A fourth level of reporting is needed.Do CPAs meet the needs of clients that want monthly financial statements solely for internal use? C. Randy Howard, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , professor of accounting, and Robert Mayberry, CPA, assistant professor of accounting, Montana State University-Billings, believe CPAs should be allowed to issue management-only financial statements. They recommend the American Institute of CPAs establish a committee to make the appropriate recommendations for changing standards. Under current professional standards, practitioners must prepare financial statements that comply with statement on standards for accounting and review services (SSARS SSARS Statements on Standards for Accounting and Review Services ) standards. However, some clients do not want to pay for a compilation Compiling a program. See compiler. when management-only financial statements will meet their needs. Many practitioners believe professional standards should be revised to meet client needs in a cost-effective cost-effective, n the minimal expenditure of dollars, time, and other elements necessary to achieve the health care result deemed necessary and appropriate. manner. The current standards were developed in the late 1970s and early 1980s when the profession's primary focus was protecting its members from lawsuits. More recently, the focus of many businesses and professions has been to align align (  līn),v to move the teeth into their proper positions to conform to the line of occlusion. products and services with the needs of users. The AICPA AICPA See American Institute of Certified Public Accountants (AICPA). special committee on financial reporting focused on aligning a·lign v. a·ligned, a·lign·ing, a·ligns v.tr. 1. To arrange in a line or so as to be parallel: align the tops of a row of pictures; aligned the car with the curb. financial reporting with the needs of financial statement users. We believe the AICPA should establish a similar committee to recommend how to serve clients who want management-only financial statements. PRACTITIONERS TAKE SIDES In the late 1970s, the profession concluded that the compilation was the lowest level of service for financial statements because * CPAs did not want to be associated with financial statements that did not comply with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting . * There was no way CPAs could make sure clients would not show the internal-use-only financial statement to third parties. These reasons are self-serving; they do not focus on client needs. Many practitioners were unhappy with this decision. Some tried to circumvent cir·cum·vent tr.v. cir·cum·vent·ed, cir·cum·vent·ing, cir·cum·vents 1. To surround (an enemy, for example); enclose or entrap. 2. To go around; bypass: circumvented the city. the requirements by providing a trial balance, which includes many of the attributes of financial statements. Others provided draft financial statements without intending to submit those statements in final form accompanied with the compilation or review report prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). in SSARS no. 1, Compilation and Review of Financial Statements. In 1990, these practices were curtailed with the issuance of two accounting and review services interpretations of SSARS no. 1: Interpretation no. 15, Differentiating a Financial Statement Presentation From a Trial Balance and Interpretation no. 17, Submitting Draft Financial Statements. LIMITED DISTRIBUTION OF FINANCIAL STATEMENTS Current standards allow limited distribution of reports and financial statements in two situations: 1. Interpretation no. 18, Special-Purpose Financial Presentation to Comply with, Contractual Agreements or Regulatory Provisions, of SSARS no. 1, recommends this report: The accompanying statement was prepared to present the net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. of XYZ XYZ interj. Informal Used to indicate to someone that the zipper of his or her pants is open. [ex(amine) y(our) z(ipper).] Company sold to ABC ABC in full American Broadcasting Co. Major U.S. television network. It began when the expanding national radio network NBC split into the separate Red and Blue networks in 1928. Company pursuant to the purchase agreement described in Note A, and is not intended to be a complete presentation of XYZ Company's assets and liabilities. This report is intended solely for the information and use of the boards of directors and managements of XYZ Company and ABC Company and should not be used for any other purpose. 2. SSARS no. 6, Reporting on Personal Financial Statements Included in Written Personal Financial Plans, recommends this report: The accompanying Statement of Financial Condition of X, as of December 31, 19XX, was prepared solely to help you develop your personal financial plan. Accordingly, it may be incomplete or contain other departures from generally accepted accounting principles and should not be used to obtain credit or for any purposes other than developing your financial plan. We have not audited, reviewed, or compiled the statement. RECOMMENDATIONS To better service those clients who need monthly financial statements for managing their operations, we recommend * Allowing practitioners to prepare monthly financial statements for clients intended solely for the client's use. * Marking each page of the statements with the words management-only financial statements. * A reporting form that would clearly state that the financial statements are not for use by outside parties. * A report with wording and logic parallel to the current SSARS no. 6 report. These reports are shown in the exhibit above. NEEDS AND CONCERNS In light of client needs and CPAs' concerns, the AICPA should establish a committee to address the need for management-only financial statements. Such a committee also would help assure CPAs servicing small clients that the AICPA is interested in their problems. Many businesses and professions (including the AICPA) have changed their focus from self to user. With this revised focus, the profession may arrive at a different solution than the one formulated for·mu·late tr.v. for·mu·lat·ed, for·mu·lat·ing, for·mu·lates 1. a. To state as or reduce to a formula. b. To express in systematic terms or concepts. c. 15 years ago. Current versus recommended report SSARS no. 6 report * For personal financial statements * Used in personal financial planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against The accompanying Statement of Financial Condition of X, as of December 31, 19XX, was prepared solely to help you develop your personal financial plan. Accordingly, it may be incomplete or contain other departures from generally accepted accounting principles and should not be used to obtain credit or for any purposes other than developing your financial plan. We have not audited, reviewed, or compiled the statement. Recommended report * For business financial statements * Used in business planning The accompanying financial statements of Company X were prepared solely to help in managing your business. Accordingly, they may be incomplete or contain other departures from generally accepted accounting principles and should not be used by parties outside of your business. We have not audited, reviewed, or compiled the financial statements. |
|
||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion