ASSURANCE SERVICES

It's time for CPAs to look beyond their traditional role.

Are You Ready for NewAssurance Services?B Y R O B E R T K . E L L I O T T A N D D O N M . P A L L A I S

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 newassurance services. And the opportunities are open to CPA firms of all sizes.

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But change will not come u'ithout ef-fort. New services must be identified,new competencies must be developed, acustomer-focused mind-set will be need-ed and competition and other barriersmust be overcome. Nevertheless, greatt)pportunities are available for all CPAs.

That was the conclusion of theAmerican Institute of CPAs special com-mittee on assurance services, which be-gan studying the economics of theaudit-assurance function more than twoyears ago and recently reported itsfindings and recommendationsThe report is available on the In-ternet—as part o f the AICPAWeb site (www.aicpa.org).

This article is the first in a se- ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ~ries that will highlight findings and suggestions from thespecial committee's report. The article describes the ex-tent ofthe new opportunities and the concept of assur-ance services.

LOOKING BEYOND THE TRADITIONAL ROLEThe opportunities are both impressive and timely. Thespecial committee found clear evidence that financialstatement audits are a mature product. Accounting anciauditing revenue, adjusted for inflation, has remained flatfor the last seven years. The traditional audit of financialstatements adds value to both users and clients, is widelyappreciated for its effect on the integrity ofthe capitalmarkets, contributes to the CPA's reputation for objectiv-ity and integrity and will continue to be in demand inthe future. But the greatest opportunity for growth lies inassurance services. A close look at potential customers

READ ALL ABOUT I T -ONLINE

The Web address for |detailed information I

on the new assurance Iservices is I

www.aicpa.ors/assuranc«/siteniap/iiKlex.htin.

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and the trends changing the practice en-vironment shows why. The need for in-formation services is exploding and inthose needs lie opportunities for theCPA profession. The core benefit oftheaudit-attest tradition—information im-provement-—^provides a foundation fornew value-added services.

The quality ofthe information thatorganizations and individuals use will in-creasingly influence their fates.

• Decision makers' needs are influ-enced by the headlong pace of eco-nomic change, the intensity ofcompetition and heightened levelsof interdependency—both globaland domestic. A higher propor-tion of economic inputs to cor-

porate operations is "knowledge work," a term coined bybusiness writer Peter Drucker to describe the activities ofworkers who manipulate knowledge. By definition,knowledge work is information-dependent.

• Information technology is transforming the way dataare created, stored, transmitted, accessed and interpreted,making possible measurements and reports with timeliness,breadth, accuracy and analytical features that are a quan-tum jump from the best of paper-and-pencil days. Infor-mation can be part of a modern business problem—whenessential facts are available but can't be located amid virtualmountains of data. But brought to bear on decisions, it alsocan be a huge part ofthe solution.

• Accountability is playing an increasing role in so-cial, economic and political life. All sorts of stakehold-ers in groups, political units and organizations wantthose who affect their lives to be accountable for the

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ASSURANCE SERVICES

responsibilities they have assumed.EtFective judgments about whether ornot economic and other responsibili-ties have been met depend on soundinformation.

THE CONCEPT OF ASSURANCESERVICESTo pursue service expansion underthese conditions, a service concept wasneeded that was in the audit-attest tra-dition but more comprehensive. Thespecial committee defined assuranceservices as "independent professionalservices that improve the quality of in-formation, 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 in-stalling 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 condi-tions 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.

Assurance Services:Implications forAcademiaAccountmg students need to preparefor a practice world that includes thenew assurance services. This meansprofessors should both revise the cur-riculum aud perform the researchthat will accelerate the move to as-surance services. If adaptation pro-gresses ideally, greater synergy willdevelop between college campusesand public practitioners than ever be-fore, strengthening accounting as anacademic discipline.

CURRICULUM CHANGES1 he reforms championed by the Ac-counting Education Change Com-mission are under way and will serveemerging assurance services very well.But more still needs to be done. Forexample

• Student communications skillsshould be enhanced, and the en-

hancement should dovetail with anemphasis on customer needs. Studentsshould better understand users' deci-sion-making processes.

• Students should learn the strate-gic implications of information tech-nology. What does it mean, forexample, for the conduct of transac-tions, future markets, business struc-ture, teamwork, cost control andbuilding intellectual assets? Studentsshould have access to the specific in-formation technology knowledgeneeded to provide new services.

• Students need skills in modelbuilding and measurement theorythey can adapt to specific serviceneeds.

• A solid understanding of a reli-able, comprehensive business model(such as business strategist MichaelPorter's value-chain model) can sub-stantially empower practitioners toanalyze business circumstances andprocesses, identify needs for infor-mation services and explain thoseneeds.

The assurer can improve the information's reliability, rele-vance or context.

