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By Glenn L. Helms and Kennard S. Brackney

The market for traditional accounting and audit services is relatively stable and demand for such services is not expected to increase significantly in the foreseeable future. The public accounting profession seeks to expand the nature and scope of its services to include an emerging area of practice--assurance services. These new services should provide the profession with new practice opportunities in the long run. However in the short run, practitioners can use their existing knowledge base to expand a relatively newly established nontraditional area of practice--attestation services.

The attestation standards were adopted in the mid 1980s to furnish guidance to practitioners who provided nontraditional attest services and in response to a perceived demand for these services. Relative to traditional audits of historical financial statements, attestation services provide the auditor the opportunity to render opinions on a much broader range of client assertions. CPAs who perform traditional audits of historical financial statements can apply existing audit knowledge, skills, and abilities and include attestation services in their portfolio of services.

Exploring the impact of the attestation standards on the nature and scope of public accounting is potentially of great benefit as this nontraditional area of practice provides CPAs the opportunity to expand their practices in a relatively short time frame. We conducted a survey of small, medium, and large public accounting firms' offices to obtain an understanding of impact of attestation services on public accounting practice, to identify examples of this type of service, and to explore possible barriers that might restrict the expansion of this service.

Attestation Standards

The attestation standards provide guidance to the auditor when providing varying levels of assurance on a written assertion made by a client or a third party. Similar to traditional audits of historical financial statements and historical financial data, the CPA can provide either positive or limited assurance on the written assertion and can also perform agreed-upon procedures. The assertion can be financial or nonfinancial in nature. Additionally, the auditor's report can be for either general or restricted distribution.

The assertion must be capable of reasonably consistent estimation or measurement and be based upon criteria established by a recognized body or stated in a sufficiently clear and comprehensive manner for a knowledgeable reader to understand them. To conduct an attestation service, the CPA must be independent, exercise due professional care, have training and proficiency in the attest function, and be knowledgeable in the attest subject matter.

Table 1 contains an extensive list of financial and nonfinancial attestation services that have been provided by practitioners. The examples of attestation services include those that are primarily financial in nature, such as attesting to contract costs and current values of real estate. Additionally, the examples include those that are primarily nonfinancial in nature. such as attesting to product claim validity and statistical survey results.

Areas of Practice

To obtain an understanding of the impact of attestation standards on public accounting practice, 971 CPAs were selected at random from members of the AICPA who indicated they practice public accounting. Data concerning the nature and scope of services were accumulated by individual offices. Firms with multiple offices could therefore be represented more than once in the responses. A response rate of 15% was achieved.

CPAs were asked to estimate the percentage of their office's professional time to be devoted to traditional and nontraditional services in the year 2000. These prospective data will permit CPAs in various sized firms to react to their colleagues' marketing strategies.

Table 2 contains a profile of professional services expected to be provided in the year 2000 categorized by firm size. Small firms (10 or fewer professional staff) constituted 73% of the respondents. The small firms expect that nearly three quarters of their practice will be devoted to individual tax, compilation and bookkeeping, corporate tax, personal financial planning, and other services. The medium-sized firms (11 to 100 professional staff), who comprise 12% of the respondents, expect just over half of their practice to be comprised of these services. The large firms (over 100 professional staff) provided 15% of the responses and anticipate that just over a quarter of their practice will be devoted to these areas. Management consulting will comprise 26% of large firms' practice, 10% of medium firms, and eight percent of the small firms. Attestation, audit, and review services will comprise 45% of large firms' practice, 38% of medium firms', and 17% of the small firms' practice.

It appears the large firms, who have always led other firms in traditional audit work, will incorporate nontraditional attestation services in their practice. In fact, large firms expect 23% of their attest services to be nontraditional. Medium firms also believe attestation services will be a substantial revenue generator as they expect 18% of all attest work to be nontraditional. Small firms anticipate that only 13% of their attestation work will be nontraditional. Large firms will be leaders in the nontraditional attest area. This is not surprising, since large firms were first to pursue this practice area as they could easily build upon existing audit competencies to expand a similar service area.

