accountant

AICPA’s New Standard Expected to Boost CPA Expert Credibility

Written on Tuesday, September 24th, 2019 by Kimberly DelMonico
Filed under: ExpertWitness

The American Institute of CPAs (AICPA) has issued a new forensic accounting standard that is expected to give CPAs a credibility boost when they serve as expert witnesses at trials.

Role of the AICPA

The American Institute of CPAs (AICPA) is the world’s largest member association for the accounting profession. The organization was founded in 1887 and today has a membership of over 429,000+ members in 122 countries and territories.

The Forensic and Valuation Services (FVS) Executive Committee supports the AICPA by providing its members with information, advocacy, and leadership to enable them to perform valuable forensic and valuation services in the highest professional manner.

The AICPA Council has designated the FVS Executive Committee as a body to establish professional standards for its members. These standards are known as the Statements on Standards for Forensic Services (SSFSs). Members of the AICPA should be prepared to justify any departures from the SSFSs.

New Standard

The AICPA recently released its Statement on Standards for Forensic Services No. 1 (SSFS 1) to clarify the definitions of “litigation” and “investigation” for accounting purposes, detail key considerations for client and provider relationships, and establish boundaries on the services members can provide.

According to SSFS 1,

  • “Investigation” is a service performed in response to 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.
  • “Litigation” is 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.

Annette Stalker, chair of the AICPA’s Forensic and Valuation Services Executive Committee,  stated, “These new forensic standards are the first time we are codifying best practices for litigation and investigation consulting work. . . . Forensic accounting is a diverse practice, and this standard is unique because it is applied based on why a service is provided — litigation or investigation — rather than what skill set is employed.”

SSFS 1 applies to all AICPA members, AICPA member firms and employees of AICPA member firms. The new standards take effect for new engagements accepted on or after January 1, 2020, with early adoption permitted.

Effect of the New Standard

According to Dave Duffus, a partner in the global forensic and litigation services practice at Top 15 Firm Baker Tilly, who also chairs the AICPA’s Economic Damages Task Force and sits on the AICPA’s Forensic and Litigation Services Committee, there are two big changes that the standard requires. First, “when we as CPAs are retained as expert witnesses, there are specific prohibitions in terms of doing that work under a contingent fee arrangement. That was not a specific callout before under the consulting standards, although I think tacitly most CPAs would recognize that it would not be appropriate to do expert work under a contingent fee arrangement.”

Duffus continued, “the second thing is it very explicitly states that we should not be rendering opinions about whether fraud has or hasn’t been committed. That’s a role for the trier of fact in a case, so we can present evidence that may be related to indicia of fraud but ultimately it’s up to a trier of fact to make that decision as to whether fraud has actually occurred.”

About Kimberly DelMonico

Kimberly DelMonico is a licensed attorney in New York and Nevada. She received her law degree from William S. Boyd School of Law at University of Nevada, Las Vegas and her undergraduate degree from New York University, where she studied psychology and broadcast journalism.

About Kimberly DelMonico

Kimberly DelMonico is a licensed attorney in New York and Nevada. She received her law degree from William S. Boyd School of Law at University of Nevada, Las Vegas and her undergraduate degree from New York University, where she studied psychology and broadcast journalism.