As the role of the CPA changes, it brings the need to emphasize to students that the CPA profession, more than ever before, is requiring its members to innovate, develop an analytical mindset, think critically and strategically, and communicate articulately.
We extensively study how technological advances involving artificial intelligence, big data, block chain, drone usage and cloud computing are impacting and disrupting the professional landscape. We also discuss how today’s successful CPAs will be required to be well-versed in more “general” business management skills such as leadership, project development and relationship building as they move from bookkeeping/compliance roles to business advisory roles.
Additionally, and equally as important—if not most important—is the significant amount of time we spend discussing professional ethics for CPAs: the AICPA Code of Professional Conduct (the “Code”).
Considering how technological disruption, new service opportunities (e.g. sustainability reporting) and client expectations are changing the profession, it is important that adherence to the Code and the ethical implications of these changes be kept in the forefront of our minds.
One part of the Code we discuss in great depth is the “Independence Rule” (ET 1.200.001). Clients are wanting their CPAs to not only prepare or review the numbers but also serve as business advisors, so one question becomes: How do CPAs performing attest services maintain their independence and compliance in light of these changing expectations?
A recent illustration that highlights some of the potential issues surrounding changing client expectations and attest provider independence relates to FASB’s new revenue recognition guidance, ASC 606, and the CPA’s ability to maintain independence when the attest client is requesting assistance in implementing the standard. How much and what type of assistance is allowed? I found interpreting the requirements of ASC 606 and explaining them to my students to be a challenging and frustrating exercise initially, so I can understand how some clients—especially smaller private companies and not-for-profits—have felt when trying to understand, apply and implement the standard themselves. It is no wonder they have turned to their accounting firms for expert help.
If you do not already listen to the Ethically Speaking podcast presented by the AICPA Professional Ethics Division, I would highly recommend checking it out. Two of the most recent episodes have focused on the issues surrounding member independence and client implementation of ASC 606. In podcast Episode 10, Lee-Andrews and Dohrer (2020) explain that CPAs like to give answers, have answers and help their clients. However, in the desire to be helpful, attest service providers have to be mindful not to blur the line between providing advice in the way of training/tools and performing management responsibilities or auditing their own work.
While the Code “Advisory Services” interpretation (ET 1.295.105) does allow for members to provide advice, independence will become impaired unless threats are reduced to an appropriate level.
Specific threats discussed by Lee-Andrews and Dohrer (2020) and Lee-Andrews and Lewis (2019) as most applicable to this situation are those of management participation, self-review and advocacy (e.g. trying to obtain the result management wants rather than in applying the standard as written). For example, financial statements and related internal controls over financial reporting are the responsibility of management and management has to assume those responsibilities.
In providing client services, CPAs must be careful they do not create the evidence to support the amounts, as this would cross into performing management responsibilities (Lee-Andrews & Dohrer, 2020). Additionally, while CPAs can explain the five core revenue recognition principles, the client must actually perform the steps of identifying the contracts and performance obligations, determining and allocating the transaction price, and recognizing revenue as performance obligations are satisfied (Lee-Andrews & Lewis, 2019).
The situation described above serves as but one example of potential risks to independence in a complex business environment, and why it is critical we keep ethics and adherence to the Code front and center as our roles as CPAs are evolving.
As always, remember the INCPAS Ethics Committee and its Ethics Hotline are available resources should you have any questions or concerns. The Ethics Hotline is (317) 726-5000.
Lee-Andrews, T. (Director of AICPA Professional Ethics Division) and Dohrer, B. (Chief Auditor of the AICPA Audit & Attest Team) (2020, February 10). Ep. 10: 606 SOS -- What happens if...Ethically Speaking [Audio podcast].
Lee-Andrews, T. (Director of AICPA Professional Ethics Division) and Lewis, J. (Partner of Dixon, Hughes, & Goodman) (2019, November 29). Ep 9: Independence considerations when implementing FASB ASC 606 [Video podcast].