Article

Proposed statement on standards for Accounting and Review Services (SSARS), Applicability of AR-C section 70 to financial statements prepared as part of a consulting services engagement

Dec. 20, 2024 · Authored by Nick Goodman

Accounting and Review Services Committee (ARSC):

We appreciate the opportunity to comment on the proposed statement referenced above.

By way of background, Baker Tilly US, LLP and Baker Tilly Advisory Group, LP and its subsidiary entities provide professional services through an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable laws, regulations and professional standards. Baker Tilly US, LLP is a licensed independent CPA firm that provides attest services. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and business advisory services. Baker Tilly Advisory Group, LP and its subsidiary entities are not licensed CPA firms.

We support the proposed revisions outlined in proposed statement, “Applicability of AR-C Section 70 to Financial Statements Prepared as Part of a Consulting Services Engagement.” In addition, we would like to commend the ARSC for taking on this important project as we believe the proposed statement will benefit both practitioners and the public by providing clarity and consistency regarding the applicability and application of AR-C section 70 within the context of broader consulting services and client advisory services (CAS) engagements. These amendments will better align professional standards with current practice, particularly the increasing prevalence of CAS within the public accounting industry and the increase in firms providing services through an alternative practice structure, such as ours.

Our comments will be in the form of responses to the specific questions included in the proposed statement.

Specific request for comment 1

Do respondents believe that it is in the public interest to explicitly exclude financial statements prepared as part of a consulting services engagement performed in accordance with CS section 100 from those engagements for which AR-C section 70 is required to be applied? Please provide your reasons for your position.

We support the ARSC’s proposed statement which would explicitly exclude financial statements prepared as part of a broader consulting services engagement performed under CS section 100 from AR-C section 70. The increase in consulting services and CAS within public accounting firms has blurred the lines between consulting services and financial statement preparation, making it difficult to determine when the preparation of financial statements falls within AR-C section 70. Often, producing or preparing financial statements is a part of a broader consulting services engagement, such as bookkeeping, controller or outsourced CFO services. Although practitioners may not be explicitly engaged to produce or prepare financial statements, the expectation of financial statements as a client deliverable or as part of a client deliverable may be implied or evolve into an expectation of the engagement over time. As a result, we believe that allowing the application of CS section 100 to engagements, where the preparation of financial statements is part of a broader consulting services engagement, will provide much needed clarity regarding the applicability of AR-C section 70 and increase the consistency of its application without adversely affecting the public interest due to the safeguards provided by CS section 100.

Furthermore, the exclusion of financial statements prepared as part of a broader consulting services engagement under CS section 100 from AR-C section 70 resolves several complications for firms operating under an alternative practice structure in accordance with the AICPA Code of Professional Conduct. These complications include, among others, whether practitioners overseeing the financial statement preparation part of these broader consulting services need to be a members / partners of the firms’ attest entities for regulatory, peer review, insurance or other reasons.

Specific request for comment 2

Do respondents believe that the proposed effective date of the SSARS is appropriate? If not, why not?

We believe the proposed effective date of December 15, 2026 is appropriate. The date provides sufficient time for firms to adjust their practices, policies, and quality management systems in response to the proposed revisions. Early implementation should be permitted; however, the proposed timeframe would allow for a measured transition, especially for firms still developing or expanding their consulting services and CAS offerings.

Specific request for comment 3

Do respondents believe that the proposed revisions to paragraph .01 and the introduction of new application paragraph .A4 are appropriate? If not, respondents are asked to state their reasons.

While we agree with the proposed revisions to paragraph .01 and the introduction of new application paragraph .A4, we believe that further clarification is necessary to address certain ambiguities raised by these proposed revisions.

Specifically:

• We believe that the intent of the proposed revisions is to allow for the application of CS section 100 (i.e. instead of AR-C section 70) to financial statements prepared as part of a broader consulting services engagement, not to eliminate the applicability of AR-C section 70 altogether. Therefore, to reduce the risk that the proposed exception is overapplied, effectively eliminating AR-C section 70’s applicability to engagements where substantially all of the services provided are financial statement preparation services, we believe that a clarification within application paragraph .A4 should be added. We believe that such clarification should indicate that consulting services engagements meeting the scope of this exception would include substantive services in addition to the preparation of financial statements.
• As noted in the proposed statement, consulting services and CAS engagements often include assuming certain management responsibilities such as preparing and taking responsibility for clients’ financial statements. It is common for clients to submit these financial statements to third parties for which they have a relationship, such as a bank or investor group. Therefore, we believe that the ARSC should clarify whether the known distribution of these financial statements to third parties would be consistent with the application guidance in paragraph .A4 that states that consulting services are “generally…only for the use and benefit of the client.” Providing further clarity regarding this application guidance would help practitioners and their clients better understand their responsibilities and the limitations of such engagements.

In conclusion, we support the ARSC’s efforts to modernize the applicability of AR-C section 70 and adapt it to the current landscape of consulting services and CAS provided by public accounting firms. The proposed changes will provide much needed clarity regarding the applicability of AR-C section 70, increase the consistency of its application, and ensure that the appropriate professional standards are applied in various contexts. We appreciate your consideration of our comments and look forward to the final issuance of the proposed statement.

Sincerely,

BAKER TILLY US, LLP