August 2000

Society Comments on Management Use Only Exposure Draft

On June 8, the NYSSCPA submitted comments to the AICPA's Accounting and Review Services Committee (ARSC) concerning its proposed amendments to Statement on Standards in Accounting and Review Services Statement No. 1 (SSARS 1) permitting CPAs to issue management use only financial statements. An ad hoc task force drafted the Society's comments, which were then amended at the June 3 board of directors meeting.

The SSARS amendment project began following a visit to the Society's February 1999 board meeting by AICPA President Barry Melancon and Vice President of Professional Standards and Service Arleen Thomas. Previously, the Society's board had voted to include in the New York version of the UAA a provision to exclude from state regulation all internal-use-only communications between CPAs and their clients.

Melancon asked the board to remove the internal-use-only provision from its legislative proposal, saying that it is an area better left to the profession's own standard setters. He promised that the appropriate AICPA standard setters would revisit the plain paper statement area in light of the New York Society's action and somewhat parallel legislation in Florida.

In late December, ARSC issued its proposal to amend SSARS 1 to permit CPAs to issue management use only financial statements. Under the proposal, when third parties are not expected to use CPA-prepared financial statements, the CPA need not comply with the SSARS compilation requirements. However, the proposal does require that there be a writing between the CPA and the client. The writing can be either an SSARS-compliant compilation, an engagement letter before the CPA performs the service, or a letter to management following delivery of the service. If not an actual compilation, this writing must document the services to be performed and state the limitations on the use of the document.

After amendment by the board, the Society's comments state, "The Society feels strongly that, when a CPA prepares and submits financial information on 'plain paper' to clients for the exclusive use of the client and its management, few or no authoritative pronouncements are necessary. Each client has different needs depending on numerous factors such as the sophistication of its internal staff, its industry, the nature of its economic activities, etc. The servicing CPA is in the best position to evaluate the form and content of the financial information that will best meet the needs of the client."

The Society advised that the SSARS amendment should only require that there be a written understanding between the client and the CPA as to the nature of the services rendered and a restrictive legend on the financial information submitted to the client similar to the following: "Restricted to Management [or Internal] Use Only-Not for External Distribution."

In the event the ARSC chose not to revise the approach it took in its proposal, the Society suggested that the ARSC expand on the definition of "submission of a financial statement."

NYSSCPA Accounting and Auditing Oversight Committee Chair Brian A. Caswell chaired the task force that prepared the Society's comments. Other members of the task force were David L. Evans, George T. Foundotos, Fred R. Goldstein, Jeffrey R. Hoops, John J. Kearney, Janet LaBarbera, Thomas O. Linder, and Frank W. Sluter. In addition, board members Vincent J. Love and Robert S. Cheskes worked with the task force to incorporate the board's amendments to the comments.