Confusion on compilations in Texas.

Both sides are claiming victory in the latest battle between the Texas State Board of Public Accountancy and American Express. Last year, CPAs working for the American Express Tax and Business Services, Inc., unit were allowed to offer tax services under changes in Texas' rules (see "Texas Adopts Rules on CPA Designation; AICPA to Seek Broad Resolution," JofA, July 95, page 26). Those rules also retained the requirement that compilation and attest services be limited to firms that are owned entirely by CPAs. Now, American Express appears to be trying to push the envelope a little further by letting its CPAs issue reports on financial statements, and preliminary results of American Express's foray are still unclear.

On April 4, American Express had announced a victory in a Texas state court, saying its CPAs could continue to prepare financial statements. (The TSBPA had sued to stop them last year. See "Texas State Board Sues American Express," Nov. 95, page 20.) On April 8, the Wall Street Journal reported that American Express had announced its CPAs were now allowed to prepare taxes in Texas. "But it's the report on financial statements that the April 4 ruling addresses; tax preparation isn't at issue here," said TSBPA executive director Bill Treacy, who expressed confusion about the WSJ article. Indeed, the tax issue was addressed by the TSBPA nearly a year ago. Also on April 8, the TSBPA issued its own press release claiming that Judge John Dietz's April 4 ruling actually said that American Express had violated the Texas Public Accountancy Act by issuing compilation reports on financial statements. The board has indicated that disciplinary actions would be taken against American Express CPAs who had issued such reports.

The SSARS factor

The source of confusion seems to be the form of the report. American Express says it hasn't used the compilation report on financial statements--the one the court just put off limits--since 1994, when the company dropped references to American Institute of CPAs standards in all reports. But CPAs cannot perform compilations--the type of report the court ruled on--without adhering to the AICPA's statements on standards for accounting and review services. (Non-CPAs cannot use SSARS language.) Don Weldon, executive director of the Texas Society of CPAs and member of the AICPA special committee on structure and regulation of the profession, told the Journal that the Amex-TSBPA dispute was further confused by misunderstandings about the nature of a compilation. "A report is a compilation only if it follows SSARS. So as not to confuse the public, CPAs must follow these standards in Texas. Non-CPAs can file what we call in Texas an 'Opella' report, after a law case that banned non-CPAs from claiming SSARS compliance in their reports but did establish a non-CPA format for such reports. American Express is in a box: It wants its CPAs to prepare compilations but can't comply with several requirements of the Texas law." Judge Dietz has not yet issued a written ruling, so at Journal presstime it remained unclear what form of the report is being banned--the Opella report or true SSARS compilations. However, he has told the state attorney general and lawyers for American Express that he hopes they can find a resolution without going to trial. According to Weldon, the judge further indicated that American Express CPAs must obey relevant laws.

Still, Weldon feels the board doesn't have unlimited options for a compromise. "It can interpret laws but it can't set them and it can't break them. Some services are limited to CPAs in CPA firms."