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AICPA issues EDs.

The American Institute of CPAs has issued exposure drafts on internal use-only financial statements, quality control standards and personal financial planning responsibilities.

Internal use-only financial

statements

The accounting and review services committee has prepared an exposure draft of a Statement on Standards for Accounting and Review Services, Assembly of Financial Statements for Internal Use Only, that would provide an exemption from SSARS no. 1, Compilation and Review of Financial Statements. The committee is calling for comments on the ED (product no. 800097JA) by December 31, 1995.

The proposed statement would provide an exemption for CPAs from the requirements of SAAPS no. 1 if they assemble (as defined in the ED) financial statements that are intended for internal use only. This type of engagement would require a written understanding with the client. "The ARSC believes many nonpublic entities do not require financial statements that comply in all material respects with generally accepted accounting principles or another comprehensive basis of accounting to meet their ongoing internal managerial needs," according to a letter from ARSC chair Wanda Lorenz attached to the ED. Many large public companies obtain this kind of information by using a "soft close," which eliminates many adjustments required for GAAP financial statements. SAARS no. 1 requires that CPAs, at a minimum, compile financial statements that they submit to a client or others and that the compilation report include a separate paragraph describing any departures from GAAP. Some practitioners believe these requirements add unnecessary costs because the CPA has to meet quality control procedures that were designed for compilation reports used by third parties.

CPAs may continue to comply with existing compilation standards in their practices even if this ED becomes a final statement. The proposed statement would not affect existing standards for compilation or review of financial statements.

This ED would

* Define the assembly of financial statements.

* Provide an optional exemption from the requirements of SAARS no. 1, including its reporting requirements, for the unaudited financial statements of a nonpublic entity assembled for internal use only.

* Require a written understanding with the nonpublic entity when the accountant is engaged to assemble financial statements for internal use only.

* Provide an optional legend for each page of the financial statements indicating that they are restricted to internal use, with a reference to the engagement letter.

Quality control standards

Two proposed Statements on Quality Control Standards have been prepared by the auditing standards board. Comments on these should be received by November 20, 1995.

System of Quality Control for a CPA Firm's Accounting and Audit Practice revises the description of a firm's quality control system. Monitoring a CPA Firm's Accounting and Audit Practice provides guidance on implementing the proposed monitoring element of a quality control system. The standards would supersede SQCS no. 1, System Quality Control for a CPA Firm, and its interpretations.

The ED notes there is diversity in practice, and existing guidance does not address a number of issues firms should consider in establishing a quality control system. (The proposed system would be required only for a firm's accounting and auditing practice.)

These proposed standards would replace the nine specific elements in SQCS no. 1 with five broad elements, make changes to previous provisions and provide guidance on how a CPA firm should monitor implementation. The new elements are independence, integrity and objectivity; personnel management; acceptance and continuance of clients and engagements; engagement performance; and monitoring.

The two proposed statements are available together as product no. 800094JA.

Personal financial planning

The PFP executive committee has issued an ED of a Statement on Responsibilities in Personal Financial Planning Practice, Developing a Basis for Recommendations (product no. 800096JA).

The ED covers collecting and analyzing information and formulating strategies and recommendations and provides advice on performing each function.

Procedure for commenting

Any individual or organization may obtain one copy of an ED without charge until the end of the comment period. (The comment deadline for the PFP ED has passed, but free copies may be ordered while supplies last.) Call the AICPA order department at (800) 862-4.272, menu #1; fax no. (800) 362-5066. The internal use-only and quality control EDs are also available online in the Accountants Forum Library.
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Title Annotation:exposure drafts on quality control standards and financial statements prepared for internal use only
Publication:Journal of Accountancy
Date:Nov 1, 1995
Words:696
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