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Positioning the audit function for growth.

In the fall of 1994, the board of directors of the American Institute of CPAs appointed the special committee on assurance services (SCAS) to reinvigorate the audit function and stake out new economic territory for the CPA profession. The committee expects to complete its work and report to the AICPA council in the fall of 1996. An interim report will be made this fall. Its recommendations may have a major effect on the future of CPA practices.

The SCAs consists of 14 members representing firms of all sizes, industry, government and academe. Robert K. Elliott, of KPMG Peat Marwick, LLP, is chair, and Don M. Pallais, a sole practitioner in Virginia, serves as its executive director.

Facing a changing market

To prosper, CPAs must consider the needs of those who use their services for decision making and, like any other commercial enterprise, develop products that meet users' latent or emerging needs. While the audit service is still important, it was designed to meet the needs of users of an earlier time. The SCAS's mandate is to determine whether the basic audit service should be changed to meet users' needs in the information age, and the changes to be recommended.

The AICPA must take action now so the profession can respond to change. The SCAS's objective is to examine users' current and future needs in order to position CPAs to better meet them.

Why auditing has to change

The audit function fills an important need, and the profession needs to continually reexamine auditing standards. However, a critical look at the future of the CPA's defining service suggests that it is a mature and perhaps declining, product that needs to be revitalized.

Over the past six years, inflation-adjusted accounting and auditing revenues have been flat for the 60 largest firms, according to Accounting Today. in fact, revenue from these services now accounts for less than half of the firms' total revenue. This decline results from a variety of factors, many of which are not under the profession's control. But it is clear that unless the basic product is improved, the profession will be weaker in the future.

The forces that contributed to the existing market situation will continue and probably accelerate in the future. (For a discussion of the threats and opportunities facing the auditing profession, see "The Future of Audits," by Pobert K. Elliott, JofA, Sep. 94, page 74.) The marketplace seems to be saying that the audit is not a value-added service worth a premium price. To prosper in the future, the audit must be seen as valuable. Auditors' competencies, including their independence and objectivity, are valuable, but they are currently put to use in conjunction with an aging product.

Planning for growth

The committee will study users' needs for assurance, both as they are now and as they are expected to be in the next decade, New services will be designed to meet those needs. While the nature of those future services remains to be seen, they might well differ from the audit services of today. For example:

* New services might deal with financial or nonfinancial data.

* The services might deal not only with reliability of information but also with its relevance for decision making.

* The CPA might report on data or on systems that produce or interpret it.

* The auditor might provide assurance on client-prepared data or also provide his or her own comments or analysis.

* New technology might change the form, content, timing or medium of the CPA's communications.

* New CPA--client--user relationships might be created.

The SCAS's goal

The ultimate direction has not been charted; it will depend on the needs of information users--not just investors and creditors, but potentially all those who make decisions based on information. The SCAS is researching those needs and the trends that are expected to affect the use of information.

The committee aims to create higher-value assurance services in demand by users, not ones that are required by standards or regulation. However, it does not have the authority to set new standards; it can only propose new directions to be acted on by others. For example, if new standards are necessary, the appropriate bodies, such as the auditing standards board, will consider them. Other changes might also be required to implement the committee's recommendations, such as new university curricula or continuing education. The SCAS envisions the CPA as the primary provider of services necessary to assure the usefulness of information used for decision making. Transforming the profession into a customer-driven enterprise might be difficult, but new services should increase the CPA's value and strengthen the profession's role.

The Jenkins committe

The special committee on financial reporting (the Jenkins committee), which issued its final report last year, studied business reporting. The SCAS is charged with considering the future of auditing services. While the goals are similar in that both seek to refine basic accounting-related products to serve users' current and future information needs, they contrast as do generally accepted accounting principles and generally accepted auditing standards.

The Jenkins committee made some limited recommendations to improve auditor involvement with business reporting. It did not attempt to make extensive recommendations for auditor services or reports and, in fact, acknowledged the formation of the SCAS in its final report.

What's ahead

This spring, the SCAS began its research into users' needs for assurance on information. This phase of the committee's work includes analysis of economic, technological, social and political trends and interviews with a wide range of information users. It is expected to continue through the end of summer. The completion of the research phase will be followed by formulation and discussion of the SCAS's recommendations (expected to take until next summer) and, once a direction has been decided on, clearing the road" for implementation of necessary changes.

The SCAS is committed to communicating with practitioners, users of assurance services and others interested in CPA services and to involving them in its deliberations. It will provide periodic updates of its activities in AICPA and state CPA society publications; make presentations at conferences, at which attendees will be able to give their views; and meet with representatives of affected groups. The SCAS wants to receive members' insights regarding its direction and tentative conclusions", when they are developed. Members may send their comments directly to Don M. Pallais, 11127 Sithean Way, Richmond, Virginia 23233. The profession can move forward only if it is united to attain an achievable goal.
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Title Annotation:AICPA special committee on assurance services
Author:Pallais, Don M.
Publication:Journal of Accountancy
Date:Jul 1, 1995
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