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Accounting
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AICPA white paper on internal use-only financial statements Demand for Additional Financial Statement Services. The Board discussed the perceived demand for CPAs to provide additional financial statement services with representatives from Texas, New York, and Florida. Representatives from New York and Florida (as evidenced by the adoption of the assembly service) clearly expressed their support for expanding the number of options members have when offering financial statement services to clients. Representatives from Texas held the contrary view. The experiences of many of the Board members and the AICPA staff more closely parallel the views of the New York and Florida representatives. There appears to be, at least from certain regions, a growing demand for CPAs to be able to communicate financial information to their clients outside of the requirements of SSARS No. 1. The Board was sympathetic to that need. However, before taking further action, the Board is seeking feedback from Council members as to whether these perceived demands are being discussed in other parts of the United States. The Board discussed the option of encouraging the ARSC to amend SSARS No. 1 so that a CPA would only be required to compile if engaged to do so. If not engaged to compile, the CPA could prepare financial statements for a client governed only by the requirements of Rule 201. The Board rejected that notion based on the need to protect the integrity of the CPA hallmark and to protect the public. (Appendix B also describes the litigation concerns raised by the membership prior to the issuance of SSARS No. 1. One risk entailed in a fourth level of service is that the financial statements will be distributed to third parties who do not understand the limitations of the service. The Board believed that third party services should protect the profession and the public through clear communication of information to users about the nature of the work performed, the extent to which the user can rely on it, any limitations of the service, and an identification of material departures from the criteria used to develop the presentation. Accordingly, the Board rejected a fourth level of service that would allow distribution to third parties. The Board then considered whether one way to expand the services provided is to permit preparation of financial statements that are intended for internal use only. This approach enables CPAs to satisfy a perceived demand while performing a service in a manner that protects the anticipated user (management) and the profession by requiring the CPA to establish an understanding with the client regarding the nature and limitations of the service. (The Board did not discuss the details of an internal-use only service. Accordingly, the creation of the service is best left to the ARSC. There are several options available, for example, an internal use only financial statement with a required engagement letter or legend with appropriate exculpatory language.) The CPA would be permitted to make a business decision as to the risk entailed in performing this engagement, e.g., the risk that clients may distribute the financial statements to third parties. The Board believed this is an option worthy of further consideration. The Board acknowledges that many members do not support the introduction of an internal use only financial statement service. Those members believe that compilations can meet the needs of the client, and protect third parties from unwarranted reliance. Also, those members argue that supporters of internal use only statements are attempting to avoid having to understand the standards and undergo peer review. The Board acknowledges these diverse views. The Board would like to hear Council members’ views on these issues. The Board reviewed the repeated failed efforts of ARSC to introduce a fourth level of service (see Appendix B). However, the Board believes that the membership’s opinion may be changing. The fact that two large states have endorsed allowing greater freedom in the delivery of services influenced the Board’s decision. Further, technology has changed how members are communicating with their clients. Some members are performing the procedures required by SSARS in an electronic environment that never creates financial statements. Members have argued, for instance, that when a CPA electronically accesses his or her client’s records, makes adjustments, then electronically resubmits the information, a compilation is required under today’s standards. However, effective electronic implementation of SSARS No. 1 is questionable. Many members believe that SSARS No. 1 should be revised to be more relevant to today’s technology environment. |
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