3

ACCOUNTANTS

LICENSES – PUBLIC ACCOUNTANCY LAW PERMITS UNLICENSED

PERSONS TO PREPARE COMPILATION AND REVIEW REPORTS

SUBJECT TO CERTAIN CONDITIONS 

November 16, 1999

The Honorable Van T. Mitchell

House of Delegates 

In a previous opinion of this Office, Attorney General Sachs

construed the Maryland Public Accountancy Act (“the Act”) to

permit unlicensed accountants to issue “compilation” and “review”

reports concerning financial statements. See 66 Opinions of the

Attorney General 190 (1981) (“the 1981 Opinion”). You have asked

us to review the conclusion of that opinion and to consider the effect

of subsequent revisions of the Act and of the professional standards

governing certified public accountants. 

After reviewing the changes to the law since 1981, as well as

the changes in professional standards, we confirm the interpretation

of the Act set forth in the 1981 Opinion with one modification.

While a reasonable argument can be made for a different

construction of the statute concerning review reports, the conclusion

of the 1981 Opinion is consistent with the statute governing public

accountants, both as it existed in 1981 and as subsequently amended.

Moreover, the 1981 Opinion has guided the application of the Act

for nearly 20 years and, absent a contrary interpretation of the

current statute by the State appellate courts, any significant change

in the Act is the prerogative of the General Assembly.

I

The 1981 Opinion

In 1981, the Chairman of the Maryland State Board of Public

Accountancy asked the Attorney General for an opinion whether
4 [84 Op. Att’y

 At the time, the statute employed the term “certified” to describe 1

accountants permitted to practice certified public accountancy in the State.

See Former Article 75A, §14(a) (1975 Repl. Vol.). The current version of

the Act now uses the term “licensed.” See Annotated Code of Maryland,

Business Occupations & Professions Article (“BOP”), §2-101(c) and §2-

301. 

 As a result of code revision the Act became part of the Business 2

Occupations & Professions Article in 1989. 

Similar prohibitions in the statute against the use of the terms

3

“accountant” and “accounting services” had been declared

unconstitutional by the Court of Appeals in Comprehensive Accounting

Services v. State Board of Public Accountancy, 284 Md. 474, 397 A.2d

1019 (1979).

“unlicensed” accountants could issue compilation and review 1

reports prepared in accordance with the guidelines established by the

American Institute of Certified Public Accountants (“AICPA”), as

published in its Statement on Standards for Accounting and Review

Services No. 1: Compilation and Review of Financial Statements

(1978) (“SSARS No. 1"). 

At the time, the Maryland Public Accountancy Act was

contained in Article 75A of the Annotated Code of Maryland. That 2

Act created a State Board of Public Accountancy and established a

licensing and regulatory regime for the accounting profession. The

Act restricted the use of various designations to licensed

accountants, otherwise known as certified public accountants or

CPAs. In particular, §14 of the Act prohibited an unlicensed person

from holding out that the person provided public accounting or

“auditing” services, from using the titles “certified public

accountant,” “public accountant,” or “auditor,” and from using the

initials “CPA” or any other title, abbreviation, words, or device that

“tends to indicate that such person is a certified public accountant or

[that] is likely to be confused with ‘certified public accountant’ or

‘CPA.’” Former Article 75A, §14(a), (b), (e). See also former 3

Article 75A, §18 (use of those terms in conjunction with unlicensed

person’s name is prima facie evidence of violation of Act).
Gen. 3] 5

 A 1986 amendment added a definition of “practice certified public 4

accountancy” to the Act. See Part II of this opinion.

The Act did not directly define the practice of public

accounting, but rather specified a range of accounting services that 4

could be performed by persons without a license. Section 15(e)

explicitly permitted an unlicensed person to provide the following

services:

Offering or rendering to the public

bookkeeping and tax services, including

division [sic] and installing systems, recording

and presentation of financial information or

data, preparing financial statements,

schedules, reports and exhibits, or similar

services.... 