Thus, if CPAs are going to take advantage of assuranceservice opportunities, they must stretch their perspective

E X E C U T I V E S U M M A R Y

• 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 com-mittee 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 "inde-pendent 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 in-come 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,

electronic commerce, performance measurement, thedelivery of health care services, risk information for in-ternal decision makers and information systems designand operation.• THE SPECIAL COMMITTEE recommended thatCPA firms identify assurance services for their own mar-kets and that the AICPA identity services for the profes-sion as a whole. The newly formed assurance servicescommittee will continue the Institute's service develop-ment efforts.• THE ASSURANCE SERVICES WEB SITE is de-signed to support two of the special committee's conclu-sions—^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 find-ings 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 execu-tive director of the AIC PA special conmiittee on assurance services and now is a member of the assurance services (.-onmiictee.

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RESEARCH NEEDSA great variciy of research also would helpthe profession s expansion into new assur-ance services. Here are some examples ofthe kind of research that would serve practi-tioner and classroom needs as well as exp;mdthe frontiers of the accounting profession:

• Decision makers' information and as-siirancL' needs.

• Measurement criteria needed to per-form specific services.

• Krlevance enhancement services (ser-vices to assure that decision makers havethe right information).

• Assurance methods and reporting(such as the concept of "assurance risk").

• Oiteria for identifying risks and as-sessing their likelihoods.

• Criteria for assessing the integrity andsecurity of electronic commerce.

• Systems design reliabihty and contin-uous systems assurance.

The special committee's actionplan for academics is located at

/'Ji''^\ www.aicpa.org/assurance/scas/howaffct/academ/apa/index.htm.vs/elderpl/index.htm.

beyond financial statements, l^ecision mak-ers' 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 al-ready has identified. The committee devel-oped busmcss plans for 6 services, exploredseveral others in abbreviated form and iden-tified over 200 more through a survey of ser-vices 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 fea-tures of electronic commerce function inaccordance with accepted criteria. The ser-vice would provide assurance with respectto the integrity and security of electronictransactions, electronic documents and sup-porting 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 care-givers—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 fami-ly 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 pro-viding 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 engage-ment. 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 re-tirement care facility).

MARKET POSITIONINGI he C PA's reputation as an independent, honest, objective and reli-able 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 competi-tors 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 high-er 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 or-dered on-line at www.aicpa.org/store/products/732022.htm.) In ad-dition. 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 www.aicpa.org/assurance/scas/newsvs/elderpl/index.htm.

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zation's performance measurement system, assessing therelevance of an organization's performance measures, iden-tifying performance measures for organizations that needthem and helping to design and implement a performancemeasurement system.

4. Assess health care providers' performance for the de-cision-making benefit of care recipients and their represen-tatives (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 op-erate in a manner that provides reliable information or op-erate according to accepted criteria.

The estimated market for electronic commerce assur-ance services alone is between $1 billion and $11 billion;for elder care, between $2 billion and $7 billion. Informa-tion systems reliability also is a market estimated in the bil-lions 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 opportuni-ties will open up as the information technology revolu-tion 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 chang-ing 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 al-ready are developing the services identified by the specialcommittee. C^ ustomer focus will play an important role inthe move to new assurance services. Effective service iden-tification depends on understanding customers' needs.

The traditional audit, with its standard report and mea-surement criteria designed to enhance comparability acrossall reporting entities, is a general purpose service. The spe-cific information needs of individuals and groups will dic-tate new assurance services. To identify these needs,practitioners will require a new mind-set, communicationsskills, business knowledge and the capacity to make infer-ences from relationships between business circumstancesand economic and industrial trends. The special commit-tee's report includes information on how firms and indi-vidual CPAs can identify customer needs and turn theminto services. It can be found at www.aicpa.org/assur-ance/scas/comstud/amodel/index.htm.

THE WEB SITE REPORTThe Web site report is designed to be consistent with twoof the special committee's main conclusions—that the

profession 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 high-light the findings most important to someone in his or her

How 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 assur-ance 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 locat-ing and viewing Web sites)—along with a computer.The AICPA recommends you use either Microsoft In-ternet Explorer or Netscape Navigator to view its site,preferably the most recent versions. A 14.4 Kbps mo-dem 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 be-low. 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 typ-ing 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 but-tons also may be used as links by site designers.

You can "bookmark" sites by selecting "Add Book-mark" from the bookmarks menu for Netscape Naviga-tor 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.

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professional role, such as a tiieniber in a small firm, amember in business or industry or a member from acade-mia. (See the sidebar on pages 48-49 for the academicperspective.) It's also possible to go a level deeper to ex-plore the themes that underlie the findings and recom-tnendations, or a level deeper still to the papers and

research that were the basis for the report's conclusions.Visitors also are free to read every word from every file atevery location on the Web site. Even first-time Web visi-tors should find it easy to find what they want to read. (Seethe sidebar below for more information on visiting the as-surance services Web site.) •

Forgotten anything? Don't worry. The AICPA site tu-torial is at www.aicpa.org/tutor/index.htm. Visit the tu-torial to review these fundametitals and to learn more.

SITE MAPAt the assurance services Web site {www.aicpa.org/assur-ance/sitemap/index, htm) is a map of the site {see illustra-

tion below). You can reach specific locations directly byclicking on the graphic clement containing the subjectname you've chosen. The site map can take you to thespecial committee's report and all its major sections and to"Ongoing Assurance Services Development," which willkeep you up-to-date on the assurance services committeeand its task forces.

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