State Board Report

November 2009

How independent does a CPA need to be to issue a review report? Rick Isserman (NY), chair of the NASBA Regulatory Response Committee moderated an Annual Meeting panel, including Sheila Birch (OH), Gerald Burns (OR), Thomas Sadler (WA) and Ray Stephens (OH), discussing this question as raised by a recent proposal of the AICPA’s Accounting and Review Services Committee. The ARSC is still considering comments on the proposal which would allow CPAs to disclose performing nonattest services for a client’s management and still be able to issue review reports on the client.

Ms. Birch explained that what the ARSC proposal calls for is a paradigm shift, “Independence is not the end game: Reliability is what counts. Reliability results from objectivity. The underpinning of objectivity is the CPA’s individual integrity.” Ms. Birch, who was a member of the Reliablity Task Force of the Auditing Standards Board, said the group heard from a banker who claimed that having a CPA involved in preparing the financial statements makes them more reliable.

Mr. Burns, a member of ARSC, reported they had received 170 comment letters on their exposure draft. Reviewing those letters, he concluded the smaller accounting firms liked the idea of non?independent review. Mr. Burns pointed out that many CPAs do not have a clear understanding of what is allowed under the AICPA Code of Conduct’s ET 101?3 “Performance of Nonattest Services.”

“CPAs spent a lot of time learning about what they have to do to educate our clients – and if they can’t do that, then they can perform non?independent compilations,” Dr. Stephens said. When asked about research supporting his position, Dr. Stephens pointed to a book, Scope of Services, written by Gary Previtts, which was written the last time the need for “independence” was challenged.

Mr. Sadler observed that with the ARSC proposal, “We are trying to fix something that is not broken.” However, he added, “ I have always felt that standards for compilations are needed. Compilations really do cause us problems,” he noted.

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