It's Time For CPAs To Look Beyond Their Traditional Role .
ASSURANCE SERVICESIt's time for CPAs to look beyond their traditional role.Are You Ready for NewAssurance Services?BYROBERTK. ELLIOTTANDDONM . PALLAIShe growth opportunities for CPAs are much larger than anyone imagined. The profession's current accounting and auditing income—aboutbillion annually—could double or triple through the introduction of newassurance services. And the opportunities are open to CPA firms of all sizes.But change will not come u'ithout efand the trends changing the practice enfort. New services must be identified,vironment shows why. The need for innew competencies must be developed, aformation services is exploding and inREAD ALL ABOUT I T customer-focused mind-set will be needthose needs lie opportunities for theONLINEed and competition and other barriersCPA profession. The core benefit oftheThe Web address for must be overcome. Nevertheless, greataudit-attest tradition—information imdetailed information It)pportunities are available for all CPAs.provement-— provides a foundation foron the new assurance Inew value-added services.That was the conclusion of theservices isIAmerican Institute of CPAs special comThe quality ofthe information thatmittee on assurance services, which bewww.aicpa.ors/assuranc«/organizations and individuals use will ingan studying the economics of thesiteniap/iiKlex.htin.creasingly influence their fates.audit-assurance function more than two Decision makers' needs are influyears ago and recently reported itsenced by the headlong pace of ecofindings and recommendationsnomic change, the intensity of' . I. ' IThe report is available on the Incompetition and heightened levelsX—Xternet—as part o f t h e AICPAof interdependency—both globalWeb site (www.aicpa.org).and domestic. A higher proportion of economic inputs to corThis article is the first in a se porateoperationsis"knowledgework," a term coined byries that will highlight findings and suggestions from thebusiness writer Peter Drucker to describe the activities ofspecial committee's report. The article describes the exworkers who manipulate knowledge. By definition,tent ofthe new opportunities and the concept of assurknowledge work is information-dependent.ance services. Information technology is transforming the way dataLOOKING BEYOND THE TRADITIONAL ROLEare created, stored, transmitted, accessed and interpreted,The opportunities are both impressive and timely. Themaking possible measurements and reports with timeliness,special committee found clear evidence that financialbreadth, accuracy and analytical features that are a quanstatement audits are a mature product. Accounting ancitum jump from the best of paper-and-pencil days. Inforauditing revenue, adjusted for inflation, has remained flatmation can be part of a modern business problem—whenfor the last seven years. The traditional audit of financialessential facts are available but can't be located amid virtualstatements adds value to both users and clients, is widelymountains of data. But brought to bear on decisions, it alsoappreciated for its effect on the integrity ofthe capitalcan be a huge part ofthe solution.markets, contributes to the CPA's reputation for objectiv Accountability is playing an increasing role in soity and integrity and will continue to be in demand incial, economic and political life. All sorts of stakeholdthe future. But the greatest opportunity for growth lies iners in groups, political units and organizations wantassurance services. A close look at potential customersthose who affect their lives to be accountable for theLI line1 » l*JOURNMACrCiUNTANCY47
ASSURANCE SERVICESresponsibilities they have assumed.EtFective judgments about whether ornot economic and other responsibilities have been met depend on soundinformation.hancement should dovetail with anemphasis on customer needs. Studentsshould better understand users' decision-making processes. Students should learn the strateAccountmg students need to prepare gic implications of information techfor a practice world that includes the nology. What does it mean, fornew assurance services. This means example, for the conduct of transacprofessors should both revise the cur- tions, future markets, business strucriculum aud perform the research ture, teamwork, cost control andthat will accelerate the move to as- building intellectual assets? Studentssurance services. If adaptation pro- should have access to the specific ingresses ideally, greater synergy will formation technology knowledgedevelop between college campuses needed to provide new services.and public practitioners than ever be Students need skills in modelfore, strengthening accounting as an building and measurement theoryacademic discipline.they can adapt to specific serviceneeds.CURRICULUM CHANGES A solid understanding of a reli1 he reforms championed by the Ac- able, comprehensive business modelcounting Education Change Com- (such as business strategist Michaelmission are under way and will serve Porter's