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CPA consulting services: a new standard.

The first Statement on Standards for Consulting Services (SSCS), Definitions and Standards, being issued this month by the American Institute of CPAs to supersede the current statements on standards for management advisory services (SSMASs), contains guidance that affects virtually every public practitioner. Its most significant impact is its definition of the broad range of functions considered CPA consulting services, not the establishment of new performance requirements. The statement also defines and describes the CPA's responsibilities on consulting engagements.

The SSCS (see page 164) establishes in the professional literature that CPAs also are consultants who provide a wide range of business and management services for clients. CPAs have always served as consultants to their clients. However, the terms used by the Institute for those services--management services and then management advisory services--did not communicate to clients and the public the full range of the CPA's consulting services.

The new SSCS supersedes the SSMASs on January 1, 1992. When the SSMASs were developed, MAS was viewed as a consulting service concerned solely with providing advice and technical assistance to management. Over the past decade, the changing marketplace has caused as steady evolution in the scope and mix of consulting services. Today, these services often go beyond the assistance envisioned in the original SSMASs. The current range of CPA firm consulting services is reflected in the six functions described in the new SSCS.


The new standards will help solve a significant problem. In the years since the SSMASs were issued, many members did not recognize that their business consulting services, often rendered informally, were either MAS consultations or MAS engagements as described in the SSMASs--and therefore subject to those standards.

The term "management advisory services" often is misunderstood as referring to a narrow set of services apart from those most CPAs in general practice provide to clients. The services frequently are thought to require training in disciplines not related to accounting. The service most widely recognized as MAS is computer consulting. However, members often don't realize other frequently provided consulting services (such as informal business advice, assistance to clients in securing loans, budgeting, business planning, business valuation, financial ratio analysis, cash and inventory management) are subject to the SSMASs.

The new statement makes it clear that all these services are consulting services. The statement applies to every member in public practice who provides a client with any of the services it describes. For example, one of the six practitioner consulting functions is to provide consultations (informal advice) on business and management matters. Therefore, an auditor or tax practitioner will be subject to the consulting services standards when providing such informal advice (unless it is excluded as being part of an excluded audit, tax or other service)--as well as any of the other, more formal, consulting functions identified in the SSCS.

Of the seven standards in the SSCS applicable to all consulting services, four come directly from Rule 201 of the AICPA Code of Professional Conduct and apply to all professional services, as does the entire code unless otherwise stated. The remaining three are very similar to the SSMAS standards. What is new is a clear statement of what kinds of services the SSCS covers, so practitioners will more easily identify the areas to which it does and does not apply.


Consulting services are defined as professional services that employ the practitioner's technical skills, education, observations, experiences and knowledge of the consulting process. The statement names and describes six functions subject to the SSCS. The AICPA now will apply the term "consulting services" to all of these functions.

It is impossible to provide a list of every potential service that can be performed in keeping with those six functions, and the SSCS doesn't attempt to do so. It does provide a few examples in each area. The reason for identifying six separate functions is that the consultant's role in each differs, depending on the purpose of the services rendered.

The six functions and their purposes are

* Consultation: Provide a rapid response to a client inquiry that requires little or no research.

* Advisory service: Develop findings, conclusions and recommendations for client consideration and decision making.

* Implementation service: Put an action plan into effect.

* Transaction service: Provide services related to a specific client transaction, generally involving a third party.

* Staff and other support services: Perform tasks specified by the client.

* Product service: Provide the client with a product and associated professional services.

The SSCS standards apply to all six functions, so it's not important to determine which function a service falls under. The SSCS describes the functions to illustrate for members the range of services to which the standards apply. (See the article on page 43 for a further discussion of all of these functions.)

The new SSCS also identifies CPA services that are not consulting services and not subject to its guidance. They are services covered by the statements on auditing standards, statements on standards for attestation engagements and statements on standards for accounting and review services, as well as engagements specifically to perform tax return preparation, tax planning-advice, tax representation, personal financial planning or bookkeeping services. Also excluded are recommendations and comments prepared during the same engagement as a direct result of observations made while performing excluded services.


By adding three general consulting standards for all consulting services to the four general standards from Rule of Conduct 201, the new SSCS provides a basis for professional services specifically intended to meet client needs.

The first of the general consulting standards sets the tone for CPA consulting services. It says the practitioner should "serve the client interest by seeking to accomplish the objectives established by the understanding with the client while maintaining integrity and objectivity." The language of the standard makes it clear the CPA consultant does not abandon integrity and objectivity even though the client's need is the basis for the engagement.

The second and third general consulting standards state important requirements for such services. The standards require consulting services to be rendered based on an understanding with the client and require appropriate information to be communicated to the client. They do not, however, dictate how this should be accomplished. For example, oral understandings and reports are always permissible; the practitioner's professional judgment will determine what must be written.



The SSCS directly addresses an issue that has concerned CPA consultants for many decades. It says performing consulting services for an attest client does not itself impair independence; however, professional and government requirements may prohibit providing certain consulting services for attest clients.

This means existing standards and requirements govern whether a specific consulting service may be provided to an attest client. Since professional and government requirements vary and are subject to change, it is impracticable to list prohibited services. A service itself is not prohibited, but the standards or regulations applicable in a specific situation may prohibit it. The SSCS makes the point that professional standards requiring independence apply only to attest clients. In some cases, however, CPA firms that have their own independence requirements may apply them to all client relationships. For example, Institute standards do not prohibit providing consulting services to a client who is a close relative if no attest services are provided; some firms may not make that distinction in their internal standards.


The new SSCS makes it clear that the understanding with the consulting services client is the primary determinant of a CPA's responsibility to that client. The statement also provides a needed distinction between attest and consulting services and between consulting services for attest clients and for clients for whom no attest services are going to be performed.

The SSCS also recognizes the importance to consulting services of a 1989 AICPA ethics interpretation, "Conflicts of Interest" (102-2 of Rule 102). The interpretation deals with the kinds of conflict-of-interest services engagement. This interpretation is important, for example, in a situation that involves a CPA consultant who happens to have a significant relationship with a vendor whose products or services will be recommended or implemented in the client engagement.

Another important concept embodied in the new SSCS is that the understanding with a client may include constraints on the scope of a valid consulting engagement. The CPA consultant can accept a client's proposed contractual limitations even if they curtail work that the CPA consultant might believe is appropriate for this particular engagement.


Two two key aspects of the new SSCS are that it reinforces the understanding with the client as the primary determinant of CPA and client responsibilities in a consulting engagement and that the definitions of the range of CPA consulting services are more accurate. Since almost every CPA in public practice will provide one or more types of consulting services to a client sometime in his or her career, this new statement will affect every practitioner. It should eliminate many misunderstandings on the nature and extent of CPA consulting services.

MONROE S. KUTTNER is the director of the American Institute of CPAs management advisory services division.

Mr. Kuttner is an employee of the American Institute of CPAs and his views, as expressed in this article, do not necessarily reflect the views of the AICPA. Official positions are determined through certain specific committee procedures, due process and deliberation.
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Article Details
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Author:Kuffner, Monroe S.
Publication:Journal of Accountancy
Date:Nov 1, 1991
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