Thoughts on the proposed CSRS 4200, Compilation Engagements
Will legal obligations increase under the proposed new standard?
VANCOUVER – Consultation on a new compilation engagement standard has closed but I continue to ponder the proposed Canadian Standard on Related Services (CSRS) 4200 from the Auditing and Assurance Standards Board (AASB).
Do I want a new standard? Yes, I do. CSRS 4200 would replace section 9200, which was first issued in 1987 and hasn’t had a significant update since then. (It would also replace Assurance and Related Services Guideline AuG-5, Compilation Engagements – Financial Statement Disclosures.)
There’s certainly a disconnect in today’s compilation engagements between:
• The actual work completed for a compilation engagement;
• The presumed knowledge of the lender given the copy of the bank financing agreement in the file;
• The sometimes ridiculous covenants included in the lending agreements, like the request for a notice to reader in full compliance with the accounting standards for private enterprises; and
• Explaining to my client how it possibly makes sense that I cannot send the statements directly to the bank because I am required to stick my head in the sand and “pretend” they are not receiving the statements.
No wonder the value of the services provided by the profession are in question! Would I want to take on the job to create a new standard? Short answer: No. The taskforce and the AASB, in my opinion, have taken on an incredibly difficult task. They have my respect.
But after much personal deliberation, if I was at the table, the only way I can see the issues resolved is with the dissolution of the engagement entirely. If management needs help we can help with management prepared white-paper statements or engage to complete only the compliance tax filings. Where a third-party user is looking for my letterhead they can ask for an assurance engagement.
I know, through my many discussions with CPAs in public practice, that there is a small contingent of practitioners who appreciate this position. Many, however, do not.
Legal liability and the new standard
What do I think about the proposed standard? I struggle to see how my legal obligations have not been increased under this proposal. The proposed standard requires that practitioners document the intended use and distribution of the financial information at the outset. It also requires us to codify these within the contractual agreement (engagement letter), along with the requirement for the third party to approve the basis of accounting (when not having unilateral access to further information).
Surely this must increase duty of care? Right? Let’s put a call out to the legal community and insurance providers to weigh in.
Now, before we get upset at the AASB, we should ask whether or not the legal liability of the profession should be a consideration in the drafting of new standards. Honestly, I am conflicted. But perhaps this is where the obligation is put back into the hands of the individual practitioners.
In the management of our practices we should not be responding to requests from users and clients who are not fluent in our professional standards and requirements. When the engagement is inappropriate, or the basis of accounting management and a third party has requested is inappropriate, it is our responsibility to educate and advise and, when necessary, refuse to provide the service requested.
I continue to look for another profession where users and clients determine what they need and then come to the professional to execute. Presumably the majority of our value is within our ability to assess the situation, consider the needs and provide our professional opinion as to what would be the best response.
A better solution to the problem
Maybe the “fix” to this issue was not put before the right standards board. I wonder whether this task should have been placed solely on the AASB rather than the Accounting Standards Board (AcSB), the national body that sets accounting standards for all Canadian entities outside the public sector.
One of the main reasons users and clients have deferred to compilation engagements is due to a cost benefit analysis around assurance engagements such as review engagements. However, when you look to the complexities in a review engagement, it is not in the assurance standards but in the complexity of the ever-evolving accounting framework(s).
Rather than a new assurance standard that addresses a customized basis of accounting, perhaps a truly small entity accounting framework would have resolved the cost-benefit issue while continuing to provide the assurance third parties are looking for.
Bridget Noonan, CPA, CA, is a partner at Clearline CPA and Clearline Consulting, which provides practitioners and their staff with the tools, training and advice they need to succeed and build thriving accounting firms. To receive our public practice newsletter, visit our website or provide your contact information here.