Finding New Opportunities in a Changing Marketplace
Are assurance services the way of the future for CPAs? For the past seven years, accounting and auditing revenue, adjusted for inflation, has remained flat. The marketplace is evolving, and to maintain a competitive advantage some CPAs are finding they need to rethink traditional methods for doing business and to develop new approaches for performing services for their clients.

Assurance services present an enormous market potential for the profession. Assurance services are defined as independent professional services that improve the quality of information, or its context, for decision makers. Context, in this case, refers to the decision making process and the format in which information is presented. This broad concept includes audit and attestation services and is different from consulting because it focuses primarily on improving information rather than merely providing advice or installing systems. Assurance services are intended to increase the confidence of decision makers, and who better to ensure confidence than a CPA?

Recognizing an exciting new arena in which CPAs can expand their services, the American Institute of CPAs (AICPA) created a Special Committee on Assurance Services in April 1994. The Committee's goal was to find out what other information needs can be met by CPAs and how CPAs can add value to information other than historical financial statements. The committee came up with six business segments that provide enormous opportunities for CPAs. They are: Risk Assessment, Business Performance Measures, System Reliability, ElderCare, Performance Measures for Health-Care Providers, and Electronic Commerce.

Risk Assessment
Risk assessment services are vital for evaluating overall performance of management, including performance in monitoring the environment for possible future developments. Services in this area include identification and assessment of primary potential risks faced by a business or entity, independent assessment of risks identified by an entity, and evaluation of an entity's systems for identifying and limiting risks.

These services provide consulting opportunities for CPAs interested in helping companies to mitigate the effects of identified risks, especially for smaller entities that do not have risk management expertise. CPAs can assist management in developing objectives and strategies (including operations, financing, taxation and financial and compliance reporting systems) for meaningful risk assessments. The CPA may also add value by providing advice about possible threats to achieving broad business objectives and information about potential risks, including the continuing need to monitor risks and maintain the responsiveness of the client's organization.

The primary users of risk assessment services are likely to be the owners of small businesses or senior management and the board of directors of larger businesses. Owners and senior management can be more effective if they know the potential risks and understand the possible impact on their businesses. Owner/managers can also benefit through periodic consultations with the CPA to follow up on identified risks.

Business Performance Measures Business performance measures focus on providing assurance regarding an organization's use of both financial and non-financial measures to evaluate the effectiveness and efficiency of its activities. Performance measures can also evaluate how the organization is performing in relation to the competition. There is a wide range of business performance services that CPAs can provide. Each service could be performed as a separate engagement or several could be combined into one engagement. The potential services are:

Evaluation of existing performance measurement systems:

• Assessing the reliability of information being reported from the organization's performance measurement systems.
• Assessing the relevance of the performance measures (and how well they inform management about achievement of the performance objectives that have been set).

Establishment of new performance measurement systems:

• Identifying relevant performance measures.
• Helping to design and implement performance measurement systems.

The primary users of business performance measures are senior management who want to evaluate employees, measure actual performance against objectives, identify those activities or functions that provide the best opportunities for improved performance, or assess whether their systems are properly measuring activities relevant to their strategic objectives. Secondary users of these services are investors and creditors, who can use such information to determine if management is effectively utilizing available resources and positioning their companies as sound investment choices.

Systems Reliability
Systems reliability assurance guarantees that a system is designed to operate in a way that produces accurate data. This involves testing the integrity of information technology systems. The CPA studies the systems and analyzes the possible causes of defects in data to determine if the systems avoid them. While effective systems, where timing of reliability is not an issue, can rely on error detection and correction, real-time information systems must implement a before-the-fact prevention strategy to make their output useful. For information systems to provide decision makers with continuously reliable information, CPAs must abandon the historical error-detection-and-correction model and move to a reliability-by-design model. This involves rigorous review and testing by the CPA.

Systems reliability consists of two general services: management service and external service. Management service is about assuring the quality of systems that produce data for use by boards and management. It is a broader data set than that used for financial reporting. External service is about the quality of systems that produce financial reporting data used both internally and externally.

System reliability services are beneficial because they integrate both systems and business operations. Financial systems often are designed to accommodate financial reporting but fail to deliver additional data to managers. Ultimately, the CPA could provide users with real-time assurance about systems quality.

ElderCare
The U.S. Bureau of the Census estimates that by the year 2000, approximately 4.3 million people in the United States will be 85 years of age or older. Increasingly, people are living to ages where assistance is needed to remain in their homes or in arranging for institutional care. The purpose of ElderCare services is to provide assurance in a professional, independent and objective manner to children, family members or other concerned parties that the needs of the elderly person are being met.

Such services rely on the expertise of other professionals, with the CPA serving as the coordinator and assurer of the quality of the services. ElderCare services include performing procedures to measure how effectively care providers meet goals established by the client. These procedures might include:

• Accounting for routine financial transactions and reviewing them for adherence to established criteria.
• Supervising investment and accounting for the estate.
• Investigating and providing information for handling unexpected situations, such as home maintenance and repair and medical emergencies.
• Inspecting logs, diaries or other evidence to determine whether care providers are meeting the performance criteria agreed upon with the client.
• Reporting to children or other family members on activities such as financial transactions and the degree to which care providers are meeting the established criteria.

