Reports on the Application of Accounting Principles—A Review of SAS 50
James A. Johnson
Touche Ross & Co.
Like most other professionals, a Certified Public Accountant is often asked to air views on matters within his or her ken. When the American Institute of Certified Public Accountants issued the Statement on Auditing Standards No. 50, "Reports on the Application of Accounting Principles," professional standards
applied to the accountant's response to many of these requests.
SAS 50, issued in July, 1986, was the work product of the Generic Letter Task Force of the Auditing Standards Board. The original charge to the Task Force, in 1984, was relatively benign: "to monitor the issuance of, and prepare issues papers on the technical aspects of, generic letters."
In reality, the atmosphere was highly charged. In June, 1984, Don Kirk, the Chairman of the Financial Accounting Standards Board at the time, asked a number of pointed questions when commenting on professionalism in accounting:
• Does heightened competition among CPA firms encourage a search for ways around the spirit of accounting standards?
• Are not investment bankers fulfilling their essential role in developing innovative financing arrangements which may, in fact, tend to frustrate the spirit of accounting standards?
He also recommended, among other things, that each CPA firm focus on the problem of "advising non-clients on accounting matters."
In short, the profession, the standard setters, the regulators and others were, and continue to be, concerned with the application of "cute" accounting principles and "shopping" for accounting opinions.
Does SAS 50 help halt either of these practices? Sadly not, in the opinion of the author. On the other hand, the author believes that the reports themselves are a positive development in the accounting principles process. This paper explains these conclusions, examines the guidance contained in SAS 50, and discusses the reasons financial intermediaries and other "non-auditing'' clients ask CPAs for reports on the application of accounting principles.