Page 18 - Bankruptcy Volume 1

Chapter 3

Professional Standards and Nonauthoritative Guidance

Statement on Standards for Forensic Services (SSFS) No. 1 (FS sec. 100), fn 1 which is effective for en-
gagements accepted on or after January 1, 2020, applies to bankruptcy engagements. Specifically SSFS
No. 1 applies in instances where there is both a litigation proceeding before a trier of fact and a matter in
which a member is engaged to evaluate and respond to specific concerns. In instances where SSFS No. 1
applies, CS section 100, Consulting Services: Definitions and Standards, will no longer apply. fn 2

There are instances where SSFS No. 1 would not apply. We refer the reader to the Frequently Asked
Questions released with the standard, specifically number 7, fn 3 which describes the applicability of the
standard to bankruptcy engagements. Engagements where SSFS No. 1 does not apply will continue to be
covered by CS section 100.

CS section 100 applies to certain bankruptcy and reorganization services (specifically, those to which
SSFS No. 1 does not apply) and subjects such engagements to the standards embodied in the AICPA
Code of Professional Conduct. The standards include professional competence, due professional care,
planning and supervision, sufficient relevant data, client interest, understanding with the client, and
communication with the client.

fn 1 All FS sections can be found in AICPA Professional Standards.

fn 2 Statement on Standards for Forensic Services (SSFS) No. 1 establishes standards for a member providing services to a client as
part of the following engagements:
Litigation. An actual or potential legal or regulatory proceeding before a trier of fact or a regulatory body as an expert witness,
consultant, neutral, mediator, or arbitrator in connection with the resolution of disputes between parties. The term litigation as
used herein is not limited to formal litigation but is inclusive of disputes and all forms of alternative dispute resolution.

Investigation. A matter conducted in response to specific concerns of wrongdoing in which the member is engaged to perform
procedures to collect, analyze, evaluate, or interpret certain evidential matter to assist the stakeholders (for example, client, board
of directors, independent auditor, or regulator) in reaching a conclusion on the merits of the concerns.

All CS sections can be found in AICPA Professional Standards.

fn 3 7. Is SSFS No. 1 applicable to providing bankruptcy services?

Generally, the answer is yes. A bankruptcy in the United States is a legal proceeding before a trier of fact, and consequently falls
under SSFS No. 1. However, this is an area wherein the member or member firm must carefully evaluate whether the services being
provided meet the two-prong test of a “Litigation” or an “Investigation.” For example, SSFS No. 1 is not applicable to a member or
member firm providing financial statement audit or tax preparation services for an entity in bankruptcy as those services do not meet
the two-prong test. As another example, a member or member firm providing financial advisory services to an entity that is restructur-
ing and evaluating whether to file bankruptcy would not fall under SSFS No. 1. In this last example however, the financial advisory
engagement may turn into an engagement where the member or member firm may continue providing services as the entity proceeds
into a formal bankruptcy proceeding. At that time, the engagement may become a “Litigation” and SSFS No. 1 would be applicable.

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