The American Institute of CPAs has a new standard for forensic accounting to take effect early next year, and it promises to give CPAs a head start in terms of credibility by providing litigation support as expert witnesses to the bar during the trials.
The AICPA released the standard in July (see AICPA Releases New Forensic Accounting Standards). The Statement on Standards for Forensic Services No. 1 (SSFS 1) has an effective date for accepted assignments as of January 1, 2020, and applies to any member of the institute, or employee of a member firm, who provides services to a client as part of a ‘a dispute or a fact-finding mission. It is said to be the first time that forensic accountants will have compliance standards like a CPA with the AICPA codifying best practices for litigation and investigative advisory work performed by forensic accountants.
“Historically, our forensic work has fallen under the advisory standards, which codified is CS 100,” said Dave Duffus, Global Forensic and Litigation Practice Partner of Top 15 Firm Baker Tilly, who also chairs the AICPA Economic Damages Working Group and sits on the AICPA Medico-Legal and Litigation Services Committee. “This standard covered the waterfront not only forensic standards but also other management consulting services, like systems implementation work and things of that nature. This CS 100 standard has been in place since the early 1990s and was actually issued by the former Management Consulting Services Executive Committee, which no longer even exists. Part of the momentum in pushing forensic standards forward was the recognition that if there were any required revisions or changes to the standards, we really had no control over it because there was no there was no standards authority that would be able to provide the revisions, so the [Forensic and Valuation Services Executive Committee] rose to the challenge of actually issuing the forensic standard.
For the purposes of the standard, a litigation engagement is defined as “an actual or potential legal or regulatory proceeding before a trier of fact or a regulatory body as an expert witness, consultant, neutral, mediator or arbitrator in connection with the dispute resolution between parties. ”The term“ litigation ”is not limited to formal litigation, but encompasses litigation and all kinds of dispute resolution.
A fact-finding mission is defined as “a matter conducted in response to specific concerns of wrongdoing in which a member is engaged to perform procedures for collecting, analyzing, evaluating or interpreting certain evidence in order to help stakeholders (eg client, board of directors, independent auditor or regulator) to reach a conclusion on the merits of the concerns.
When a CPA accepts a forensic assignment, the member is required to undertake all work with professional competence, professional diligence, adequate planning and supervision, sufficient relevant data; integrity and objectivity. The CPA must also have a clear understanding with the client of the responsibilities of the parties, as well as the nature, scope and limits of the services to be performed, as well as adequate communication to inform the client of any conflict of interest. , significant reservations about the scope or benefits of the engagement, and significant engagement findings or events.
The new standard covers most of the requirements of the old standard, but with two main changes. “The core principles of the standard build on what was stated in CS 100, and what is also in the general standards that apply to all CPAs,” said Duffus. “Essentially, the concepts of having professional confidence when doing our work, exercising professional diligence, ensuring that our work is supported by sufficient relevant data, and so on. So there is no change in this regard. But I think the two biggest changes that are spelled out in CS 100 that are called for in the new forensic standard are that when we as CPAs are called into expert witnesses there are specific prohibitions in terms of to do this work under a contingent fee arrangement. This was not a specific call previously under consultation standards, although I think most CPAs would tacitly recognize that it would not be appropriate to do expert work under a deal. contingency fees. And then the second thing is that he says very explicitly that we shouldn’t be giving opinions on whether or not fraud has been committed. This is a role for the trier of fact in a case, so we can present evidence that may relate to clues of fraud, but ultimately it is up to the trier of fact to make the decision as to whether fraud actually took place. “
SSFS 1 requires that a member engaged as an expert witness in a litigation engagement may not provide opinions under a contingency fee agreement, unless this is explicitly permitted under the rules of ‘contingency fees; and the members refrain from pronouncing on the occurrence of fraud, because it is a decision which rests with the trier of fact. CPAs who provide forensic accounting services generally adhered to a set of standards that generally applied to all members of the profession. However, a standard specific to forensic missions has never been codified. SSFS 1 does this now. It clarifies and eliminates confusion about the types of assignments that can be performed, including when “agreed upon” assignments are or are not appropriate. Undertaking agreed procedures does not lead to an opinion, so they are generally not suitable for expert work where opinions are required.
SSFS 1 also removes the uncertainty as to how CPAs and their firms can be compensated for their work on forensic engagements, as well as what kind of opinion, if any, can be provided in as part of an investigation into suspected fraud. The standard continues to be based on professional and ethical guidelines followed by CPAs and CPA firms, but aims to improve the quality of services provided by CPAs in the context of medico-legal assignments.
It can also help CPAs and their firms on the liability risk side of it, but there are bigger benefits in terms of credibility. “I don’t know if that necessarily removes the risk of liability per se, but I think it keeps us on track, if you will, in terms of our expertise,” Duffus said. “This is with regard to the fraud side of the equation. And then with regard to the contingency fees, I think that helps isolate us because to go and testify as an expert and for it to come out that basically your opinion depends on the size or the size of the number. , this can seriously damage our credibility, so it is important to point this out.
The FVS executive committee is preparing a series of frequently asked questions about the new standard. Although the standard goes into effect on January 1, 2020, early adoption is allowed and even encouraged, according to Duffus. The new standard could give CPAs an edge over some of the competition in litigation support.
“My anecdotal feedback is that it has been well received by CPAs,” said Duffus. “This is for several reasons. Having a specific forensic standard has been viewed favorably, especially by people like me who testify often as an expert witness. For example, in the cases in which I am involved, I may run up against, say, a university professor in finance or economics who has been retained on questions of valuation or damages. They aren’t usually subject to a set of professional standards like we are as a CPA, so I think we have a standard that we can refer to to support our expert opinions – basically that whenever we’ve done the job. The work we have done, whether supported or carried out according to a set of standards – gives us credibility with others who are not subject to the same kinds of standards. This is my overall impression of how other CPAs see it. Much of our job is to be retained by lawyers and law firms, and I think they view it favorably in terms of building our credibility as expert witnesses.
The AICPA may require familiarity with the new standard as a requirement for at least one of its credentials. “The two key references that I see on the forensic side of the AICPA house are the Certified in Financial Forensics, or CFF, and the ABV, which is accredited in business valuation,” said Duffus. “I think this will become particularly relevant and will be part of the training of CFF. Regarding ABV, there is a statement on standards for business valuation services that came out in 2007. It’s still in place, but I think it will sort of go next to that. in terms of the valuation work that is done in a dispute setting. “