Discussant's response to "Reports on the application of accounting Principles -- A Review of SAS 50";

              Discussant's Response to "Reports on the Application of Accounting Principles— A Review of SAS 50"
Gary L. Holstrum
University of Central Florida
I thoroughly enjoyed reading this paper. It is well organized and clearly written. The author's extensive experience on Wall Street evaluating the accounting implications of often-exotic financial instruments makes him well-qualified to discuss the background and implications of SAS 50. The paper does a good job of illustrating how accountants may have difficulty determining whether the provisions of SAS 50 apply in various circumstances. I generally agree with the positions expressed in the paper, but disagree somewhat with respect to the likely significance of SAS 50.
Determining When SAS 50 Applies
A major portion of the paper is devoted to the issue of deciding whether the provisions of SAS 50 apply to various circumstances. The author provides some basic examples and a somewhat elaborate decision tree for making this determination. The paper gives an impression that the criteria for deciding whether SAS 50 applies are highly complex and non-intuitive.
On the contrary, I believe that the criteria for determining whether SAS 50 applies are rather simple, straightforward, and intuitively logical. In determin-ing whether and how SAS 50 applies, the accountant needs to evaluate the following factors:
1. specificity of the communication (i.e., whether it addresses a specific situation or a hypothetical one);
2. whether the communication is a written report, oral advice, or a position paper (or speech), and
3. whether the communication is an important decision factor.
These factors are discussed below and shown in Table 1.
Specificity—One of the major provisions of SAS 50, which was described in the paper, is the requirement for an accountant who is not the financial statement auditor, but who issues a written or oral communication on the application of an accounting principle, to consult with the financial statement auditor under certain circumstances. An accountant's responsibility to consult with the financial statement auditor differs depending on whether the communi­cation
addresses a specific transaction (or a specific entity's financial state­ments)
as distinguished from a hypothetical transaction. Quite understandably, if the communication relates to a "hypothetical transaction," which is defined as "not involving facts or circumstances of a particular principal," communica-
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