AICPA released new standards for forensic and litigation services
It’s perhaps an unfortunate commentary on our times that the public has any need for forensic and litigation services. But, unfortunately, as ACFE’s latest Report to the Nations reminds us, crimes like occupational fraud can inflict more harm on businesses with fewer than 100 employees than on larger businesses.
Reflecting the increasing demand for forensic and litigation services, the AICPA recently released standards for those services in Statement on Standards for Forensic Services 1 (SSFS1). This was developed by the AICPA’s Forensic and Valuation Services (FVS) Executive Committee and is effective for new engagements after Jan. 1, 2020. Early adoption was allowed.
What types of engagements does the new standard apply to?
This new standard is to be applied when AICPA members provide investigative or litigation services:
- Investigation is a service performed in response to concerns of wrongdoing in which the AICPA 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.
Unlike most standards, the decision to apply this standard is based on the purpose of the services to be provided, not on the skill set. This reflects the diverse skill sets that a practitioner may apply in these engagements. So, for example, business valuation services performed as part of a litigation engagement will fall under this standard. But, performing those same services for reasons unrelated to a forensic or litigation engagement will not fall under this standard. Likewise, this standard does not apply if a forensic investigation is performed as part of an attest engagement or a tax engagement.
This standard only applies when a member is engaged to perform investigation or litigation consulting services. It also applies when an engagement changes scope or purpose and becomes one of these. If this occurs, the member needs to update the understanding with the client. It does not apply to members who are not in public practice, and who are engaged to perform these kinds of services by their employer.
General professional standards for CPAs still apply
The same general standards of professional competence, due professional care, planning and supervision, and sufficient relevant data that are part of the AICPA Code of Professional Conduct are included here. In addition, members are reminded that they must serve their clients with objectivity and integrity.
Members need to establish an understanding with the client about the nature and scope of services to be provided. This understanding can be either written or oral. In addition, members are required to communicate with the client about any potential conflicts of interest they may have and any significant reservations about scope or benefits. Members must also communicate all significant engagement findings or events to the client.
Opinions on fraud are prohibited
Because fraud is a crime, the determination of whether fraud has been committed or not is reserved for a trier of fact, generally a judge or a jury. Therefore, the standard prohibits members from providing an opinion regarding fraud in a forensic engagement. However, a member can provide an opinion on whether the evidence is consistent with the elements of fraud or other laws.
Contingent fees generally prohibited
Contingent fee arrangements are also prohibited in litigation engagements, unless otherwise allowed by the contingent fee rule. An example of when a contingent fee is allowed is a member who requests that a taxing authority reduce the assessed value of a client’s property, and who follows the official procedures for this type of request.
These new standards give us a much-needed framework for this work. Providing forensic and litigation services is another way that accountants can serve the public good and be trusted advisors to their clients!