The term “independent accountant“ is used interchangeably with “independent auditor” and “independent public accountant”. Generally, the term is limited to either certified public accountants (CPAs) or public accountants licensed to perform audits and express opinions on financial statements under applicable state accountancy laws.
Because they are knowledgeable about accounting principles and accounting systems, tax matters, and the like, independent accountants provide a wide range of services in addition to audits. These include accounting and review services, tax services, consulting services, personal financial planning, and other types of special service. The range of their services has recently become contentious.
This post discusses wide-range of services that maybe offered by independents accountants. It may help you if you are searching for specific information before deciding what types of services you may ask to an independent accountant, or if you are an accounting student, you may wonder what types of service you can offer to clients if you become an independent accountant in the future. Enjoy!
An audit involves the application of a variety of procedures and techniques to obtain evidential matter sufficient for the independent accountant to express an informed opinion about whether the financial statements conform with generally accepted accounting principles (GAAP). When serving as an auditor, the independent accountant is guided by a Code of Professional Conduct and a variety of standards promulgated by professional bodies established for that purpose.
Rule of Conduct 202 of the American Institute of Certified Public Accountants (AICPA’s) Code of Professional Conduct provides:
A member who performs auditing, review, compilation, management consulting, tax or other professional services shall comply with standards promulgated by bodies designated by … [the AICPA].
Generally Accepted Auditing Standards [GAAS]
Ten generally accepted auditing standards [GAAS] are cited by AICPA Professional Standards (AU 150):
- Training and proficiency. The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor.
- Independence. In all matters relating to the assignment, independence in mental attitude is to be maintained by the auditor or auditors.
- Due care. Due professional care is to be exercised in the planning and performance of the audit and the preparation of the report.
Standards of Field Work
- Planning and supervision. The work is to be adequately planned and assistants, if any, are to be properly supervised.
- Understanding of entity and its environment. The auditor must obtain a sufficient understanding of the entity, and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures.
- Evidence. The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.
Standards of Reporting
- Generally accepted accounting principles. The report shall state whether the financial statements are presented in accordance with GAAP.
- Consistency. The report shall identify those circumstances in which such principles have been consistently observed in the current period in relation to the preceding period.
- Disclosure. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report.
- Expression of opinion. The report shall either contain an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be expressed, the reasons therefore should be stated.
In all cases where an auditor’s name is associated with financial statements, the report should contain a clear-cut indication of the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking.
Statements on Auditing Standards [SAS]
Statements on Auditing Standards (SASs) are pronouncements issued by the Auditing Standards Board (ASB) of the AICPA to guide auditing practice. As Rule 202 indicates, SASs are enforceable under the Code; but perhaps of equal importance, courts generally view adherence to SASs as the standard for assessing an auditor’s liability.
For audits of nonpublic companies, the SASs specify required auditing procedures, provide guidance on important areas of judgment often encountered in audits, and establish the form and content of the auditor’s report. They are issued individually in a numbered series and are codified in a loose-leaf service. Bound versions of the loose-leaf service are issued annually and provide the most convenient form for use in practice.
Interpretive publications consist of auditing interpretations of the SASs, auditing guidance included in AICPA Audit and Accounting Guides, and AICPA Auditing: Statements of Position. They deal with the application of SASs to particular circumstances, thus are usually more limited and specific in coverage. These publications are issued under the authority of the AICPA’s ASB after review and comment by ASB members. Although they are not auditing standards, the auditor should be aware of and consider interpretive publications applicable to the audit. If the auditor decides not to apply the auditing guidance in these publications, the auditor should be prepared to explain how he complied with the SAS provisions addressed by the publications.
Other Auditing Publications
Examples include articles in professional journals, auditing articles in the AICPA CPA Letter, continuing education programs, and other instruction materials, textbooks, guide books, and other auditing publications from state CPA societies, other organizations, and individuals. These publications have no authoritative status, but they may help the auditor understand and apply SASs.
Accounting services include all forms of involvement with financial statements or financial information other than an audit, such as bookkeeping, compilation of financial statements from a trial balance, and review of financial statements.
The accountant’s responsibilities for the unaudited financial statements of a nonpublic company are set forth in Statements on Standards for Accounting and Review Services (SSARS), a numbered series of pronouncements issued by the Accounting and Review Services Committee of the AICPA.
