I was very surprised (shocked might be a better word) by a comment that appeared in “ A New Scorecard for Intellectual Property ” ( JofA, Apr.02, page 75). The article said that “CPAs must recognize when a purchase price allocation might raise questions from the SEC to ensure their clients are not surprised.” This concept is also repeated in the executive summary.
I hope the implication that the SEC makes the call on the propriety of the purchase price allocation was just an oversight or a bad choice of words. Clearly it is the job of the auditor to determine that purchase price allocations, as well as all other accounting matters, result in the financial statements’ being fairly stated. After all, the auditor is the one that expresses an opinion on the clients’ financial statements, not the commission.
Left uncorrected, this wording could be construed to mean that the CPA’s role is to advise the registrant as to what the SEC might let them get by with rather than determining that the registrant has properly accounted for the transaction. For that matter, the accounting should be no different whether the client is an SEC registrant or a private company.
I believe that clarification is appropriate to avoid giving non-CPAs the wrong impression.
Kenneth L. Cochran, CPA
Author’s reply: The reference to the SEC in that particular sentence was not intended to imply or suggest that the commission, rather than auditors, expresses an opinion on the propriety of financial statements. Nor is there an implication anywhere in the article that CPAs advise registrants about “what they can get by with.” The next sentence states, “Unless companies can support their accounting decisions, regulators will question allocating the entire purchase price to goodwill rather than part of it to IP and other intangible assets.”
Accounting rules can apply to both public and private companies, and the use of an SEC registrant as an example was not meant to lessen the importance of following new accounting rules as a private company.
James Donohue, CPA
New York City