Evolution of the Fourth Level of Service

January 1999 Issue
Evolution of the Fourth Level of Service
CPAs have long looked for ways to answer clients' needs for financial information for management's own use, and they have worked to minimize the cost of such services while still adhering to professional standards. Over the years compliance with standards has been difficult and frustrating for many practitioners, but the issue is not new.
Before Statement on Standards for Accounting and Review Services No. 1 was issued in December 1978, CPAs often prepared unaudited financial statements to satisfy clients' internal needs, and practitioners were allowed to place an internal use restriction on those statements. Since the release of SSARS No. 1, various AICPA groups have issued exposure drafts on proposed standards for relatively the same type of service but standards have never become a reality. A 1982 exposure draft on computer prepared interim financial statements was never made final. The AICPA's Accounting and Review Services Committee (ARSC) issued an exposure draft in 1995 on the assembly of financial statements, but dropped it in early 1998.
In an attempt to modify standards, ARSC created three exposure drafts that were never released because of a recent Florida accounting law that, effective October 1, 1998, allows licensed CPAs working for either licensed or unlicensed entities to issue a fourth level of financial report, referred to as an Assembled Financial Statement. The law takes precedence over standards and permits a CPA to issue a report not permitted by AICPA standards. Given the choice, practitioners could issue a fourth level of service and risk a modified peer review report or exclusion from the AICPA.
If New York passes the Society's proposed version of the UAA, a similar situation as in Florida could arise. In the meantime, the AICPA board of directors is attempting to unravel the issues, formulate an approach, and give direction to ARSC on whether to amend the AICPA's professional standards to permit Florida CPAs to comply with their state's accounting law.
Until reasonable and practical standards are promulgated or federal legislation enacted, controversy, discussion, and debate will continue. *

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