New Guidance on Personal Financial Planning Engagement Functions and Responsibilities
The American Institute of CPAs personal financial planning executive committee has issued a Statement on Responsibilities in Personal Financial Planning Practice, Basic Personal Financial Planning Engagement Functions and Responsibilities. The statement contains guidance that will have a major impact on PFP engagements performed by CPAs. This month, Phyllis Bernstein, CPA, director, AICPA personal financial planning division, describes the statement's contents and provides some additional insights. She writes that although the statement is advisory, it would be a mistake for practitioners to ignore its potential impact. Most CPAs should start thinking about how the statement will affect their practices. According to the statement, PFP engagements involve developing strategies and making recommendations to help clients define and achieve personal financial goals. Examples of non-PFP services are those limited to * Compiling personal financial statements. * Projecting future taxes. * Tax compliance, including but not limited to tax return preparation. * Tax advice or consultation. PFP engagements may address all of a client's personal financial planning goals or focus on only a limited number of goals. When an engagement addresses a limited number of specific goals, the CPA still should consider the client's overall financial circumstances in developing any recommendations. GUIDANCE FOR PFP ENGAGEMENTS There are numerous guides to help determine practice responsibilities. The AICPA Code of Professional Conduct requires observance of high ethical standards. PFP also often involves providing tax advice. The AICPA tax division provides guidance in that area in Statement on Responsibilities in Tax Practice no. 8, Form and Content of Advice to Clients, and offers additional tax guidance in other SRTPs. When a PFP engagement includes preparing personal financial statements or making financial projections, CPAs should consider applicable AICPA pronouncements, including * Statements on standards for accounting and review services. * Statement on Standards for Attestation Engagements, Financial Forecasts and Projections. * Guide for Prospective Financial Statements. * Personal Financial Statements Guide. DEFINING ENGAGEMENT OBJECTIVES A CPA defines engagement objectives to determine the services needed. To judge the appropriate scope of service to meet a client's needs and to reach an understanding with the client concerning engagement objectives, it is necessary to understand the client's goals and resources. The CPA also needs to understand the client's family situation, commitment to the planning process, current cash flow and assets available, personal preferences and relationship with other professionals (attorney, broker, insurance agent, etc.). The appropriateness of the original engagement objectives should be carefully evaluated as the engagement proceeds. If the CPA identifies issues the client did not consider originally that require special consideration, the CPA should bring those matters to the client's attention. The statement recommends a CPA document his or her understanding of the PFP engagement. This documentation may include a description of * Engagement objectives. * The scope and nature of services to be provided. * The roles and responsibilities of the CPA, the client and other advisers. * Fee arrangements. * Scope limitations and other constraints. An example of a scope limitation is when the client asks the CPA to limit the scope of the services, such as not reviewing insurance coverage. When this occurs, it may be necessary to postpone certain recommendations until the coverage is reviewed. (The appropriate communication to a client when only selected goals are considered is described later. …