Technically, an accountant is not “associated” with the unaudited financial statements of a nonpublic company under SSARS No. 1, “Compilation and Review of Financial Statements” (AR 100), but has a similar reporting obligation:
An accountant should not consent to the use of his name in a document or written communication containing unaudited financial statements of a nonpublic entity unless (a) he has compiled or reviewed the financial statements and his report accompanies them, or (b) the financial statements are accompanied by an indication that the accountant has not compiled or reviewed the financial statements and he assumes no responsibility for them.
If an accountant becomes aware that his name has been used improperly in any client-prepared document containing unaudited financial statements, he should advise his client that the use of his name is inappropriate and should consider what other actions might be appropriate, including consultation with his attorney.
The accountant should not submit unaudited financial statements of a nonpublic entity to his client or others unless, as a minimum, he complies with the provisions of this statement applicable to a compilation engagement.
Thus, the only types of report an accountant may issue in connection with the unaudited financial statements of a nonpublic company are for the accounting services of a compilation or review. These services are defined as follows in SSARS No. 1 (AR 100):
- Compilation. Presenting in the form of financial statements information that is the representation of management (owners) without undertaking to express any assurance on the statements.
- Review. Performing inquiry and analytical procedures that provide the accountant with a reasonable basis for expressing limited assurance that there are no material modifications that should be made to the statements in order for them to be in conformity with GAAP or, if applicable, with another comprehensive basis of accounting.
An accountant may provide a variety of other accounting services to a nonpublic client, such as preparing a trial balance, assisting in adjusting books, or providing various manual, automated, or electronic bookkeeping services.
However, if the accountant submits financial statements as a result of these services, he must issue a communication under SSARS No. 1, as amended by SSARS No. 8. Submission of financial statements is defined in paragraph 4 of SSARS No. 1, as amended by SSARS No. 8. The type of communication should be either (1) a compilation report on the financial statements or (2) an engagement letter to the entity’s management. The accountant’s decision as to the specific type of communication is based on expected third-party use of the financial statements.
In addition to the typical accounting and auditing services related to financial statements, the training and the experience of independent public accountants qualify them to provide a wide variety of tax services, consulting services, personal financial planning, and other special services.
In carrying out such engagements, a member of the AICPA complies with the general standards for professional competence, due care, planning and supervision, and sufficient relevant data as set forth in Rule 201 of the AICPA’s Code of Professional Conduct. Other, more specific standards may apply for particular types of engagements, such as those involving prospective information.
The accountant may be called on to deal with a variety of tax problems, including those involving federal and state income taxes, estate and inheritance taxes, sales and use taxes, payroll taxes, and property taxes. The field of income taxes is especially important. The services rendered by the accountant in this area include determination of taxable income, preparation of tax returns and claims for refunds, representation of clients before taxing authorities, and cooperation with lawyers in the settlement of tax suits by litigation. The AICPA publishes Statements on Responsibilities in Tax Practice for the guidance of its members.
The AICPA’s Management Consulting Services Executive Committee issues pronouncements related to the conduct of a variety of consulting services.
Statement on Standards for Consulting Services No. 1, Consulting Services: Definitions and Standards, describes the consulting process as:
activities relating to the determination of client objectives, fact-finding, definition of the problems or opportunities, evaluation of alternatives, formulation of proposed action, communication of results, implementation, and follow-up.
The process includes:
- Counseling management in its analysis, planning, organizing, operating, and controlling functions
- Conducting special studies, preparing recommendations, proposing plans and programs, and providing advice and technical assistance in their implementation
- Reviewing and suggesting improvement of policies, procedures, systems, methods, and organizational relationships
- Introducing new ideas, concepts, and methods to management
Other Special Services
The independent public accountant may be called on to make special investigations or to report in connection with the special requirements of a government agency. Those services may require aspects of tax, consulting, and accounting and auditing skills. Special services often involve services other than an audit of one or more financial statements. Examples of these services include reviews or compilations of financial statements, examinations or reviews of nonfinancial information, such as compliance with laws and regulations, circulation statistics for advertising media, and labor contract negotiation data. These services also include application of agreed-on procedures to specified elements, accounts, or items of a financial statement or to nonfinancial information.
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