Academic journal article Journal of Accountancy

The Plain Paper Controversy

Academic journal article Journal of Accountancy

The Plain Paper Controversy

Article excerpt


Should CPAs provide a level of service on financial statements below a compilation? Despite years of discussion, the dispute over these "no report-internal use" statements is as intense as ever.


The issue of "plain paper," or legend, financial statements was debated most recently at a public hearing of the American Institute of CPAs accounting and review services committee (ARSC) on September 7, 1989, and at an ARSC special meeting on January 18-19, 1990. Plain paper refers to financial statements that would be marked with a notation indicating they contain departures from generally accepted accounting principles and are intended for the client's internal use only. Such financial statements would not be accompanied by a CPA's report. Currently, Statement on Standards for Accounting and Review Services (SSARS) no. 1, Compilation and Review of Financial Statements, prohibits the submission of plain paper financial statements.

Among the questions discussed were:

* Are the compilation performance and reporting standards in SSARS no. 1 too stringent and not cost beneficial?

* Should SSARS no. 1 be amended to permit a service, for interim or monthly financial statements, below a compilation?

* Should additional "how-to" guidance be developed to explain when SSARS no. 1 applies and when it does not?

The spirit of the September 7 public hearing is captured by the two opinions that follow--Robert L. Israeloff argues for plain paper financial statements and Gerald W. Hepp presents the opposing view.

After spending most of 1989 debating the issue, ARSC concluded SSARS no. 1 should not be amended to provide for a level of service below a compilation. It decided an amendment could lead to abuses and a lowering of the quality of CPA's work and, thus, would not be in the public interest.

ARSC also concluded the current SSARS no. 1 requirements are cost effective. However, based on comments made at the public hearing, ARSC identified a number of practice questions that suggest the need to develop "how-to" guidance or interpretations of SSARS no. 1 to assist CPAs in determining when the standard applies.

There is a pressing need to clarify the following matters because CPAs are applying SSARS no. …

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