The American Institute of Certified Public Accountants (AICPA) recently published a standard allowing CPAs to provide new attestation services on nonfinancial matters to various types of businesses and nonprofit entities. Examples of such services are examinations of daycare safety procedures or company investment transactions.

New guidance

The AICPA’s Auditing Standards Board (ASB) issued Standards for Attestation Engagements (SSAE) No. 21, Direct Examination Engagements, on September 30. The standard adds a new section in AICPA Professional Standards designated as AT-C Section 206, Direct Examination Engagements.

“While maintaining the ability to perform traditional ‘assertion-based’ examination engagements, this new engagement allows practitioners to use their highly valued skills and expertise to measure or evaluate different types of nonfinancial subject matters against criteria and report the results of their work directly to users, thereby furthering the public interest,” ASB Chair Tracy Harding said in a statement. “The entity responsible for the underlying subject matter is not required to expend resources in measuring or evaluating the subject matter against criteria. The new service is expected to be useful given the ever-expanding types and complexities of nonfinancial subject matters.”

In addition to adding a section related to direct examinations, SSAE No. 21 makes minor amendments to AT-C Section 105, Concepts Common to All Attestation Engagements. It clarifies certain terminology and underlying definitions related to these engagements.

Direct examinations vs. assertion-based engagements

Previous standards only permitted assertion-based attestation engagements, which require a responsible party (usually the business or nonprofit client) to provide an assertion.

In an assertion-based engagement, an entity measures or evaluates the underlying subject matter against a set of criteria. Then it provides an assertion about the outcome of the measurement or evaluation. The entity hires a CPA to:

• Express an opinion in a written report about whether the subject matter does follow the criteria in all material respects, or
• Opine whether the responsible party’s assertion is fairly stated.

The new standard allows direct examination engagements in which the CPA “measures or evaluates the underlying subject matter against the criteria and performs other procedures to obtain sufficient appropriate evidence to express an opinion in a written report that conveys the results of that measurement or evaluation.”

The responsible party must continue acknowledging responsibility for the underlying subject matter. But the responsible party doesn’t provide an assertion about the results of the measurement or evaluation of the underlying subject matter against the criteria.

“The service will be helpful with new and emerging nonfinancial subject matters, since many entities may not have the expertise in-house to measure or evaluate a complex, emerging subject matter,” the AICPA said.

Right for you?

SSAE No. 21 will be effective for reports dated on or after June 15, 2022. However, CPAs can apply early. Contact us to determine whether this new attestation service could help your organization report nonfinancial matters.

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