INTRODUCTION

During the last two years, several events occurred that caused the AICPA Board of Directors (the Board) to reevaluate the role of compilations within this profession and to consider whether CPAs should have greater freedom in delivering market driven financial statement services to their clients. Some of the events driving the discussion were market driven, others represent changes in the regulatory environment within specific states. Foreseeing that these events could lead to diverse solutions developed by individual states, the Board identified two options that could protect the public interest, achieve uniformity within the profession, and enable our members to perform valuable services. The options are—

• Allowing CPAs in unlicensed firms to perform compilations; and

• Enabling CPAs to perform another financial statement service.

At this time, it is critical for the Board to receive input and direction from Council members. Your involvement in this process is important. To assist you in your preparation for the meeting, this paper defines the issues, covers the process the Board undertook to identify the aforementioned options, and presents the Board’s rationale. It is the Board’s intent that this paper provide you with information that will enable you to develop an informed opinion.

BACKGROUND

Actions Taken by the Florida Board of Accountancy

In Response to Litigation Initiated by American Express

Like most states, Florida law required CPA’s who hold out as CPAs and perform public accounting services (whether attest or nonattest services), to do so in licensed CPA firms, that is, firms owned by CPAs. In 1996, American Express Tax and Business Services initiated a lawsuit seeking to overturn Florida law to the extent that it prohibited CPAs working for unlicensed firms from identifying themselves as CPAs and performing nonattest services—services that do not provide any form of opinion or assurance. (Florida by rule considers a compilation report a form of assurance; therefore, compilations have been reserved for CPAs practicing in licensed CPA firms).

Ultimately, American Express prevailed. As a result, and because of the existence of the prior consent decree noted in footnote 1, Florida believed that the CPAs in American Express who could now hold themselves out as CPAs could not be prohibited from performing any financial statement services merely because they identify themselves as CPAs. In an effort to enhance the regulation of CPA’s working in unlicensed firms, and to comply with the direction they believed the law was taking, the Florida legislature revamped its legislative scheme. The new law still permits the Florida Board of Accountancy (the Florida Board) to require CPAs performing attest services to do so in a licensed firm; however, this law specifically prohibits the Florida Board from adopting rules that would prohibit licensees employed by unlicensed firms from preparing financial statements, as long as the statements are not accompanied by a report providing any form of opinion or assurance. To comply with the law, the Florida Board needed to establish a regulatory scheme that would enable CPAs in unlicensed firms to perform some type of financial statement service. The Florida Board considered the following three options:

1. Do nothing and wait for the AICPA and NASBA to address the issue. This option would have permitted Florida CPAs in unlicensed firms to issue financial statements and perform other accounting and tax services without any regulation.

2. License nontraditional accounting firms such as American Express. This would have allowed any firm or entity to practice like a traditional public accounting firm by employing a single CPA to provide the service.

3. Preserve as much of the traditional structure and regulatory scheme as possible, and permit only CPAs working in licensed firms the right to perform assurance services. To comply with the law, however, Florida had to enable CPAs in unlicensed firms to be associated with some type of financial statements.

Next Section