As external certified public accountants (CPAs) and even chief financial officers (CFOs) increasingly participate in corporate financial operations, the American Institute of Certified Public Accountants (AICPA) is moving to clarify a standard to specify how financial statements prepared in external client advisory services should apply relevant standards.

The move aims to resolve long-standing uncertainty, confusion, and divergence in practical application in this area, said Mike Glynn, AICPA's deputy director of Audit and Attestation Standards and staff liaison to the Accounting & Review Services Committee.

Currently, some CPAs who take on outsourced engagements and prepare financial statements perform the financial statement preparation portion in accordance with AR-C Section 70 of AICPA standards, while other practitioners follow the professional standards for consulting services, namely CS Section 100. Glynn noted that both approaches are acceptable, but if practitioners complete financial statement preparation under AR-C Section 70, they must additionally meet AICPA quality management standards and possible peer review requirements, whereas if the entire engagement is performed under CS Section 100, these additional obligations do not apply.

"Both approaches are acceptable—however, CPAs who perform the financial statement preparation portion under AR-C Section 70 will incur additional requirements from AICPA quality management standards and potential peer review, while if the entire engagement is performed under CS Section 100, these requirements do not apply," Glynn wrote in an email to CFO Dive.

AICPA has issued a proposeddraft standard amendmentfor public comment. The draft clarifies that when financial statements are a byproduct of a client advisory services engagement, CPAs are not required to mandatorily apply AR-C Section 70 standards. AICPA stated in a press release that the public comment period ends on December 20.

Glynn partially explained the definition of financial statements: "Financial statements are a structured representation of historical financial information, including disclosures, intended to communicate an entity's economic resources and obligations at a point in time or changes therein over a period, in accordance with a financial reporting framework."

The press release noted that in many client advisory services engagements—including controllership and CFO services—external accountants assume management-level responsibilities.

Glynn added: "From a practical standpoint, these entities and companies hire outsourced CFOs and similar personnel to gain efficiency, and they entrust accounting work to professionals." He further stated that this amendment will largely place these external personnel on equal footing with internal personnel.

The AICPA Accounting & Review Services Committee (ARSC) emphasized in the press release that the amendment will not adversely affect service quality, because financial statement preparation is not an attestation service, and practitioners must still comply with the AICPA Code of Professional Conduct.

Outsourced accounting services go by various names, including client accounting services (CAS), business process outsourcing (BPO), and virtual CFO, among others. In recent years, with the rise of cloud accounting, small and medium-sized enterprises have found it easier to leverage external professional expertise, and the entire category of external financial service providers has grown as a result. Erik Asgeirsson, president and CEO of CPA.com, said CPA.com is a subsidiary of AICPA that provides technology solutions to accounting firms in the U.S. and globally.

"In many ways, cloud accounting has allowed small and medium-sized businesses to enter the information age in ways comparable to large enterprises. It's quite exciting. The cloud is a great equalizer," Asgeirsson said in an interview.