Firm Blog Postings
AICPA Issues New Forensic Accounting Services Standards
by Craig L. Greene, CPA/CFF, CFE, MAFF
Effective for engagements accepted on or after January 1, 2020, CPAs providing forensic accounting services must adhere to Statement on Standards for Forensic Services No. 1 (“SSFS 1”) promulgated by the American Institute of CPA’s. Prior to the issuance of SSFS 1 most practitioners complied with the AICPA’s Statement on Standards for Consulting Services No. 1 issued in 1991. The new Standards define forensic as “used in, or suitable to courts of law or public debate” and resolves the issue of the professional standards that a CPA should apply to a forensic engagement.
SSFS 1 establishes standards for a member providing services to a client as part of the following engagements:
• Litigation. 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 resolution of disputes between parties. The term litigation as used herein is not limited to formal litigation but is inclusive of disputes and all forms of alternative dispute resolution.
• Investigation. A matter conducted in response to specific concerns of wrongdoing in which the member is engaged to perform procedures to collect, analyze, evaluate, or interpret certain evidential matter to assist the stakeholders (for example, client, board of directors, independent auditor, or regulator) in reaching a conclusion on the merits of the concerns.
Prior to the issuance of SSFS 1 some practitioners would issue reports that conformed with Standards applicable to Agreed Upon Procedures (“AUP”) Engagements. These types of engagements allowed the CPA to perform a limited number of procedures that were agreed to by the CPA and client to accounting records and/or transactions. The new Standard does not allow a CPA to perform the engagement using AUP standard when engaged by one party of the litigation. However, results may be reported under the AUP standard in an engagement in which a member is engaged by the trier of fact or both sides of the dispute jointly, or both.
The general standards of the profession are contained in the “General Standards Rule” (ET sec. 1.300.001 and 2.300.001) and apply to all services performed by a member, including forensic services. They are as follows:
• Professional competence. Undertake only those professional services that the member or the member’s firm can reasonably expect to be completed with professional competence.
• Due professional care. Exercise due professional care in the performance of professional services.
• Planning and supervision. Adequately plan and supervise the performance of professional services.
• Sufficient relevant data. Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.
CPA must also follow additional general standards, which are promulgated to address the distinctive nature of such services, specifically:
• Client interest. Serve the client interest by seeking to accomplish the objectives established by the understanding with the client while maintaining integrity and objectivity.
Integrity. — Integrity is described as follows: “Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle.”
Objectivity. — Objectivity is described as follows: “Objectivity is a state of mind, a quality that lends value to a member’s services. It is a distinguishing feature of the profession. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest.”
• Understanding with client. Establish with the client a written or oral understanding about the responsibilities of the parties and the nature, scope, and limitations of services to be performed and modify the understanding if circumstances require a significant change during the engagement.
• Communication with client. Inform the client of (a) conflicts of interest that may occur pursuant to the “Integrity and Objectivity Rule”, (b) significant reservations concerning the scope or benefits of the engagement, and (c) significant engagement findings or events.
The new Standard prohibits a member engaged as an expert witness in a litigation engagement to provide expert opinions pursuant to a contingent fee arrangement, unless explicitly allowed otherwise under the AICPA “Contingent Fees Rule”.
Finally, the Standard states that the ultimate decision regarding the occurrence of fraud is determined by a trier of fact; therefore, a member performing forensic services is prohibited from opining regarding the ultimate conclusion of fraud. This does not apply when the member is the trier of fact. A member may provide expert opinions relating to whether evidence is consistent with certain elements of fraud or other laws based on objective evaluation.
Attorneys working on cases involving expert witnesses that are forensic accountants should be well versed in the new Standards to determine that the expert is complying with it. Copy of the new standard may be obtained from our office by emailing firstname.lastname@example.org.
Craig L. Greene is a founding partner of McGovern & Greene LLP, a CPA and Forensic Accounting Firm with offices in Chicago and Las Vegas. Craig has practiced as a forensic accountant and fraud examiner for over 30 years. As of January 1, 2020, McGovern & Greene LLP will change its firm name to Greene Forensic Accounting Solutions LLP.
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