To better position themselves as providers of higher-level advisory services to their clients, accountants should develop expertise in SSARS 21 Section 70. There is a lot of buzz in the profession about disruption, transformation, and moving up the service value continuum. Advisory services are becoming an important revenue category for firms of all sizes, according to the most recent National Management of an Accounting Practice (MAP) Survey from the AICPA Private Companies Practice Section (PCPS) and CPA.com.
So at a time when firms are focused on moving up the service value continuum, it may seem curious to embrace Statement on Standards for Accounting and Review Services (SSARS) No. 21, Statements on Standards for Accounting and Review Services: Clarification and Recodification, Section 70, a standard that allows an accountant to prepare financial statements without issuing an audit, review, or compilation report. Is SSARS 21 Section 70 a step in the wrong direction? Or can it help your firm move up the value continuum?
A Little Background
To understand SSARS 21, according to Mike Glynn, a senior manager with the AICPA Auditing and Attest Standards team, we have to first look back at SSARS 1, issued in 1978. This established standards for CPAs reporting on a client’s unaudited financial statements, prohibiting a CPA from issuing a report on unaudited financial statements unless either compilation or review procedures were applied to those statements.
“At the time,” Glynn says, “a CPA had to sit down with paper and pencil to draft a financial statement. If you prepared and submitted those financial statements, you had to issue a compilation report.”
But the application of that standard no longer works, Glynn says. “Now people have no idea whether they’re preparing financial statements. With cloud software, some CPA firms with the slightest involvement in the software would issue a compilation report, others wouldn’t. SSARS 21 takes that reporting piece and says, ‘You know what? The only time we issue a compilation report is when the client wants or needs it to bring to their bank or loan officers.’” In effect, Glynn says, the standard simply takes away a reporting element that was seen as a shackle for many CPA firms.
No Assurance Provided
SSARS 21 Section 70 requires that prepared financial statements include a statement on each page of the financial statements indicating, at a minimum, that “no assurance is provided” on the financial statements. In addition, the accountant can choose whether or not to include their name on the statements.
However, a statement that the financial statements were not audited could still put a third party on notice that a CPA was involved in their preparation, even if the CPA’s name is not attached. Does this create a risk that third parties could claim they placed greater reliance on the financial statements, knowing that a CPA was involved in their preparation even though the financial statements themselves state that no assurance is given?
CPAs who are concerned about an increased risk of legal liability should use SSARS 21 as an opportunity to educate bankers that will be relying on the statements on what exactly the disclaimer means. Samantha Mansfield, Director of Professional Development and Community at CPA.com and one of the instructors for the AICPA’s Client Accounting Advisory Services Certificate program, has taken part in such discussions. In her experience, most bankers and third parties find it immensely helpful to have a dialog with a CPA regarding what level of assurance is needed.
Even firms that aren’t proactively talking to bankers and other third parties about the differences between compiled and prepared financial statements will likely hear from bankers who receive a prepared financial statement when they’re accustomed to a compilation. “Suddenly the banker is paying more attention,” Glynn says. “This could even trigger the banker to require a review or an audit. The client will finally get the service they’ve perhaps always needed because we shook things up a bit,” Glynn says.
In fact, Glynn recommends leaning into the “implied assurance” that comes from having financial statements prepared by a CPA firm over a non-CPA. “We should be able to place more reliance on CPA-prepared financial statements than ones prepared by someone else. We’re the experts,” he says. “Don’t run from that; embrace it.”
How SSARS 21 Helps Firms Grow Advisory Services
Cloud computing has been instrumental to the growth of advisory services, helping firms migrate away from services that are purely based on compliance and transactions. Mansfield explains, however, that most firms fall on a spectrum in terms of where they are offering those services. Many start by helping their clients streamline their office and daily accounting activities — services that some partners see as glorified bookkeeping.
The value that the firm is actually providing here is helping the client to automate their processes and providing both the client and the firm access to more timely information. Only then can the CPA spend more time looking at the data and interacting with the client in an advisory way. What might start out as business process outsourcing can eventually scale up to being a virtual controller or CFO. “The ultimate benefit is an ongoing relationship with the client,” Mansfield says.
Many small businesses don’t have the expertise they need to set up effective processes, manage their day-to-day accounting, and use that data to make decisions, but they can’t afford to pay $5,000 per month for high-end virtual CFO services.
Mansfield says she sees some firms do one-time or short-term projects with clients to help them get on the right track from the beginning, then the firm refers the client to another firm to handle the ongoing transactional and compliance work. “The client comes back later when they’re ready for ongoing strategic advisory services,” she says.
The key to effectively using SSARS 21 Section 70 to grow a firm’s advisory services — versus simply giving clients a “cheaper” alternative to the compilation — is client selection: identifying and working with clients that the firm can help grow and ones that want to grow with the firm.
“Those clients that are chronically late and not looking at the future — those are not the clients you want to work with,” Mansfield says. “You want to work with clients with vision and goals.”
The firm may start working with a client at a lower price point, but it’s an investment in building a long-term relationship. When you think of it in terms of improving the financial status of the client over an extended period of time, that client could end up bringing hundreds of thousands of dollars of revenue to the firm, but in $500 increments.
Rather than reducing the role of a CPA to performing services that can be carried out well (and typically at a lower cost) by a good bookkeeper or a computer program, the prepared financial statements permitted by SSARS 21 Section 70 are a crucial tool for elevating the role of CPAs in becoming strategic advisors to their clients.
“CPAs care about their clients’ success,” Mansfield says. “Now they can spend more time forecasting and helping clients reach their goals.” Higher value comes from taking data beyond compliance, using it to help clients make better decisions. This isn’t just better for clients, it’s also lucrative for the accounting firm.