value-chain model) can subemerging assurance services very well. stantially empower practitioners toBut more still needs to be done. For analyze business circumstances andprocesses, identify needs for inforexample Student communications skills mation services and explain thoseshould be enhanced, and the en- needs.Assurance Services:Implications forAcademiaTHE CONCEPT OF ASSURANCESERVICESTo pursue service expansion underthese conditions, a service concept wasneeded that was in the audit-attest tradition but more comprehensive. Thespecial committee defined assuranceservices as "independent professionalservices that improve the quality of information, or its context, for decisionmakers." This broad concept includesaudit and attestation services and isdistinct from consulting (althoughsimilarities exist) because it focusesprimarily on improving informationrather than on providing advice or installing systems.The assurance services concept isbroad in other ways because there isno limit to the type of information. Itcan be financial or nonfinancial. Itcan be about past events or conditions or about ongoing processes orsystems (such as internal controls). Itcan be direct (information about a product) or indirect(inforniatiou about someone else's assertion about aproduct). It can be internal or external to the decisionmaker. There also is no limit to the type of improvement.EXECUTIVE THE INTRODUCTION OF NEW ASSURANCEservices could double or even triple the CPA profession'sS7 billion accounting and auditing income. But the newopportunities will not come easily. New services mustbe identified, new competencies developed and barrierswill have to be overcome. THE REPORT OF THE AICPA SPECIAL committee on assurance services is available on the Internetas part of the AICPA Web site (www.aicpa.org). In thereport the committee defined assiimncc scri'iccs as "independent professional services that improve the quality ofinformation, or its context, for decision makers." WITH A C C O U N T I N G AND AUDITING income flat for the last seven years, the CPA profession'sgreatest opportunity for growth lies in new assuranceservices. The special committee developed business plansfor six services covering diverse areas such as elder care,The assurer can improve the information's reliability, relevance or context.Thus, if CPAs are going to take advantage of assuranceservice opportunities, they must stretch their perspectiveSUMMARYelectronic commerce, performance measurement, thedelivery of health care services, risk information for internal decision makers and information systems designand operation. THE SPECIAL COMMITTEE recommended thatCPA firms identify assurance services for their own markets and that the AICPA identity services for the profession as a whole. The newly formed assurance servicescommittee will continue the Institute's service development efforts. THE ASSURANCE SERVICES WEB SITE is designed to support two of the special committee's conclusions— that the profession must focus on its customersand that facility with information technology is essentialto the profession's future. Web site visitors can selectfrom one of several perspectives that highlight the findings most important to their segment of the profession.ROBERT K. ELLIOTT. CPA. is a partner of KPMG Peat Marwick. LLP, in New York City. He was chairman of the AICPAspecial comniirtee on assurance services. DON M. PALLAIS, CPA, has his own practice in I chmond, Virginia. He was executive director of the AIC PA special conmiittee on assurance services and now is a member of the assurance services (.-onmiictee.48lOURNAIA(-rClUNTANCYJune1997
ASSURANCE SERVICESRESEARCH NEEDSA great variciy of research also would helpthe profession s expansion into new assurance services. Here are some examples ofthe kind of research that would serve practitioner and classroom needs as well as exp;mdthe frontiers of the accounting profession: Decision makers' information and assiirancL' needs. Measurement criteria needed to perform specific services. Krlevance enhancement services (services to assure that decision makers havethe right information). Assurance methods and reporting(such as the concept of "assurance risk"). Oiteria for identifying risks and assessing their likelihoods. Criteria for assessing the integrity andsecurity of electronic commerce. Systems design reliabihty and continuous systems assurance.The special committee's actionplan for academics is located at/'Ji'' \ ndex.htm.vs/elderpl/index.htm.beyond financial statements, l ecision makers' information needs will guide the rangeof services CPAs provide.IDENTIFIED SERVICESCPAs can get some idea of that range, atleast at this early stage of service expansion,from the services the special committee already has identified. The committee developed busmcss plans for 6 services, exploredseveral others in abbreviated form and identified over 200 more through a survey of services already provided. These are thebusiness-plaji services:1. Provide assurance to concerned partiesabout