The AICPA has issued an exposure draft titled Statement of Standards for Forensic Services No. 1 (SSFS 1), Forensic Services: Definitions and Standards. If approved, the standard will be effective for new engagements accepted on or after May 1, 2019.
Who Created SSFS 1?
SSFS 1 was created by the AICPA's Forensic and Valuation Services Executive Committee.
Why SSFS 1?
The purpose of the standard is to improve the consistency and quality of forensic services provided by CPAs.
It appears the AICPA is being responsive to a growing demand for forensic services. A report created by IBISWorld (a market research firm) showed that employment in forensic accounting grew at an annualized rate of 18% from 2012 to 2017.
Services Covered by SSFS 1
SSFS 1 covers the following types of forensic services (per paragraph .01 of the proposed standard):
- Litigation – an actual or potential legal or regulatory proceeding before a trier of fact or a regulatory body as an expert, consultant, neutral, mediator or arbitrator in connection with the resolution of disputes between parties. Litigation used herein is not limited to formal litigation, but is inclusive of other alternative dispute resolution forums;
- Investigation – a matter that is not a litigation but which may involve using the same skills and the services are performed in response to specific concern(s) of wrong doing in which the member is engaged to perform procedures to collect, analyze, evaluate or interpret certain evidential matter to assist the stakeholder (e.g. client, board of directors, independent auditor or regulator) in reaching a conclusion on the merits of the concern(s).
SSFS 1 includes two prohibitions:
- A legal opinion can not be provided regarding the occurrence of fraud, and
- Forensic services can't be provided on a contingent fee basis
Why can't a member provide a legal opinion regarding fraud? The final determination of whether fraud exists is determined by the "trier-of-fact," according to paragraph .08 of the standard.
The standard would apply to all AICPA members, AICPA members firms, and employees of AICPA member firms.
Paragraph .03 of the standard states "the key consideration of this Statement's applicability is the purpose (e.g., Litigation or Investigation) for which the member was engaged." The applicability is not based on a particular service provided such as data analysis. But if data analysis, for example, is performed in relation to litigation or investigative services, then the statement would apply.
Understanding with Client
The understanding with the client regarding the nature, scope, and limitations of the services can be written or oral.