Assembly of financial statements for internal use only: the solution to the plain paper/compilation report dilemma?

The latest skirmish in the battle over accountants' association with and reporting on financial statements of nonpublic entities involves the AICPA Accounting and Review Services Committees' (ARSC) exposure draft. This proposal provides for an exemption from Statement on Standards for Accounting and Review Services (SSARS) No. 1 for financial statements assembled for internal use only. This exposure draft proposes a new type of allowed non-association with financial statements, known as an assembly. This new level of service would allow accountants to assist clients in preparing internal-use-only financial statements without the need to report on them.

Currently, plain paper statements are appropriate only when the service provided to the client consists of typing or reproducing client-prepared financial statements without modification (SSARS 1, AR 100.07). Otherwise, a compilation report is the minimum required. This proposal is between the hands-off of a plain paper client accommodation and the formality of a compilation. It more likely reflects the realities of practice in dealing with small clients.

Assembly Defined

In the exposure draft, an assembly is defined as follows:

"...providing various manual or automated bookkeeping or data processing services the output of which is in the form of financial statements intended for internal use only. The function of assembling financial statements may include preparing a working trial balance, assisting in adjusting the books of an account, and consulting on accounting matters. Assembly does not refer to the mere typing or reproduction of client-prepared financial statements."

Nature and Intended Use of Financial Statements

The assembled internal-use-only financial statements need not comply in all material respects with Generally Accepted Accounting Principles (GAAP) or any Other Comprehensive Basis Of Accounting (OCBOA). Instead, the financial statements may be constructed to meet the needs of internal management for decision-making purposes. Since the financial statements need not be GAAP or OCBOA, reporting on them under SSARS 1 would require describing any such departures.

Under the exemption to SSARS 1, the accountant would not be required to report on the financial statements in any form. Thus issues such as accountant's independence, GAAP departures and related issues only need to be considered as they relate to the decision usefulness of the financial statements being assembled.