Former Article 75A, §15(e). Such services could be provided by an

unlicensed person only on the condition that the person not use the

titles or terms prohibited by §14 and:

not represent that an ‘audit’ or ‘examination’

has been made [and] not furnish written

certificates or opinions concerning the

correctness, fairness, or fair presentation of

financial statements, schedules, reports, or

exhibits ....

Id. Thus, somewhat indirectly, the Act allowed only a licensed

accountant to perform an audit or to render an opinion on the

correctness or fairness of financial statements.

Then, as now, the terms “compilation” and “review” did not

appear in the Maryland statute. The 1981 Opinion quoted the

AICPA definition of “compilation”:

Presenting in the form of financial statements

information that is the representation of

management (owners) without undertaking to

express any assurance on the statements. 
6 [84 Op. Att’y

SSARS No. 1, §100.04 quoted in 66 Opinions of the Attorney

General at 192. The 1981 Opinion also relied on the AICPA

definition of “review,” which begins as follows:

Performing inquiry and analytical procedures

that provide the accountant with a reasonable

basis for expressing limited assurance that

there are no material modifications that should

be made to the statements in order for them to

be in conformity with generally accepted

accounting principles, or, if applicable, with

another comprehensive basis of accounting. 

Id. at 193-94. The definition of “review” then distinguishes a review

from both a compilation and an audit. In essence, while a person

who provides a “compilation” does not provide any assurance on the

statements, a person performing a “review” must conduct sufficient

analytical procedures to provide a reasonable basis for a “limited

assurance”) i.e., that the person is not aware of any material

modifications that need to be made to conform the financial

statements to generally accepted accounting principles (GAAP).

However, a review is not equivalent to an audit as “it does not

provide assurance that the accountant will become aware of all

significant matters that would be disclosed in an audit”and therefore

does not permit the accountant to express an opinion on the financial

statements taken as a whole. Id

The 1981 Opinion referred to these definitions of

“compilation” and “review” in SSARS No. 1, examined them

against the Maryland statute, and concluded that the Maryland

statute permitted an unlicensed person to provide compilation and

review reports, so long as that person: (1) uses reporting language

substantially in accordance with the language recommended in

SSARS No. 1; (2) does not purport to represent that he or she had

made an “audit” or “examination”; and (3) does not give an opinion

as to the correctness, fairness, or fair presentation of the financial

statements. 66 Opinions of the Attorney General at 195.

You have asked whether that conclusion remains a valid

interpretation of the Maryland Public Accountancy Act. We first

consider intervening changes in the law and in professional

standards.
Gen. 3] 7

See Chapters 29, 776, Laws of Maryland 1982; Chapters 79, 80, 5

168, 176, 595, Laws of Maryland 1983; Chapters 17, 255, Laws of

Maryland 1984; Chapter 717, Laws of Maryland 1985; Chapter 780, Laws

of Maryland 1986; Chapter 3, Laws of Maryland 1989; Chapter 6, Laws

of Maryland 1990; Chapter 47, Laws of Maryland 1991; Chapters 146,

216, Laws of Maryland 1992; Chapters 459, 639, Laws of Maryland 1993;

Chapters 3, 15, 345, Laws of Maryland 1994; Chapter 3, Laws of

Maryland 1995; Chapters 35, 107, Laws of Maryland 1996; Chapters 59,

735, Laws of Maryland 1997; Chapter 49, 342, Laws of Maryland 1998;

Chapters 438, 525, Laws of Maryland 1999.

II

Amendments to the Public Accountancy Act

A. 1986 Revision of Statute

The General Assembly has revisited the Public Accountancy

Act on several occasions since 1981. However, only a 1986 5

amendment bears on the issue raised in your inquiry. See Chapter

780, §2, Laws of Maryland 1986. That legislation effected a

comprehensive revision of the Act as a prelude to its inclusion in the

new Business Occupations & Professions Article three years later.

