Auditing / Attestation


T he perennial debate at the AICPA over "plain paper"—indeed, over the definition of plain paper and the nature of compilations—continues to flourish, but for the time being there are no new regulations or even exposure drafts. Nevertheless, the world is not standing still. Florida submitted—with as much grace as possible—to court decisions that radically changed the nature of the profession. In fact, the Sunshine State skipped ahead of the AICPA and recently created a fourth level of reporting applicable to both CPAs in traditional firms and those working in new types of entities, such as American Express. What changes appear in Florida's regulations? And what more might the new players in this game ask for? The Journal presents a report at "half-time."

  Assembled statements and airborne swine

In mid-1998, after multiple trips to court, the state of Florida found itself having to cope with licensed CPAs working in unlicensed entities (see "We've Seen the Future, and It's Florida," JofA, Sept.98, page 13). Back in 1996, however, Lloyd "Buddy" Turman, executive director of the Florida Institute of CPAs (FICPA), had said that all these changes had about as much chance of happening as pigs learning to fly. In a November 1998 statement, he had to backpedal: "As you periodically scan the skies, remember it's not a bird, it's not a plane—it's a pig flying in Florida!" So what are the changes? For one, the Florida State Board of Accountancy created a fourth level of service—the assembled statement—that has standards but provides no assurance. The board allows both CPAs in alternative structures and those in traditional firms to perform assembled statement engagements. In Turman's words, "'Assembled financial statements' provide for the output of manual or automated bookkeeping or data processing services in the form of financial statements." "Assembly" includes preparation of a working trial balance, assisting in adjusting the books of account and consulting on accounting matters. The issuing entity must print the transmittal letter on its letterhead. The FICPA has posted an explanatory article by Turman as well as the text of the regulatory changes online at .

"Are the new definition and creation of 'assembled financial statements' the perfect world scenario?" asked Turman. "Absolutely not!" However, he said it was the best solution, given court orders. Turman did tell the Journal in the September article, "I think every state that finds itself in the same position as Florida will be forced to adopt our model."

So is it a done deal?

In spite of what has already occurred, all is not settled for the AICPA, NASBA or even Florida. Much depends on what happens with the Uniform Accountancy Act. The UAA is a model for states to adopt, and it could change the public accounting statutes of most states (parts of the UAA will be introduced in many state legislatures this year). The CPA profession has an interest in the extent to which it is adopted; so does a group calling itself the Coalition for Affordable Accounting (CAA), which includes such well-known consolidators as H&R Block, American Express and Century Business Services. The Journal spoke with George R. Young II, CPA, PhD, an assistant professor of accounting at Florida Atlantic University, who, although not affiliated with the CAA, has studied its members' positions and how they may affect crucial definitions and regulations.

"Basically, the CAA says compilations should not be classified as an attest service," said Young, who practiced public accounting for nine years before becoming a professor. In fact, Young said that compilation services do not fit the conceptual definition of attestation services provided by the Auditing Standards Board. "When I teach auditing, I point out that the compilation report states that no form of assurance is expressed on compiled financial statements," he said. "The framers of the UAA and many states, however, believe there exists an 'aura of assurance' conveyed by the compilation language (particularly the indication that the compilation was prepared in accordance with SSARS) and the implicit representation of skill necessary to perform this service. This implicit assurance is the reason many states consider compilations an attestation service."

The classification of compilations as an attestation service allows certain states (and other states that adopt this provision of the UAA) to restrict their use to licensed audit firms. Is there an option for nonlicensees? Young said, "Safe-harbor language is offered by states that restrict the use of the standard compilation report language. UAA section 14-3 also contains safe-harbor language that allows nonlicensed practitioners to refer to the financial statements they prepared as a 'presentation.'" But he pointed out that the word "presentation" is not familiar to users of unaudited financial statements. Bankers, for example, are aware of the standards that must be met when a compilation is prepared but have no idea what a "presentation" entails (unlike assembled financial statements, there are no standards for the preparation of a "presentation").

"Furthermore, the safe-harbor language of the UAA is not available to CPAs according to SSARS no. 1—they are required to use the compilation report language. So it can be a vicious cycle: A Florida CPA who issues an assembled financial statement violates AICPA rules." That CPA may end up having to offer the more expensive compilation report.

Feared or admired, American Express and similar companies have been successful both in marketing their consolidation services and winning in the courts. In the fall of 1998, right after American Express won its final court case in Florida, a company spokesperson told the Journal simply, "We asked for several things, and we're happy with what the state agreed to." The activities of the CAA, however, suggest that the consolidators want still more. Apparently, American Express is not as happy as it could be.


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