SSARS No. 27: Helpful Guidance, but Misunderstood

By Suzanne M. Holl, CPA

CAMICO’s hotline has received numerous inquiries about the Statement on Standards for Accounting and Review Services (SSARS) No. 27, Applicability of AR-C Section 70 to Financial Statements Prepared as Part of a Consulting Services Engagement. Some callers want to determine whether financial statement services they already perform, or are considering performing, qualify for the new exception to AR-C section 70. Others seek a clearer understanding of how SSARS No. 27 affects consulting and client advisory services (CAS).

These questions are understandable because CAS engagements often produce financial information. Before SSARS No. 27, many practitioners struggled with whether generating financial statements as part of a CAS engagement triggered AR-C section 70, Preparation of Financial Statements. In a broader advisory relationship, the client may receive financial statements, dashboards, budget-to-actual reports, or management reports among other deliverables. The issuance of SSARS 27 created another exception to the SSARSs.

That clarification is important, yet many CPAs remain unfamiliar with it or misunderstand it. SSARS 27 did not create a blanket exception that permits firms to avoid the SSARS merely by labeling an engagement “consulting” or “CAS.” Instead, firms must evaluate the substance of the engagement, not just its description.

Whether SSARS 27 applies depends on the engagement’s primary objective.

If the primary objective of the engagement is to generate financial statements, AR-C section 70 applies. If the objective is broader consulting or advisory services, and financial statements are only one of several deliverables, the engagement may fall within CS section 100, provided the firm and the client agree that the services will be performed under the consulting standards.

This is not a matter of labeling. It is a substance-over-form determination grounded in the scope of services, the deliverables, and the client’s expectations.

The concept of primary objective is central to applying the SSARS 27 exception. To qualify, financial statements must not be the primary objective of the consulting services performed for the client.

In practice, this distinction can be subtle. If the engagement’s main purpose is to prepare recurring monthly financial statements for the client, AR-C section 70 applies. If the engagement’s purpose is to provide broader controllership services, and financial statements are one component, CS section 100 may apply.

This determination should be clearly reflected in both the engagement letter and internal documentation.

Firms considering relying on SSARS 27 should document their analysis thoroughly. Clear documentation is a critical risk management control.

At a minimum, firms should document four points: why the engagement qualifies as consulting services under CS section 100; why financial statement preparation is not the primary objective; which additional services or deliverables support that conclusion; and that both the firm and the client understand and agree that the services are being performed under the consulting standards.

Absent clear documentation, firms may face difficulty supporting their position if the engagement is later challenged.

A common source of confusion is the scope of consulting services under CS section 100. The standard provides that the nature and scope of work is determined by the practitioner’s understanding with the client and that, generally, consulting services are performed only for the client’s use and benefit.

Not all client advisory activities qualify as consulting services. The standards explicitly exclude certain categories, including:

• Services subject to other professional standards such as SSARSs, SASs, and SSAEs;
• Bookkeeping engagements; tax return preparation, tax planning, or tax advice; personal financial planning; advice on the application of accounting principles to a specific transaction; and specified transactions or events, whether completed or proposed;  and
• Recommendations and comments prepared during the engagement as a direct result of observations made while performing excluded services.

These exclusions matter because a firm should not assume that CS section 100 applies merely because the client relationship feels advisory in nature. If the engagement is for bookkeeping, tax, or financial statement preparation, the standards governing those services apply regardless of how the engagement is labeled.

A firm is engaged solely to prepare monthly financial statements from client records and deliver them to management. It then attempts to classify the work as consulting to avoid AR-C section 70. That position fails because the engagement’s primary objective is financial statement preparation, so the SSARS apply.

Another example involves bookkeeping. If the firm is engaged to perform bookkeeping services, CS section 100 footnote 1 should be considered. The presence of financial reports and occasional recommendations does not convert a bookkeeping engagement into a consulting engagement.

In both cases, the firm should consider only those services that fall within six pages of the consulting standards and carefully scope out any services specifically excluded by footnote 1.

CPAs performing consulting services must establish an understanding about the responsibilities of the parties and the nature, scope, and limitations of the services to be performed, and to modify the understanding if there is a significant change in the engagement. However, the consulting standards do not mandate these understandings be in writing.

Although professional standards do not require it, risk management best practices call for CPAs to use an engagement letter or master service agreement (MSA) to document the objective and scope of the services in plain language. The agreements should avoid labels such as “CAS,” “OAS,” “virtual CFO,” or “advisory” unless those terms are clearly defined. The agreement should specify what the firm will do, how often it will do it, what the client will receive, what the firm will not do, the client’s responsibilities, any use limitations, and the professional standards governing each service to be performed.

Engagement terms should emphasize the client’s management responsibilities. Even when the firm provides high-level advice, the agreement should make clear that the client remains responsible for managing the business, maintaining internal controls, making decisions, approving transactions, evaluating recommendations, and determining whether and how to implement the firm’s advice.

To mitigate risk when applying SSARS 27, firms should:

• Document their engagement scope analysis
• Avoid overreliance on the exception, particularly where financial statements may be the primary objective
• Use precise language in their MSA or engagement letter to:
  • avoid implying assurance or responsibility for management decisions
  • specify that management remains responsible for all management decisions and oversight
  • specify that each page of the financial statements and any financial schedule generated will clearly indicate that no assurance is provided
  • specify that no report will accompany the financial statements
  • consider restricting the dissemination of the financial statements
• Carefully evaluate and document mixed-service engagements, as different standards may apply to components
• Monitor changes in client expectations, especially when recurring deliverables begin to resemble financial statement preparation engagements
• Consider QM implications, particularly for firms not currently subject to the QM Standards
• Establish internal protocols for evaluating consulting, CAS, and SSARS-related engagements, and for performing SSARS 27 consulting engagement financial statement services

SSARS 27 offers useful flexibility, but only when firms apply it with careful judgment. They should also periodically reassess whether an engagement continues to qualify for the exception and document both that conclusion and the engagement terms.

Firms should focus less on whether the exception is available and more on whether the facts and circumstances justify their application. When in doubt, they should apply a substance-over-form analysis, document their rationale, and confirm that the engagement aligns with the relevant professional standards. Just because an engagement may be performed under the consulting standards does not mean it should be performed under those standards instead of the SSARS.

An illustrative Master Service Agreement and Statements of Work can be found on CAMICO’s Members-Only Site in the Engagement Letter Resource Center.

Suzanne M. Holl, CPA, is executive president of Loss Prevention Services and Marketing & Communications at CAMICO. With more than 38 years of experience in accounting, she draws on her Big Four public accounting and private industry background to provide CAMICO's policyholders with information on a wide variety of loss prevention and accounting issues.

Reprinted by permission from CAMICO.