I want to praise the AICPA in their recent attempt to innovate within our profession. How do I define ‘innovation’ in terms of what they are doing? Simply, this: they are reviewing how we have always done things as a profession and considering, due to technologies and the common behaviors of our customers, that maybe we should change our professional behavior, and thus our standards. Kudos and I agree!
I’m speaking of the AICPA’s most recent Exposure Draft on changes to some SSARS (Statements on Standards for Accounting and Review Services) where they are considering making the preparation of financial statements an non-attest service. Basically, they are proposing making ‘preparing financial statements’ separate from attest services like Compilations, Reviews and Audits. Currently, every time we prepare financial statements, it is really considered a Compilation service, even though our customers may not intend us to Compile financials, may not want to pay for it, and do not actually need it. As CPAs, our professional hands are tied when our customers need financial reporting. We have to say, “I’m sorry, that quick financial statement you need will cost you. I have to prepare a Compilation even though you don’t want one.”
The real issue that is driving this is what ‘submitting financial statements’ really means. In an explanation of why this proposed change is necessary, the AICPA says,
“Under the existing compilation standard, the accountant is required to comply with the compilation standard whenever he or she is engaged to report on compiled financial statements
or submits financial statements to a client or to third parties. Because the preparation and submission will now be considered a nonattest service, the requirements for following the
compilation standard need to be changed to eliminate submission. This elimination is also appropriate because the term submission is not clear and, in many bookkeeping arrangements, is
no longer relevant. With many bookkeeping services performed via cloud computing or other
remote platforms, it is no longer clear when a CPA submits or is just involved in the preparation.”
This is so cool! The AICPA is saying (1) the term submission of financial statements is unclear (agreed!), (2) that the process of submitting financial statements is no longer relevant to how we do business (agreed!), and (3) they are recognizing the change in financial reporting where cloud-related products are being used to manage financial statements now. This too is true. So when have we submitted financial statements with clients who are using cloud accounting products? It really comes down to “who hit the print button?” If we “hit the print button” then we have performed a Compilation. When the standards were written, cloud accounting was not considered. Our clients can now have ready access to their financial statements that their CPA has helped them create, manage, review and comment on. Are we submitting financial statements inside of a cloud accounting product? We don’t know. That is why I endorse and support the AICPA’s desire to move the preparation of financial statements off of the attest list, and allow us to serve our customers better by preparing their financial statements, teaching them about their financial statements and helping them understand their financial statements (without worrying about charging them for a Compilation).
But what if my client needs a Compilation, or their bank needs a Compilation? Really, nothing has changed for the attest services – that is, you can still Compile, Review and Audit financial statements all freakin’ day long. Compile to your heart’s content. But with the proposed changes, you don’t have to if the customer does NOT need it. It puts control back in the hands of the CPA. And that is best for customers, so I love it.
Won’t CPA-prepared financial statements and non-CPA-prepared financial statements be the same? That is really up to the CPA profession to sort out. Can you explain your value to your customers as it is compared to a non-CPA? If not, then you may have trouble explaining why they need a CPA in the first place. That sounds like a personal problem to me. You are responsible for innovating in the profession too. You have to prove your worth and deliver on the brand of the CPA, which is as a Trusted Business Advisor. In fact, CPAs are different from non-CPAs. It doesn’t mean non-CPAs are bad, it just means we are different. It’s up to us to prove the difference in the value – the AICPA is really just updating their standards to reflect how business is done today. The rest is up to us! To be sure, if a bank still requests a Compiled financial statement from a CPA (which they should), then you still have all the power to deliver that service. That ability will not be taken away. The service would only be required when the CPA is engaged to specifically perform the service (like for the bank, a licensing board or a bonding company).
Will you consider making a comment on this provision? You can email your comments to Mike Glynn at [email protected]. Here is a statement you can copy into your email if you want:
Let’s get the word out. Let’s change our profession together!