.A new set of standards will allow accountants to explain exactly why their independence may have been impaired when performing compilation services for clients.

The AICPA Accounting and Review Services Committee’s new Statement on Standards for Accounting and Review Services No. 19, or SSARS 19, “Compilation and Review Engagements,” removes a prohibition against stating the reasons why an accountant was not independent when doing a compilation for a client.

The ARSC removed the requirement at the urging of some local, small CPA firms and user groups, according to a FAQ document on the AICPA website. Most provisions of SSARS 19 won’t take effect until Dec. 15, 2010, but accountants can implement this provision early, allowing them to disclose their independence impairments in their compilation reports as soon as they wish.

But why go into this type of information anyway, instead of just acknowledging that there is some type of impairment? There could be various reasons for independence impairments, such as an ownership interest in a client’s business, some outside relationship with a client, and the performance of other types of services for the client.

The need for transparency could be an important factor behind fully explaining the impairment, as well as a desire to keep someone from jumping to their own conclusions about the reason for the impairment.


However, in some ways, the notion of being completely independent of a client can be difficult to pinpoint.

During a presentation Tuesday at the New York State Society of CPAs’ Accounting and Auditing Conference, Carol McNerney, co-director of assurance services at SS&G Financial Services and chair of the AICPA’s Accounting and Review Services Committee, explained the new standard. She does not expect it will have a significant impact on the profession, but she does want to separate the compilation and review guidance.

“The truth of the matter is we can’t be 100 percent independent of our clients if we collect fees from them,” she said. “Let’s be real here.”

However, she believes it’s important for accountants to spend more time with their clients to educate them. If an accountant is making decisions to, say, treat inventory using the LIFO, or Last In First Out, inventory method, or to set up a deferred tax account, then the client should have at least a basic understanding of what is being done. That can be a problem for owners of small businesses that lack internal accounting staff, but the responsibility should not rest solely on the accountant’s shoulders. The client will ultimately have responsibility in the eyes of the IRS and the law.

“Many clients have trouble understanding deferred taxes on their balance sheet, but you need to spend time explaining to your client why you’ve set up a deferred tax or liability account,” said McNerney. “You have to sit down and make the effort to help them understand that so it makes sense to them.”

She noted that many small firm practitioners sometimes get frustrated that a client doesn’t want to have anything to do with the accounting, but it’s still their responsibility to understand the financials. The client may have undertaken a new project that could affect the financial statements, and discussing the financials with the client could elicit this information. The client does not necessarily need to be able to replicate the accountant’s calculations on their own, but the client does need to take ultimate responsibility for the financials.

That will help the accountant maintain the basic independence of compilations, even if there are reasons why that independence might be impaired and should be disclosed.

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