Letters.

On SAS 85

It isn't 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" (page 63), 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 undignified--both 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 heaven's 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 television--those 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 

Author's 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

Vice-Chairman

Auditing Standards Board 

New York City

In Defense of the IRS 

As a citizen first, and a CPA second, I would like our voluntary tax system to work in a fair and equal manner for everyone.

However, many of our "honest" citizens think it is okay to cheat the IRS, with the net result that annually billions of dollars in income taxes are uncollected. Also, money laundering and a blossoming underground economy make a joke of tax collecting, and those who "beat" the government encourage others to emulate them.

Responsible tax preparers know that cheaters who are "getting away with it" force honest filers to pay more than their share.

Compounding the problem is the media's claim that the IRS is unfair to most taxpayers, especially during the collection process, and the way the spotlight has been thrown on some IRS agents who have overreacted by harassing taxpayers.

In reality, most IRS employees are hardworking, dedicated to fairly enforcing the law and performing their duties in a manner warranting high public confidence.

The IRS, denied the necessary funds from Congress, has had to shelve 50 programs designed to catch nonfilers. In addition, their computers are obsolete and not compatible with the latest technology.

The IRS is one of the few government agencies that brings money into the Treasury. Why does Congress continue to fight its expenditures when funding the agency could bring in enough money to balance the budget? The IRS is "unattractive" to voters, and members of Congress who support it are not favored by the public.

It is time that responsible government officials openly express their support for the IRS and acknowledge that white-collar crime is what's really killing the system.

Gilbert P. Dorfman, CPA

Glen Rock, New Jersey