Non-CPA disclosure

[OldJack]

I’m curious to know if any state law prohibits a non-CPA from preparing a balance sheet and income statement for a client if no report on the financial statements is attached. Can you provide a citation that says it is illegal?

I suspect most, if not all states, are similar to Minnesota, where the illegal act has to do with issuing reports on the financial statements.

In my state the statute is more about using the name "accountant" and the various terms/words used by CPA's. Here is a link to the statute if you wish to read it.

http://www.moga.mo.gov/statutes/C300-399/3260000292.HTM

Here is an interesting quote from the statute that might answer your question:

12. Nothing herein shall prohibit any director or officer of a corporation, partner or a partnership, sole proprietor of a business enterprise, member of a joint venture, member of a committee appointed by stockholders, creditors or courts, or an employee of any of the foregoing, in his or her capacity as such, from signing, delivering or issuing any financial, accounting or related statement, or report thereon, relating to the corporation, partnership, business enterprise, joint venture or committee, provided the capacity is designated on the statement or report.

bold added by OldJack.

[Bees Knees]

And since your original post said you were providing the statements for 3rd parties you will continue to break the law if your state has such law. It might be a good idea to make your insurance carrier aware of your operating procedure just in case.

I’m curious to know if any state law prohibits a non-CPA from preparing a balance sheet and income statement for a client if no report on the financial statements is attached. Can you provide a citation that says it is illegal?

I suspect most, if not all states, are similar to Minnesota, where the illegal act has to do with issuing reports on the financial statements.

[OldJack]

I will peacefully go on doing what I already do.

And since your original post said you were providing the statements for 3rd parties you will continue to break the law if your state has such law. It might be a good idea to make your insurance carrier aware of your operating procedure just in case.

[Gretel]

Boy, what an interesting thread this has become. Thanks to all of you. I will peacefully go on doing what I already do.

[Bees Knees]

It is my understanding the SSARS (what most state accounting boards follow) does not include attachments to a tax return under the definition of financial statement. In other words, in all 50 states, a non-licensed accountant can attach a balance sheet and income statement to a tax return, and not break any state accounting board rules. Or, the non-licensed accountant can contract with a client and be paid a W-2 wage, and not break any state accounting board rules.

Can anyone cite a statute that says otherwise?

[Corduroy Frog]

My state

No problem with Bees' post TaxBird, but it is for Minnesota.

I really don't have a problem with my state. My state won't bother me.

My state is possibly the creme d'la creme of special interests, and addressed the need for regulation of accounting some 50 years ago.

Here, the legislators acted on their feelings that the practice of accounting should be restricted to Certified Public Accountants and Public Accountants. So in 1957, the Department of Commerce issued a regulation to the effect that no one but these two targeted professional groups be allowed to practice accounting.

There were a few exceptions for the lucky. There was an exemption for persons living in counties with populations from 3,000-5,000. Also an exemption for those living in counties with populations from 8,000 to 12,000. Counties from 14,000 to 20,000 were exempted, as were counties with populations from 25,000 to 40,000.

Hold on to your seats - it gets worse.

The population for the respective counties were tied to the 1950 census. However, due to sloppy wording, if any county population fell within the threshholds in ANY SUBSEQUENT CENSUS, they would also be exempt.

This regulation is still law in my state. I don't think I have anything to worry about.

[Joe Btfsplk]

GAAP and OCBOA are not always relevent

As far as the 'See Accountants Report" at the bottom, I believe that is a recommended practice (as are comparative statements) but not a requirement.

As for the other audits you refer to, the AICPA DOES have rules that govern them. The primary AICPA guidelines are written with the mindset that the public good is best served by following GAAP. However, in those specialized cases where GAAP does not apply or is not used then the OCBOA Rules (Other Comprehensive Basis Of Accounting) along with another section whose name isn't coming to me at the moment, applies.

I disagree with your OCBOA comment since some audits are not designed to examine the basis of accounting, only to find errors in paying amounts due. The correct amount may be paid despite the presence or absence of either GAAP or OCBOA and the wrong amount may be paid using the best GAAP imaginable.

Some of my biggest audit findings have been based on the use of a 'wet' BTU vs a 'dry' BTU or the use of a chromatograph analysis instead of a compression test to determine the share of products to allocate to my client. Accounting principles have nothing to do with this sort of thing--in fact, everything based on the incorrect BTU or test was done with extreme accuracy.

My point is that the AICPA is geared toward assuring investors and lenders based on audit standards designed for that purpose. There are many other types of audits such as internal audits to disclose fraud, improper procedures, and other matters. When one company audits another company in which it has no ownership interest and the purpose is to determine that the correct amount due is paid, then GAAP and OCBOA is irrelevent.

[TaxBird]

When a CPA prepares a financial statement, but omits "see accountant's report" from the bottom of the page and does NOT attach a letter of any kind, what is the effect of that?

Is the CPA violating the rules by issuing a statement that omits his name and CPA status? Or would it mean he had not prepared a "report" subject to the disclosure rules?

Also, as to audit reports. Some audits are not in any way designed to evaluate the accuracy of financial statements. I used to audit major oil companies working as an independent consultant for other oil companies to determine whether the company I was auditing had paid the other company all they owed under the terms of the contracts and government regulations. My reports only covered items in which underpayments had occurred or government regulations were not followed.

There are NO AICPA standards for audits of this type. The AICPA probably does not know the difference between an MCF of gas and a BBL of oil. A standard type audit report would be completely irrelevant in such cases. Would this be a failure to comply by the CPA? Many, if not most, of this type audit is done by non-CPA auditors.

