Consulting Services and CPA Firms
Read, William J., The CPA Journal
CPA consulting services have become an increasingly important component of public practice. Historically, these services are generally known as management consulting services, management advisory services, business advisory services, or management services. To assist CPAs in identifying what functions make up consulting services, the AICPA recently issued the first Statement on Standards for Consulting Services (SSCS), Definitions and Standards. The SSCS, which superseded the statement on standards for management advisory services (SSMAS) on January 1, 1992, provides guidance concerning CPA responsibilities when they are involved in consulting engagements.
The new statement also discusses auditor independence and the performing of consulting services for attest clients--an issue that has concerned CPAs and observers of the accounting Profession for some time. The SSCS states that the AICPA's independence standards relate exclusively to the performance of attestation services and that consulting for an attest client does not, in and of itself, impair independence. However, the standard does advise CPAs that there may be some cases where professional and regulatory agencies disallow supplying consulting services to attest clients.
THE INDEPENDENCE ISSUE
Independence is a hallmark of the public accounting profession and an important component of the professional relationship between CPAs and their clients. It is one of the primary reasons why users of financial statements value the opinions of independent accountants concerning the proper application of GAAP to client financial statements.
While the phrase "auditor independence" has been difficult for professional and regulatory bodies to define precisely, the AICPA's Professional Standards state that "independence has traditionally been defined by the profession as the ability to act with integrity and objectivity." They refer to objectivity as the CPAs' ability to maintain an impartial attitude on all matters which come under his or her review," while integrity is defined as "an element of character which is fundamental to reliance on the CPA." The standards require CPAs to "retain their integrity and objectivity in all phases of their practice and, when expressing opinions on financial statements, avoid involvement in situations that would impair the credibility of their independence."
On several occasions during the past two decades, congressional legislators have raised questions about whether CPAs can remain independent when they perform consulting services for attest clients. The Metcalf and Moss subcommittees in the late 1970s and the Dingell subcommittee in the mid-1980s conducted hearings on the issue, but found no instances where auditor independence had been impaired following the rendition of consulting services.
For its part, the accounting profession also initiated several inquiries into the impact of CPA consulting services on auditor independence. The matter was investigated by the Cohen Commission in 1978, by the Public Oversight Board (POB) of the AICPA's SEC Practice Section (SECPS) in 1978, 1979 and 1986, by the Special Committee on Standards of Professional Conduct for CPAs (Anderson Committee) in 1986, and by the National Commission on Fraudulent Financial Reporting (Treadway Commission) in 1987. None of these studies found any instances where independence had been diminished as a result of performing consulting services. However, CPAs were urged to be aware that consulting for attest clients may be perceived by some as an impairment of auditor independence.
One of the concerns some critics raise about CPA consulting services and their impact on the appearance of auditor independence relates to the magnitude of such services as measured by the fees received. If CPA consulting services are provided in extensive amounts to attest clients, critics argue that auditor independence might be jeopardized. However, in cases where CPAs supply their audit clients with minimal consulting services, such concerns are not raised. …