Among other things, the 1986 amendment rectified a major omission

in the law ) an explicit definition of the practice of certified public

accountancy. In adding that definition to the statute, the General

Assembly had the opportunity to squarely address the conclusion of

the 1981 Opinion. 

The new §2-101(e) of the revised Article 75A defined

“practice certified public accountancy” to mean: 

(1) Conducting an audit or an

examination of financial statements; or 

(2) Providing a written certificate or

opinion as to the correctness of the

information or as to the fairness of the

presentation of the information in any:

(i) Financial statement;

(ii) Schedule;
8 [84 Op. Att’y

 The term “examination” was later deleted from this definition in 6

a non-substantive revision based upon the reported view of the AICPA

that “audit” and “examination” were synonymous in this context. See

Chapter 3, §1, Laws of Maryland 1989 at p. 30 (Revisor’s Note).

 In response to a Court of Appeals decision, a 1983 amendment had

7

eliminated the generic term “accountant” from the list of titles that may be

used only by licensed accountants. See Chapter 79, Laws of Maryland

1983, and footnote 3 above.

It may be argued that the prohibition in BOP §2-603(a) against

8

misrepresentation of a person’s licensing status “by description of

services, methods or procedures or otherwise” was intended to sweep

more broadly than former §14 and prevent an unlicensed person from

issuing compilation or review reports because such reports are defined by

the AICPA. However, at the time of the 1986 amendment, it was widely

understood that, in accordance with the 1981 Opinion, an unlicensed

person could lawfully issue a compilation or review report. Thus, a

representation that the person had performed a compilation or review

(continued...)

(iii) Report; or 

(iv) Exhibit. 

This language was evidently drawn from the former §15(e) of

Article 75A without substantive revision. In addition, portions of 6

the former §14 of Article 75A were combined and recodified in a

new §2-603(a) :

7

[U]nless authorized to practice certified public

accountancy under this title, a person may not

represent to the public by use of the title

“licensed certified public accountant”,

“certified public accountant”, “public

accountant”, or “auditor”, by use of the

description “CPA”, or by other title, by

description of services, methods, procedures,

or otherwise, that the person is authorized to

practice certified public accountancy in the

State. 

In sum, this new provision restated, in more generic and summary

form, the prohibitions listed in several subsections of former §14.8
Gen. 3] 9

 (...continued) 8

would not by itself assert that the person had performed a service or

procedure restricted to licensed accountants. Moreover, as discussed in

the next section of this opinion, there is no indication in the legislative

history that the 1986 amendment was meant to effect such a change in the

law.

By contrast, other states explicitly include the terms “compilation” 9

and “review” in defining the scope of practice of their licensees. For

example, the Indiana, Idaho, and Massachusetts laws provide that only a

licensee may issue reports on financial statements and specifically include

both a “review” and “compilation” within the definition of “report.” Ind.

Code §§25-2.1-12-2 and 25-2.1-12-3; Idaho Code §54-221; M.G.L.A. 112

§87D. Maine’s public accountancy law states:

No person or firm not holding a valid permit

issued under section 12251 or 12252 may issue a

report, including reviews and compilations, on

financial statements of any other person, firm,

organization or governmental unit.

32 M.R.S.A. §12755(a) (emphasis added).

See also §2-603(c) (incorporating evidentiary rule of former §18).

Conspicuously absent from both new provisions is any

reference to “compilation” or “review” reports. Nor has any 9

subsequent amendment added those terms to the statute.

Thus, the new definition of “practice certified public

accountancy” and the revised prohibition against the use of certain

terms both essentially incorporated the language of the pre-1986

statute. Based on the language enacted in 1986, it does not appear

that the General Assembly intended to include the preparation of

compilation and review reports within the definition of the “practice

certified public accountancy.” 

