comply with CPA standards and our Code of Conduct.

   The new proposal will better enable CAS practitioners to make the shift into higher level business insights advisory to create more value for their clients and better position our profession as trusted advisors without going through the unnecessary and unwanted rigor required to produce a client-requested financial statement.

Share your thoughts.

The exposure draft of the proposed Statement on Standards for Accounting and Review Services (SSARS) is open for comment until Dec. 20, 2024.

If you’ve never commented on an exposure draft before, let me assure you—it’s probably much more straightforward than you’re thinking! You can easily submit your comments online. The AICPA’s Accounting and Review Services Committee (ARSC) is primarily looking for practitioners to weigh in on three questions:

• Do you believe that this proposal is in the public interest?
• Do you believe the proposed effective date is appropriate?
• Do you believe the revisions made are appropriate?

Offering your perspective as a practitioner can help shape the future of client advisory services. We hope you’ll consider carving out a few minutes to add your voice to this important initiative as we move the profession forward together.

About the author:
Kimberly K. Blascoe, CPA, leads CPA.com’s CAS 2.0 practice transformation programs, focusing on helping firms establish and grow optimized CAS practices through consulting, practice development and training offerings. Prior to joining CPA.com, Kim spent more than 30 years in public accounting, which included leading the CAS practice for a Top 20 firm.