Pub. 1 2019 Issue 4

23 nebraska society of cpas W W W . N E S C P A . O R G Company Accounting Oversight Board. In general terms, a CPA in public practice must not have a financial or other stake in a client, nor may they act in the capacity of management, to be considered independent. Most public accountants adhere to those standards when providing services to clients, but it is difficult to overcome the “management” role when providing some advisory services. The role of the adviser, after all, is either to replace a key part of management that a client may be missing, to mentor management when they are making key decisions with respect to their company, or to help withmaking key financial decisions. CPAs must consider the limitations on their ability to provide attest services now and in the future when deciding on whether to accept an advisory role. In most cases, a CPA must only be independent during the period of time they are providing attest services to that particular client; however, the CPA must evaluate past advisory services and their impact on the attest period. For example, if a CPA participated in the design and implementation of the client’s internal control structure currently in place, that CPA’s independence may be impaired, depending on their involvement in the process to design and implement internal controls. The same may be true of setting up a business plan or preparing a company valuation. ACPA adviser can avoid independence issues by limiting his or her role to only providing guidance and recommendations. This would mean avoiding anything that can be construed as a management role. To maintain independence, the CPA must take the steps that include the following, though these suggestions are not a complete list since each situation faced will be different: • Avoid taking responsibility for the review and supervision of client personnel. Someone with the ability and experience at the client must be willing and able to take that role. • All work performed by the adviser should be documented, reviewed, and supervised by management, with the ability and willingness to take that responsibility. • Avoid certain services, such as the design and implementation of internal controls. • Avoid preparing business valuations for potential clients. • Remove yourself as an adviser prior to the period you would be asked to provide attest services. Under certain circumstances, if one individual in a firm is perceived as lacking independence with respect to an attest client, the lack of independence can be overcome by that individual leaving the attest engagement and having a full review of the engagement performed by another individual who is independent of the person lacking independence. The key to maintaining independence and the perception of independence is to clearly define the adviser’s role (what will and won’t be done) and management’s responsibility for the adviser in an engagement letter signed by both the adviser and the client. Engagement Letter A letter outlining any and all services a CPAwill provide to a client is either required or strongly encouraged. This includes advisory services. Advisory services may be nonattest, but they are still covered byAICPAprofessional standards. Under AICPAconsulting and ethics standards, aCPA is required to establish an understanding of the services to be provided. Though those standards may not require an engagement letter, it is strongly recommended. An engagement letter is a good way to formalize service expectations in writing. The understanding between the adviser and the client must include, in clear language, the following: • The objectives and nature of the overall service. • Scope of services, including limitations or constraints. • A detailed description of the relationship with the client. • The roles, responsibilities, and tasks to be performed by the adviser, including a list of what the adviser won’t do. • The roles, responsibilities, and tasks to be performed by the client, including responsibility for directing the tasks performed by the adviser. • The approach to providing the services, including how the status of the tasks will be conveyed. • The period of time covered by the engagement letter. • The fee arrangement with the client. Use of an engagement letter helps the adviser avoid any misunderstandings about roles and responsibilities, and therefore helps to limit any legal ramifications to the adviser should a problem or issue arise during the engagement. The adviser must be clear and concise when outlining roles and responsibilities to avoid any misunderstandings. It is also critical that the adviser not deviate from the outline without either amending or reissuing the engagement letter. Performing services not outlined in the engagement letter, or providing services that the adviser specifically said in the letter that he or she would not provide, may expose the adviser to risk or legal ramifications if there is a dispute about services. AICPA consulting standards also state that an engagement needs to have an established term not to exceed one year. An adviser can continue providing services after one year, but the written understanding with the client must be redone each year. Finally, advisers should limit themselves to providing guidance and recommendations while avoiding statements like “directing.” Also, clearly state in the engagement letter and other communications with the client that all of the services are to advise the client and are under the supervision of the client. The Advisory Services Team If your CPA practice is considering expanding its advisory services team, ideally you would look to include the strategic thinkers among the staff in your firm. They should have experience in both the accounting and tax environments, as many services stem from this core work. Advisory services generally should not be done by lower-level staff. However, any exposure you can give lower-level staff to these services will enhance their abilities as they progress. For business advisory services, your client is relying on you for expertise that they may not possess in order to manage their business opportunities. t Reprinted with permission of the Pennsylvania Institute of CPAs. LorettaM. Tubiello-Harr, CPA, ABV, CVA, is principal of Tubiello-Harr &Associates LLC in Coopersburg, Pa. She can be reached at ltubiello@t-hallc.com. KimA. Vandergrift, CPA, is a senior manager at Tubiello-Harr &Associates LLC. She can be reached at kvandergrift@t-hallc.com.