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Understanding SSARS 21 can pave the way to more advisory services

Sageworks
December 11, 2017
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Firms of all sizes are making advisory services an important revenue stream, based on the latest National Management of an Accounting Practice (MAP) Survey from the AICPA Private Companies Practice Section (PCPS) and CPA.com. To better position themselves as providers of higher-level advisory services to their clients, accountants should develop expertise in Statement on Standards for Accounting and Review Services (SSARS) No. 21: Clarification and Recodification.

Section 70 of SSARS 21 is the latest standard for engagements to prepare financial statements, and it allows an accountant in public practice to prepare financial statements for their clients without issuing an audit, review, or compilation report.

This change takes away a reporting element that was seen as a shackle for many CPA firms, according to Mike Glynn, a senior manager with the AICPA Auditing and Attest Standards team.

Reporting  “shackle” removed

The previous standard (SSARS 1) required accountants in public practice who prepared unaudited financial statements to at least apply compilation procedures to those statements and issue a report. Glynn notes that this was during a time that a CPA had to “sit down with paper and pencil to draft a financial statement,” so the CPA was automatically the one recording and organizing the financial data. Applying that standard, however, got confusing as technology became more integrated into businesses’ financial records. Cloud software allows both the company bookkeeper and the public accountant to make journal entries so that the company can print out monthly financial statements using the software. This made it difficult to determine who actually prepared the financial statements and therefore, whether a compilation report was required, according to Glynn.

“With cloud software, some CPA firms with the slightest involvement in the software would issue a compilation report, others wouldn’t,” Glynn says. “SSARS 21 takes that reporting piece and says, ‘You know what? The only time we issue a compilation report is when the client wants or needs it to bring to their bank or loan officers,’ ” Glynn says.

SSARS 21 Section 70 does require that prepared financial statements include a statement on each page indicating at a minimum that “no assurance is provided.” In addition, the accountant can choose whether to include their name on the statements. These “no assurance provided” statements in some cases might generate phone calls from bankers accustomed to a compilation report. Such calls provide an opportunity for firms to explain to bankers and other third parties about the differences between compiled and prepared financial statements. “Suddenly the banker is paying more attention,” Glynn says. “This could even trigger the banker to require a review or an audit. The client will finally get the service they’ve perhaps always needed because we shook things up a bit,” Glynn says.

Using time for advisory

The prepared financial statements permitted by SSARS 21 Section 70 are also a crucial tool for elevating the role of CPAs to becoming strategic advisors to their clients.

Many small businesses can’t afford to pay $5,000 a month for high-end virtual CFO services. At the same time, they don’t have the expertise needed to set up effective processes, manage their day-to-day accounting, and use that data to make decisions.

Some firms start migrating to advisory services by helping their clients streamline their office and routine accounting activities, including preparing monthly financial statements. The value that the firm is actually providing here is helping the client to automate their processes and providing both the client and the firm access to more timely information. Only then can the CPA spend more time looking at the data and interacting with the client in an advisory way rather than reducing the role of a CPA to performing services that can be carried out well (and typically at a lower cost) by a good bookkeeper or a computer program. What might start out as business process outsourcing can eventually scale up to being a virtual controller or CFO. “The ultimate benefit is an ongoing relationship with the client,” says Samantha Mansfield, Director of Professional Development and Community at CPA.com and one of the instructors for the AICPA’s Client Accounting Advisory Services Certificate program.

“CPAs care about their clients’ success,” she says. “Now they can spend more time forecasting and helping clients reach their goals.” Higher value comes from taking data beyond compliance, using it to help clients make better decisions. This isn’t just better for clients; it’s also lucrative for the accounting firm.

Mansfield says some firms handle short-term projects to help clients get on the right track, then the firm refers the client to another firm for ongoing transactional and compliance work. “The client comes back later when they’re ready for ongoing strategic advisory services,” she says.

Client selection key

The key to effectively using SSARS 21 Section 70 to grow a firm’s advisory services — versus simply giving clients a “cheaper” alternative to the compilation — is client selection: identifying and working with clients that the firm can help grow and ones that want to grow with the firm.

“Those clients that are chronically late and not looking at the future — those are not the clients you want to work with,” Mansfield says. “You want to work with clients with vision and goals.”

This post is adapted from one previously published on Accountex Report by Janet Berry-Johnson, a contributing writer for Sageworks and a Certified Public Accountant, licensed in Nevada and Arizona.

Additional Resources
eBook: Next-Level Accountants: Your guide to growing a firm of trusted advisors

Webinar replay: Expanding Your Firm’s Advisory Services 

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Sageworks

Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

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