whether care delivery goals for elderlyindividuals are being met (see the sidebar atright for more information).2. Assess vi'hether the information features of electronic commerce function inaccordance with accepted criteria. The service would provide assurance with respectto the integrity and security of electronictransactions, electronic documents and supporting systems.3. Assess the relevance and reliability ofan entity's performance measures. Potentialengagements include assessing the rehabilityof the information reported fixini an organi-ElderCare-PlusThe etderly- an increasing proportion of the population —needservices to cope with the effects of the aging process and can affordto pay for them. The wealth controlled by persons over age 65 isestimated to be S11 trillion to 13 trillion. ElderCare-Plus—as theAICPA special committee on assurance services has dubbed it—helps the elderly and concerned family members. In this situation,the basic assurance service CPAs can provide is to obtain evidenceand report whether specified goals are being met by various caregivers—including providers of medical, household and fmancialservices. The specified goals would be established in discussionswith the elderly person and his or her adult children or other family members.Adult children who live too far away from an elderly parent topersonally monitor tlie care the parent receives are candidates for thisservice. The CPA can report on care received and also help by providing some services directly to the elderly parent and by providingsome consulting or facilitating services for the older person and his orher loved ones.A mix of ancillary services would be integral to the typical engagement. The CPA might, for example, oversee investments (though notinvest fluids) and account for the client's income and expenses. Otherpotential services include help in selecting care providers and makingarrangements for needed care and services (for example, arranging forin-home sitters and cooks, for transportation or for placement in a retirement care facility).MARKET POSITIONINGI he C PA's reputation as an independent, honest, objective and reliable professional will be a market advantage in competing for thiskind of work. Many CPA firms provide tax or financial planning toclients who are or could become candidates for ElderCare-Phis.These market advantages will be helpful because a variety of competitors already deliver portions of the service. They include welfareagencies, geriatric specialists, bank trust officers and lawyers.CPAs appear well positioned to take advantage of this market.Market research commissioned by the AICPA confirms that elder carcis an opportunity for C PAs and that trustwortlmiess is important topotential customers. According to Yankelovich Partners, 89% of higher income Americans age 40 to 64 would be "extremely," "very" or"somewhat" likely to use services in the ElderCare-Plus package ifthe need arose.CPA QUALIFICATIONSCPAs already have the measurement and reporting skills needed forthe job, although they would need additional training. The AICPAhas developed an elder care self-study course. (The course can be ordered on-line at www.aicpa.org/store/products/732022.htm.) In addition. Practitioners Publishing Co., in conjunction with the specialconmiittee, has developed relevant practice aids, including material onconmiunicating with older persons, Social Security, Medicare andMedicaid, long-term care and planning for contingencies (CPAs candownload a sample at www.ppcinfo.com/scas/scas.htm).The special committee's complete report on ElderCare-PIusis located at htm.JunJOURNAL of ACCOUNTANCY49
ASSURANCE SERVICESzation's performance measurement system, assessing therelevance of an organization's performance measures, identifying performance measures for organizations that needthem and helping to design and implement a performancemeasurement system.4. Assess health care providers' performance for the decision-making benefit of care recipients and their representatives (such as corporate employers and unions).5. Improve the quality of risk information for internaldecision makers through independent assessments of thelikelihood of significant, adverse events and quantify thepossible magnitudes of the effects.6. Provide assurance that systems are designed and operate in a manner that provides reliable information or operate according to accepted criteria.The estimated market for electronic commerce assurance services alone is between 1 billion and 11 billion;for elder care, between 2 billion and 7 billion. Information systems reliability also is a market estimated in the billions of dollars, and risk assessment is estimated at 10% to20% of annual audit fees.Systems and information technology naturally play aprominent role in the new assurance services. They arepart of how information for decision making is gatheredand deployed and used in transactions. More opportunities will open up as the information technology revolution continues. Practitioners' information