On SAS 85

It isnt often that an article in the Journal of Accountancy induces a laughing-out-loud reaction, but one in the March 1998 issue did just that. There, in Talking With the Auditor , the authors provide an exegetic analysis of SAS no. 85, Management Representations , promulgated November 1997, intended, presumably, to update and strengthen the earlier SAS no. 19, Client Representations . It would appear that the accounting establishment was distressed that SAS 19 required merely written representations rather than letters per se.

In any event, the guidance from the task force of the American Institute of CPAs responsible for the article included the following:

Small, privately owned companies with no accounting staff and limited knowledge of GAAP may place a certain level of reliance on the auditors for the fair presentation of the financial statements. Such clients often are reluctant to make representations regarding GAAP without mentioning their reliance on the auditors. In such a case, an auditor may suggest that the client include wording in the representation letter similar to the following: I am responsible for the fair presentation in the financial statements of financial position, results of operations, and changes in financial position in conformity with generally accepted accounting principles. Because of my limited expertise with generally accepted accounting principles, including financial statement disclosure, I have engaged you to advise me in fulfilling that responsibility.

Hence, the laughing-out-loud response. By my standards, such a confrontation with my client would be most undignifiedboth for myself and my profession generally.

But what strikes me as especially grievous is that the task force completely overlooked the fact that the recommended response by its terms would induce a violation of our most critical standard, that is, independence. How in heavens name could I recommend to the CEO that he provide me with a letter exculpating me from my professional responsibilities?

As a consequence, I would be constrained to advise the CEO to engage the services of another firm, possibly one involved in huckstering its services on radio and televisionthose responsible for debasing our profession into a business or industry.

In sum, I urge the AICPA to get off the backs of those of us who are still committed to the fulfillment of our professional responsibilities, with our reputations and resources on the line.

Abraham J. Briloff, CPA
Emanuel Saxe Distinguished
Professor Emeritus
Baruch College
New York City

Authors reply: The writer seems to miss the point in a fundamental way. Our basic premise is that management is responsible for the fair presentation of the financial statements. The auditor plays an important role in helping management fulfill this responsibility, admittedly more so in small privately owned companies. Still, this responsibility cannot and should not be transferred to the auditor, as the writer implies.

We believe that SAS no. 85 is an improvement over SAS no. 19. The inclusion in the article of the illustrative addition to the representation letter was done at the urging of auditors of small privately owned companies, based on current practice. This language does not exculpate the auditor from his or her professional responsibility. Rather, it reminds management of its responsibility and encourages management to have a healthy dialogue with the auditor on matters of financial statement presentation. We believe this is a good thing and a most dignified use of our professional skills.

James S. Gerson
Auditing Standards Board
New York City


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