New AICPA Standards for Forensic Services: What You Need to Know

The Forensic and Valuation Services Executive Committee of the AICPA has released the long-awaited Statement on Standards for Forensic Services No. 1 (“SSFS 1”), which is effective for engagements accepted on or after January 1, 2020, though an early application is permissible. SSFS 1 applies to any member providing “forensic services” for a client and is defined as:

Litigation. An actual or potential legal or regulatory proceeding before a trier of fact or a regulatory body as an expert witness, consultant, neutral, mediator, or arbitrator in connection with the resolution of disputes between parties. The term litigation as used [within SSFS 1] is not limited to formal litigation but is inclusive of disputes and all forms of alternative dispute resolution.

Investigation. A matter conducted in response to specific concerns of wrongdoing in which the member is engaged to perform procedures to collect, analyze, evaluate, or interpret certain evidential matter to assist the stakeholders (for example, client, board of directors, independent auditor, or regulator) in reaching a conclusion on the merits of the concerns.

The Standards for Forensic Services include the following:

A. General Standards, contained in the “General Standards Rule” and which apply to all services performed by a member include the following:

  • Professional competence.
  • Due professional care.
  • Planning and supervision.
  • Sufficient relevant data.

B. Additional Standards

Members must also adhere to the following standards:

  • A member performing forensic services should not subordinate his or her opinion to that of any other party.
  • Client interest. Serve the client's interest by seeking to accomplish the objectives established by the understanding with the client while maintaining integrity and objectivity.
    • Integrity. “Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle.”
    • Objectivity. “Objectivity is a state of mind, a quality that lends value to a member’s services. It is a distinguishing feature of the profession. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest.”
  • Understanding with the client. Establish this understanding with the client in writing or orally.
  • Communication with the client. Inform the client of conflicts of interest, significant reservations and significant findings or events.
  • A member engaged as an expert witness in a litigation engagement may not provide opinions pursuant to a contingent fee arrangement unless explicitly allowed otherwise under the “Contingent Fees Rule.”
  • A trier of fact determines the ultimate decision regarding the occurrence of fraud; therefore, a member performing forensic services is prohibited from opining regarding the conclusion of fraud.

Impact on Members Performing Forensic Services

Until the issuance of SSFS 1, many members performed forensic services under the Statement on Standards for Consulting Services No. 1 (“SSCS 1”). Many of the standards are the same; however, SSFS 1 consolidates the standards, previously found within SSCS 1 and other AICPA Code of Professional Conduct sections.

SSFS 1 clarifies and calls attention to certain pre-existing, yet sometimes overlooked standards, including the following:

  • SSFS 1, in clarifying integrity and objectivity, states, “A member performing forensic services should not subordinate his or her opinion to that of any other party.” This requirement applies to, among others, the client and attorney for whom the member is working. This requirement is one that can be the subject of much scrutiny. Members who offer expert opinions should not blindly accept a position or view provided by either the client or attorney. On occasion, experts are provided with work products from clients or assumptions from attorneys in the course of an engagement. To avoid subordinating one’s opinion, a member should consider the reasonableness of such data or assumptions.
  • SSFS 1 states explicitly that a member may not provide opinions in a matter under a contingent fee arrangement. If a professional had the opportunity to financially benefit from his or her work as an expert, beyond standard billing rates, his or her objectivity could be called into question, and he or she may have a conflict of interest. Adherence to this standard would protect the member or his or her firm from the obvious question of motivation if compensation were to change with the results of the investigation or litigation.
  • SSFS 1 states that the determination of fraud is a legal conclusion, and thus, a member should not opine that fraud has occurred. The standard does, however, state that a member may provide an opinion on “whether evidence is consistent with certain elements of fraud.” For example, a forensic practitioner may observe red flags or evidence that strongly indicates that fraud has occurred, such as transfers of corporate funds to personal accounts with no evidence of authorization or business purpose. The professional may state these facts, but prohibits concluding that the act is, in fact, fraud.

The welcome news is that the issuance of SSFS 1 does not change the standards that should be followed by virtually all members performing forensic services. It merely codifies, in one place, the various standards that members should have observed before this issuance. The non-authoritative AICPA practice aids for various forensic, valuation and litigation services continue to serve as guidance for such engagements.

Karen Fortune, CPA/CFF, CGMA, MAcc (karen@iagforensics.com) is a partner in IAG Forensics and Valuation’s commercial litigation practice. She focuses primarily on matters involving complex commercial damages, corporate internal investigations, funds tracing, accounting malpractice, fraud and alter ego analyses.