technologyknowledge and skills will affect not only the range ofnew assurance services they can avail themselves of butalso the way they adapt their traditional services to changing circumstances.IDENTIFYING NEW ASSURANCE SERVICESThe special committee recommended that CPA firmsidentify services for their own markets and that the AICPAidentify services for the profession as a whole. The newlyformed assurance services committee will continue theInstitute's service-development efforts. Its task forces already are developing the services identified by the specialcommittee. C ustomer focus will play an important role inthe move to new assurance services. Effective service identification depends on understanding customers' needs.The traditional audit, with its standard report and measurement criteria designed to enhance comparability acrossall reporting entities, is a general purpose service. The specific information needs of individuals and groups will dictate new assurance services. To identify these needs,practitioners will require a new mind-set, communicationsskills, business knowledge and the capacity to make inferences from relationships between business circumstancesand economic and industrial trends. The special committee's report includes information on how firms and individual CPAs can identify customer needs and turn theminto services. It can be found at htm.THE WEB SITE REPORTThe Web site report is designed to be consistent with twoof the special committee's main conclusions—that the50lOUKNAL !' ACCOUNTANCYprofession must focus on its customers and that facilitywith information technology is essential to the profession'sfuture. The Web site report treats readers as its customersand attempts to meet their needs. A visitor to the Website can select from one of several perspectives that highlight the findings most important to someone in his or herHow to Read the Web SiteReportThe Internet is a resource for pursuing assurance andother services. CPAs can keep up with professionalnews, do research and conduct business by establislung aWeb site and making contacts with potential clients.They also can join a group and internet with their peers,exchanging practical, money-making ideas. The assurance services Web site links to the group page called"CPAs Discuss Assurance Services" as well as to the"Report of the AICPA Speciiil Committee on AssuranceServices" page.INTERNET ACCESSTo get started, you need a modem, an Internet servicepmvider and a Web bniwser (that is, a pmgram for locating and viewing Web sites)—along with a computer.The AICPA recommends you use either Microsoft Internet Explorer or Netscape Navigator to view its site,preferably the most recent versions. A 14.4 Kbps modem or higher will be sufficient. The Institute's affinityprogram with NETCOM, an Internet service provider,gives participating AICPA members unlimited accessand comes with Microsoft Internet E.xplorer.FUNDAMENTALS OF NAVIGATIONBasic procedures to navigate the Web site are given below. Users of the special committee's CD-ROM willnavigate the same way.Every Web page (a separate location within a site)—and the site's home page—has an address (technicallyknown as an URL) and can be reached direcdy by typing the address in the Web browser. To reach the specialcommittee's report, for example, you would typewviHA', aicpa.org/assurance/scas/index. htm.Once you find a page of interest on the AK PA Website, you have options about what to visit next. You canreturn to the prior page (the "back" button on thebrowser) or to the home page ("home" in the path atthe top left of the page). By clicking on underlinedterms (links), you reach the Web page dealing with thesubject indicated by that term. Graphics other than buttons also may be used as links by site designers.You can "bookmark" sites by selecting "Add Bookmark" from the bookmarks menu for Netscape Navigator or "Add to Favorites" from the favorites menu forMicrosoft Internet Explorer. A bookmark makes a latervisit easier, and can be made simply by selecting fromthe list in the bookmarks (favorites) menu.
ASSURANCE SERVICESprofessional role, such as a tiieniber in a small firm, amember in business or industry or a member from academia. (See the sidebar on pages 48-49 for the academicperspective.) It's also possible to go a level deeper to explore the themes that underlie the findings and recomtnendations, or a level deeper still to the papers andForgotten anything? Don't worry. The AICPA site tutorial is at www.aicpa.org/tutor/index.htm. Visit the tutorial to review these fundametitals and to learn more.SITE MAPAt the assurance services Web site {www.aicpa.org/assurance/sitemap/index, htm) is a
Assurance Services? BY ROBERT K. ELLIOTT AND DON M. PALLAIS he growth opportunities for CPAs are much larger than anyone imag-ined. The profession's current accounting and auditing income—about billion annually—could double or triple through the introduction of new assurance services. And
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