December 2000
Plain Paper: Here at Last!
By
James A. Woehlke, CPA, JD
Call it what you will—assembly, management-use-only statements, a fourth level of service, or even the “fender”—plain paper statements arrived with the publication of the Statement on Standards for Accounting and Review Services (SSARS) No. 8 in the Journal of Accountancy.
Effective for financial statements submitted after December 31, 2000, SSARS 8, which are proposed amendments to SSARS 1, authorizes CPAs to issue financial statements in whatever format they and their clients wish, so long as (1) the statements are not going to be, and are not reasonably expected to be, used by third parties and (2) the CPA sends the client an engagement letter with appropriate descriptions of the service being rendered.
SSARS No. 8 is expected to effect fundamental changes in the way in which accountants practicing in New York state view compilation engagements. It contains new options for accountants when performing compilation engagements in which the financial statements are not expected to be used by a third party, and would allow the accountant to use his or her professional judgment in identifying the appropriate level of service for the client.
These amendments to SSARS 1 will provide a means for CPA firms in price-sensitive markets to offer a professional quality service to clients who want GAAP, OCBOA, and other financial statements solely for their internal use.
Background
The road that led to the issuance of SSARS 8 has been long and winding. Recoiling from the onslaught of numerous new accounting and auditing standards—what many have called standards overload—CPAs began calling for the freedom to issue financial information to clients without observing the encumbering requirements on format and disclosure.
During his term as chair of the American Institute of CPAs in 1995, former
New York State Society of CPAs President Robert L. Israeloff made
plain paper statements a priority. During that year, the AICPA’s Accounting
and Review Services Committee (ARSC) proposed a new level of service called
“the assembly,” which many likened to a stripped-down compilation. The
assembly proposal, however, met with criticism and was never finalized
by ARSC.
The pressure for plain paper statements continued. Shortly after the AICPA’s failure to act, the state of Florida legislated a fourth level of service called, not surprisingly, an assembly to supplement audits, reviews, and compilations. This may have been the first time a state overrode the CPA profession’s standard-setting authority by defining a type of service to be provided by accounting licensees.
The NYSSCPA was also poised in 1998 to seek a legislative solution, when the board of directors acted to have the New York version of the UAA specify that, if a communication is between a CPA and a client only (that is, third parties are not expected to receive the communication), the communication would be an unregulated service.
Nicknamed the “fender” by former Society Vice President David A. Lifson,
this position was never included in the Society-sponsored version of the
UAA because AICPA President Barry Melancon headed it off during a visit
to a 1998 board meeting by promising that the AICPA would again explore
the possibility of plain paper statements if the Society would forgo its
state-based legislative position.
In 1999 former Society President George T. Foundotos took the
case for plain paper to the AICPA board, which subsequently authorized
ARSC to proceed with the project.
ARSC delivered on Melancon’s promise by initiating the standard-setting project that culminated in October 2000 with the publication of SSARS 8.
SSARS 8 Provisions
SSARS No. 8 permits the accountant to submit financial statements without a report when third parties are reasonably not expected to use them. It also requires the CPA to document this understanding with the client by means of an engagement letter that covers:
the nature and limitations of the services to be performed, (the compilation is limited to the presentation in the form of financial statements that are the representation of management)
management’s representation that it has knowledge of the nature of procedures applied and of the basis of the accounting methods and assumptions used in preparing the financial statements;
explicit acknowledgment of management’s representation and agreement that the financial statements are not to be used by third parties;
acknowledgment that the engagement cannot be relied upon to disclose errors, fraud, or illegal acts;
notification that material departures from GAAP or OCBOA may exist and that the effects of any such departures on the financial statements may not be disclosed;
Substantially all disclosures required by GAAP or OCBOA, as well as the statement of comprehensive income and statement of cash flows, may be omitted.
Each page of the financial statements should state clearly: “Restricted for management’s use only” or “Solely for the information and use by the management of [name of entity] and not intended for any other party.” Moreover, the provisions of SSARS No. 1 must be followed even if the CPA is engaged only to compile the financial statements in an SSARS 8 engagement rather than to report on them.
To give your opinion on SSARS 8, complete the survey online at www.nysscpa.org/ssars8.htm.
