Foundotos Advances Board's View at AICPA Meetings

By Philip J. Luongo Jr.

NYSSCPA President George T. Foundotos (Suffolk) attended four AICPA regional council meetings in March to lobby for updates to professional standards to permit "internal use only" statements, a view advocated by the Society's board of directors.

Foundotos' attendance at the AICPA meetings in Florida, California, Texas, and New York was a product of the Society board's February 4 meeting, at which it discussed internal use only statements--also called "management use only" or "plain paper" statements, "assembly," and "fourth level of service." Although there is no single catchphrase, each pertains to financial statements that CPAs provide for their clients' internal use. The AICPA refers to the issue as internal use only statements.

The board had considered including a proposal to permit such statements in the Society's legislation to update New York's accountancy law. The board felt the provision would help correct a competitive disadvantage that CPAs have to unlicensed practitioners who provide similar services with less regulation.

AICPA President Barry Melancon attended the February board meeting and warned that using legislation to set standards establishes a dangerous precedent. Based on Florida's recent passage of a law that permits an assembly, and New York's planned proposal, Melancon assured the board that the AICPA council and board of directors will seriously consider the issue.

After much deliberation, the Society's board agreed first to attempt the traditional route to accomplish change by working with professional standards setters. Foundotos said that his informal meetings with council members yielded positive results.

"It was a fair, even-handed discussion," he said. "Neither New York nor Florida was portrayed as the bad guy, and it appears that the discussion will continue at the highest level at the Institute."

The Society's position recommends the following actions:

* Permit professional standards to reflect the varying needs of the client and general public.

* Allow the free exchange of information between client and CPA, including financial statements for which there is no expected or anticipated third-party use.

* Require a report under professional standards only when the client engages the CPA to issue one, based upon a clear understanding between CPA and client of the assurance level that the CPA will provide.

* Draft guidance and practices that will reasonably protect the CPA from liability if relying on the information misleads or damages a third party.

* Develop a communications and legislative agenda to define more clearly when and to what extent third parties can hold CPAs accountable for client financial information. Such an agenda should strengthen CPAs' accountability when they report, and mitigate accountability when there is no report.

The AICPA board will meet on April 20 and 21. It will discuss the topics addressed at the regional meetings and decide what to do at the full council meeting in May. The board may direct the Accounting and Review Services Committee to re-examine internal use only statements and offer recommendations. Senior AICPA staff members or Accounting and Review Services Committee Chair Diane S. Conant may then present a report to the full council in May.

"There seems to be sufficient interest to reopen the issue of internal use only statements for managerial purposes," Foundotos said, referring to feedback he received from attendees at the regional council meetings.