In summary, ElderCare services enable potential customers to assist elderly people in maintaining a quality of life and degree of independence and dignity that might not otherwise be possible.

Health-Care Performance Measures
Performance measures provide a meaningful method for evaluating an entity's operations. Both internal and external users need them. Internal users need information on enterprise effectiveness to make efficiency and quality improvements, such as the adoption of best practices (see Business Performance Measures). External users need information on whether the entity has effectively used available resources to determine if it is deserving of further investment. Health-care performance measures services fall into this category. The health-care industry accounts for one-seventh of the U.S. economy with a total annual volume of over $1 trillion. The aging of the population over the next several decades also will result in increasing demands for, and concerns about, health care.

CPAs could structure their health-care services in a number of ways. For example, the CPA could report on the accuracy of statistical reports or report directly on the quality of care. If a CPA chooses to report on the quality of care delivered by a health-care provider, such information would be of high interest to consumers. Such information might include length of stay, patient satisfaction and mortality. Similar services also could be provided for hospitals, HMOs, managed care firms, physician groups a and individual practitioners.

Electronic Commerce
CPAs can provide a valuable service by addressing the risks and promoting the integrity and security of electronic transactions, electronic documents and supporting systems. For example, CPAs could provide assurance to electronic commerce participants that the electronic commerce providers and the tools and systems in use are functioning in accordance with accepted criteria for electronic commerce integrity and security.

Integrity services would provide assurance that the elements of a transaction are as agreed upon by the concerned parties, and that the systems that process and store transactions and documents do not alter those elements. Similarly, security services would provide assurance that the parties to transactions and documents are authentic, that the transactions and documents are protected from unauthorized disclosure, and that the systems supporting the transaction processing and storage provide appropriate authentication and protection.

Electronic commerce assurance services could be provided to any person or persons entering into an electronic transaction. There are several possible payers for electronic commerce assurance services, including companies that may specify an electronic commerce system for use by their vendors or customers as a condition of their business relationships. The party imposing a system on other business entities may wish to provide assurance that the specified system contains inherent controls to avoid potential liabilities. Businesses also may wish to provide independent assurance regarding system integrity and reliability to alleviate concern among current or potential vendors and customers. Vendors of electronic commerce systems and services also may require independent assurances from CPAs to give credibility to their marketing efforts.

Legal Risks Associated With Assurance Services
While it is impossible to eliminate litigation risks entirely, the AICPA Committee identified several techniques to lessen it. The Committee's summarized conclusions were:

• Firm-level risk management can be significantly improved by enhancing the yield from existing risk-avoidance techniques.
• Cautionary language in information that is the subject of assurance services and in assurers' work products may help protect assurers from unwarranted liability. Cautionary language should therefore be considered in developing services, bearing in mind that at some levels cautionary language runs the risk of reducing the perceived value of the services.
• There are advantages from bringing assurance-service liability more within contract, as opposed to tort, law than is currently the case.
• Loss-limited clauses in assurance-service contracts are advantageous. Assurers should therefore consider their availability and potential benefits when arriving at engagement terms.
• Alternative dispute resolution, primarily a contractual avenue, can be advantageous. Assurers should therefore evaluate its suitability to their engagement circumstances.
• When determining the portfolio of services to be offered, assurers may wish to factor in the litigation risks of specific performance obligations.
• Information that is the subject of an assurance engagement and is disseminated through a public computer network, such as the Internet, does not appear more of a litigation threat under current law than information disseminated by other means, although the relevant legal reasoning has yet to be applied to accountants.

Conclusion
To meet the needs of customers in today's changing marketplace, CPAs should consider offering customized, niche services directed at individual decision makers. The key to providing new assurance services is a strong knowledge of the needs and capabilities of clients and potential clients. New services should build upon and enhance the strengths that the CPA profession already has mastered. For additional information about assurance services, visit the AICPA website at www.aicpa.org.

Practitioners Publishing Company (PPC) has developed practice aides that CPAs can use to deliver assurance services. Some of them can be downloaded from PPC's website at www.ppcinfo.com. These aides appear in PPC's Guide to Nontraditional Engagements. The aides include:

Risk Assessment

• Proposal letter
• Procedures (work) program
• Engagement letter
• Risk identification questionnaire
• Transmittal letters/reports

Business Performance Measures

• Proposal letter
• Procedures program
• Engagement letter
• Goals and action plan practice aides
• Performance measurements progress report
• Sources of industry information
• Performance measurement identification practice aides
• Illustrative reports

ElderCare

• Procedures (work) program
• Services questionnaire
• Engagement letter
• Community resources
• Guidance on communicating with older persons
• Reports
• Practice aides on domestic workers, social security, Medicare/Medicaid, long-term care, planning for contingencies