What Is the Meaning of Nonattest Services?
Explore the professional accounting services that do not provide assurance and the essential independence considerations that govern their practice.
Nonattest services are professional assignments by a Certified Public Accountant (CPA) firm that do not result in an opinion, assurance, or formal attestation regarding financial information. These services encompass a wide range of accounting, tax, and consulting work. The function of a nonattest service is to provide assistance, advice, or a specific work product for a client’s use, often for internal management purposes. The CPA is not providing an independent verification or conclusion on the reliability of the information involved.
The Core Distinction from Attest Services
The primary distinction between nonattest and attest services is the concept of assurance. Attest services, such as a financial statement audit or review, are formal engagements where a CPA provides an independent and objective opinion on the fairness and accuracy of a company’s financial statements. These engagements are governed by specific professional standards.
The purpose of an attest service is to enhance the confidence that third parties, such as investors and creditors, can place in the subject matter. The CPA issues a formal written report communicating their findings and level of assurance. In contrast, nonattest services do not involve this level of independent examination or the issuance of a formal opinion that provides assurance to outside parties.
Common Types of Nonattest Services
One of the most common nonattest services is bookkeeping, where the firm records daily financial transactions, maintains the general ledger, and reconciles bank accounts for a client. This service essentially outsources a company’s accounting function to professionals.
Tax preparation and planning are another significant area of nonattest work. This includes preparing federal, state, and local tax returns for businesses and individuals, ensuring compliance with applicable laws. It also involves strategic tax planning to help clients minimize their long-term tax liability. This can include advice on business deductions, credits, and the tax implications of specific transactions.
Firms also provide a wide array of consulting services. Management consulting involves advising a company on its business strategy, operational efficiency, or organizational structure. Financial planning services help individuals manage their investments and plan for retirement. Other specialized services include valuation of a business or asset and internal audit outsourcing to help a client monitor internal controls.
Auditor Independence and Regulatory Framework
The distinction between attest and nonattest services is a focus of professional regulation due to its direct impact on auditor independence. Independence requires an auditor to be free from conflicts of interest that could compromise their objectivity. This concept includes both independence in fact, meaning the auditor’s mental state is unbiased, and independence in appearance, which is the avoidance of circumstances that would cause a reasonable third party to question the auditor’s objectivity.
Providing certain nonattest services to an audit client can create a threat to independence. For instance, if a CPA firm performs bookkeeping for an audit client, they are essentially auditing their own work. For auditors of private companies, these rules are set by the American Institute of Certified Public Accountants (AICPA). For auditors of publicly traded companies, the rules are established by the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB), which are generally more restrictive.
These frameworks generally prohibit an auditor from performing management functions or making management decisions for an audit client. An auditor cannot act as an employee or design the financial information systems they will later audit. When permissible nonattest services are provided to an audit client, safeguards must be implemented. These require the client’s management to take full responsibility for the services, oversee the work, and have sufficient expertise to evaluate the results.