Overcoming Barriers

Even though nontraditional attestation services are expected to be a significant portion of the total attest services area, they are expected to constitute a relatively small share of a firm's total service portfolio. Since leaders in the profession believed there was a large demand for attestation services, additional survey questions were posed seeking reasons why attestation services are not expected to grow at a more substantial rate. Firms were asked to rate the importance of reasons why they declined attestation engagements and the importance of factors that restrict the expansion of attestation services.

Table 3 provides the weightings for reasons firms declined attestation engagements. Small firms declined engagements due to limited knowledge of the attest subject matter and lack of training and proficiency in the attest function. This is understandable as small firms expect to have a low percentage of their total practice devoted to attest services and would not be proficient to perform these services. Small firms can incorporate attestation services in their practice by obtaining training and proficiency in the attest function and also obtaining knowledge of a variety of attest subject matters. The small firm has an opportunity to become a "boutique practice" by structuring its marketing strategy to include an increasing array of attestation services. A high degree of expertise is not required to provide many attest services where the assertions are clearly stated so that a knowledgeable reader can understand them. For example, a high degree of expertise is not required to attest to the length of a conga line (for reporting in the Guinness Book of World Records).

The medium and large firms declined attestation engagements for similar professional reasons. The major reason is that the proposed engagements contained assertions that were not capable of evaluation against reasonable criteria. A second reason for declining engagements is that the assertions were not capable of reasonably consistent estimation or measurement. These practitioners declined engagements as the work could not be conducted in accordance with existing professional standards. The reasons for declining engagements were due to issues beyond the practitioners' control. Nonaccounting professional bodies must develop reasonable criteria and consistent measurement techniques before a practitioner can perform many types of attestation engagements. Where reasonable criteria and consistent measurement techniques do not exist, accounting professionals may be able to play a role in helping nonaccounting professional bodies develop them.

Practitioners were also asked to rank factors that impact the inability of their firm to expand attest services. These results are shown in Table 4. All firms indicated that the most important reason inhibiting the expansion of the attest function was the lack of demand for these services. Since attestation services is a relatively newly established area of practice, it would appear this service needs to be marketed both to existing clients and to a nontraditional market. Practitioners should broaden their viewpoints and pursue attestation engagements that have been the realm of nonaccounting organizations. The CPA, by building upon existing competencies or using the work of a specialist, can attest to a wide range of nontraditional assertions. For example, the CPA, similar to professionals at Consumer Reports, can attest to the quality of certain consumer products. Also, similar to Underwriters Laboratories, the CPA can apply a seal of approval to a broad range of electrical appliances.

Another reason for not expanding the attestation service area is that small and large firms are concerned about the effect on liability exposure. The CPA cannot eliminate professional liability risk. However, the practitioner can control this risk and reduce it to a relatively low level. For example, liability risk can be reduced if the practitioner were to provide primarily agreed-upon procedures or limited assurance engagements whose reports are restricted to named parties. Additionally, CPAs could limit attest services solely to written assertions that are sufficiently clear for a knowledgeable reader to understand them.

Small and large firms were concerned about the ability to satisfy the evaluation against reasonable criteria condition and also to fulfill the adequate knowledge requirement. As noted earlier, neither large or small firms can force professional nonaccounting organizations to establish reasonable criteria against which assertions can be evaluated for compliance. However, both large and small firms can overcome the adequate knowledge requirement either through continuing education or by recruiting staff with appropriate competencies.

The only other major factors restricting the expansion of attestation services are that large firms were concerned about satisfying the independence requirement and about the effect that attestation services might have on perceived audit quality. Professional standards specify that independence and audit quality issues can be controlled through rigorous enforcement of
a firm's quality control standards. Internal monitoring and external peer reviews should provide assurance thatfirms are adhering to professional standards.

Glenn L. Helms, PhD, CPA, is an associate professor at the University of North Carolina, Greensboro. Kennard S. Brackney, PhD, CPA, is an assistant professor at Wright State University.

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

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