The report makes representations on the financial statements as a whole but there is no obligation to issue a report unless you were specifically engaged to do so. The purpose of the report is primarily to protect third party users of the financial statements. Since the requirement is for the public good, a license is required to do it. If the CPA has good reason to believe that the statement will not be used by third parties then they don't have to do anything. However, in those cases you can bet they have documented their reasons extensively in their workpapers and/or written a line to that effect in their report.

In any case, most of us are engaged to issue some kind of opinion on the FS with the presumption that the client (sometimes with our guidance) has prepared the FS.

As far as the 'See Accountants Report" at the bottom, I believe that is a recommended practice (as are comparative statements) but not a requirement.

As for the other audits you refer to, the AICPA DOES have rules that govern them. The primary AICPA guidelines are written with the mindset that the public good is best served by following GAAP. However, in those specialized cases where GAAP does not apply or is not used then the OCBOA Rules (Other Comprehensive Basis Of Accounting) along with another section whose name isn't coming to me at the moment, applies.

[Joe Btfsplk]

A similar question

When a CPA prepares a financial statement, but omits "see accountant's report" from the bottom of the page and does NOT attach a letter of any kind, what is the effect of that?

Is the CPA violating the rules by issuing a statement that omits his name and CPA status? Or would it mean he had not prepared a "report" subject to the disclosure rules?

Also, as to audit reports. Some audits are not in any way designed to evaluate the accuracy of financial statements. I used to audit major oil companies working as an independent consultant for other oil companies to determine whether the company I was auditing had paid the other company all they owed under the terms of the contracts and government regulations. My reports only covered items in which underpayments had occurred or government regulations were not followed.

There are NO AICPA standards for audits of this type. The AICPA probably does not know the difference between an MCF of gas and a BBL of oil. A standard type audit report would be completely irrelevant in such cases. Would this be a failure to comply by the CPA? Many, if not most, of this type audit is done by non-CPA auditors.

[TaxBird]

Oh brother!

326A.10, Minnesota Statutes 2006
Copyright © 2006 by the Office of Revisor of Statutes, State of Minnesota.

326A.10 UNLAWFUL ACTS.
(a) Only a licensee may issue a report on financial statements of any person, firm,
organization, or governmental unit that results from providing attest services, or offer to render
or render any attest service. Only a certified public accountant, a CPA firm, or, to the extent
permitted by board rule, a person registered under section 326A.06, paragraph (b), may issue a
report on financial statements of any person, firm, organization, or governmental unit that results
from providing compilation services or offer to render or render any compilation service. These
restrictions do not prohibit any act of a public official or public employee in the performance of
that person's duties or prohibit the performance by any nonlicensee of other services involving the
use of accounting skills, including the preparation of tax returns, management advisory services,
and the preparation of financial statements without the issuance of reports on them. Nonlicensees
may prepare financial statements and issue nonattest transmittals or information on them which
do not purport to be in compliance with the Statements on Standards for Accounting and Review
Services (SSARS). Nonlicensees registered under section 326A.06, paragraph (b), may, to the
extent permitted by board rule, prepare financial statements and issue nonattest transmittals or
information on them.

Translation: Non-licensed people are permitted to prepare FS, just not issue a report (ie, have an official opinion) on them.

Gabrielle, carry on.

[TaxBird]

It's the 'report'

Look closer at the reg that Bees Knees so kindly provided.

The prohibition is against issuing a 'report' or 'opinion' on the financial statements, not the FS themselves. You know the one, inserted between the table of contents and the balance sheet. Starts with "We have compiled/reviewed/audited/ the accompanying statements of (insert here) in accordance with (insert applicable rule here)..."


Gabriele, Courduroy Frog & others, I hope that eases your mind.

[Corduroy Frog]

Obligation to Due Diligence

Yes, I have to agree that caveats such as "For management use only" or "Unaudited" are not sufficient to defend one against a statutory prohibition.

But there is a real problem here, if tax preparers are not allowed to do their job by state statute.

How many of you, strictly as a tax preparer with no influence on the ledger or other records, can adequately prepare a business return?

This means take a set of QuikBooks statements simply printed off by the client, and fill out their taxes from that? QuikBooks is perhaps the worst, not because their program is flawed, but because they give the user latitude to do whatever they want. The argument is not restricted to QuikBooks, because if the client is using something else or home-grown Dome journals, they still largely are unaware of how to make their records compatible with a P&L or balance sheet.

If we are not permitted to fashion an income statement or balance sheet from unintelligible records, how can we file their taxes?? Can you imagine taking a client's unadjusted QuikBooks reports and filing taxes with no more than this??

[Uncle Sam]

Non-CPA Disclosure

It was mentioned in prior posts here - and it's worth repeating -
YOUR STATE BOARD OF ACCOUNTANCY dictates what non-licensees can and cannot do.
I strongly recommend that even though those of you who aren't CPAs read the Statements on Standards for Compilation and Review Services that describes the proper wording for a report. True - it was meant for CPAs (where AICPA only recognizes CPAs), But it wouldn't hurt to just be cognizant of what is expected when you prepare an accountant's report attached to financial statements. There are a number of professional accounting associations representing non-CPAs that have designed alternative language to get around using language only reserved for CPAs.
My personal opinion - I don't believe that "For Management Use Only" legend is acceptable for non-licensees - because you must comply with certain professional standards in order for that to be permitted.

[Lion]

Financial Statements

A fellow bookkeeping type told me to put "For Management Use Only" on the P&L a client requested from the data I'd input in QuickBooks. Think I better visit my state's website....

[Corduroy Frog]

Gabriele - Montana

Gabriele, here is some specific code annotated for Montana accountancy.

http://data.opi.state.mt.us/bills/mca_toc/37_50.htm

It will not take long for you to read the entire chapter 50 and draw your
own conclusions. Good luck.