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An International Meeting of American Accounting
Association
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Evidence of Perceived Quality of “Plain Paper Statements” |
Cathleen L. Miller
Saginaw Valley State University
Brian Patrick Green
University of Michigan - Dearborn
Alan Reinstein
Wayne State University
Abstract: Independent accountants have long faced an expectation gap--the difference between CPAs’ and financial statement users’ expectations of level of service from a public accountant’s association with a client’s financial statements. The profession believed that this gap would diminish over time, as financial statement users became familiar with newly available services that offered different levels of assurance. To help bridge this gap, in 1979 the AICPA’s Accounting and Review Standards Committee issued Statement on Standards for Accounting and Review Services (SSARS) Number (No.) 1 to provide guidance for public accountants’ association with unaudited financial. Nonpublic entities could now receive compiled or reviewed statements, which respectively offered no and limited CPA assurances. Over the next two decades academics and professionals examined the gap between a standard’s purpose and user and CPA perceptions of reviewed and compiled financial statements. SSARS No. 8, “Amendment to SSARS No. 1, Compilation and Review of Financial Statements,” expanded the accountants’ association with compiled “plain paper statements.” Unlike traditional compilations, plain paper statements are intended only for the use of internal management. In early 2004, we surveyed practicing CPAs and sophisticated financial statement users (bankers) to measure their confidence in and reliance on plain paper statements and the assurances that the associated accountant’s report offers. We find that both CPAs and sophisticated users report some level of reliance on plain paper statements. Both groups report higher levels of reliance on no-assurance engagements where the user is aware that a CPA is associated with the financial statements. Both assert some confidence and reliability although the engagement does not collect sufficient, competent evidence to offer reasonable assurance of a fair presentation, and any actual statement reliability is unknown.