B. Legislative History

Such a view is supported by legislative history of the 1986

amendment. House Bill 1261 was a product of the Business

Occupations Article Committee, the committee responsible for

drafting what in 1989 became the Business Occupations and

Professions Article, as part of the ongoing code revision process.
10 [84 Op. Att’y

 The Committee Report stated: 10

This initiative was taken because the Business

Occupations Article Committee found that ) in

the context of the formal nonsubstantive revision

of the proposed new Business Occupations Article

) it was unable to address properly the several

substantive problems found to exist in the laws on

accountancy. Through the initial efforts to draft a

nonsubstantive revision, it became clear that the

difficulties are not merely academic. The relevant

provisions of the current law have been the cause

of considerable uncertainty among the

administrators responsible for implementing the

law and among the practitioners who are

regulated under it. Thus, House Bill 1261 is

presented to the General Assembly this session as

a substantive proposal separate from the proposed

Business Occupations Article that will be

introduced in a later session. The separate

presentation of this bill allows the General

Assembly to consider the issues involved more

clearly and carefully.

BOAC Report at p.1.

See Chapter 3, §1, Laws of Maryland 1989. In recommending the

changes made by the 1986 legislation, the committee determined that

the Act required some substantive revision as well as simple

recodification. Business Occupations Article Committee Report on

House Bill 1261 (“BOAC Report”).10

The BOAC Report stated that House Bill 1261 addressed the

following issues in the existing law: (1) regulated practice

undefined; (2) obsolete terminology; (3) references to outdated

procedures; (4) controlling court decisions not reflected in law; (5)

unclear, incoherent licensing scheme; (6) questionable authorization

for “inactive” licensee status; (7) licensing of individuals and

licensing of firms not clearly differentiated; (8) qualifications for

corporations and partnerships not clearly differentiated; (9) low

criminal penalties; and (10) poor organization. However, it further

noted that “for the most part, the proposals under the bill find their

basis in actual law and practice and do not deviate substantially from

the current law as it is now applied.” BOAC Report at p. 2

(emphasis added). For example, the Report stated that the definition
Gen. 3] 11

of “practice certified public accountancy” added by the 1986 bill “is

structured from references in the current law to those accountancy

services that could not be provided by a person who does not have

a license.” BOAC Report at p.3.

Likewise, the Senate Economic and Environmental Affairs

Committee, which favorably reported the bill, noted that the bill

“largely reorganizes and clarifies current law on public

accountancy,” citing the new practice definition as an example.

Summary of Committee Report on House Bill 1261, Accountants at

p. 2. The Committee Report also identified some “substantive

changes” in the bill, none of which pertain to the provision of

compilation or review services. Id.

Various accounting-related organizations participated in the

drafting of this legislation, including the State Board of Public

Accountancy, the Maryland Association of Certified Public

Accountants (MACPA), and the Maryland Society of Accountants

(MSA). While the bill was under consideration by the Legislature,

the President of MACPA wrote to the Chairman of the Senate

Economic and Environmental Affairs Committee and lauded the bill,

stating that: “HB 1261 does not change current Article 75A in any

significant way.” Letter of Joseph A. Novotny to Senator Norman

Stone (March 24, 1986).

C. Summary

Thus, neither the language of the 1986 amendment nor its

legislative history indicates that the General Assembly intended to

disavow the conclusion of the 1981 Opinion and restrict the

preparation of compilation and review reports to licensed

accountants. The Legislature is presumed to have known of the

interpretation of the law contained in the 1981 Opinion. See State

v. Crescent Cities Jaycees, 330 Md. 460, 470, 624 A.2d 955 (1993).

If the General Assembly had changed the law to limit the preparation

of compilation and review reports to licensed accountants, such a

turnaround would have been a “substantial” change in the

application of the statute. Therefore, the statements in the legislative

history of House Bill 1261 that the bill: (1) caused no “substantial”

change in the law’s application; and (2) primarily reorganized and

clarified existing law, suggest that the General Assembly accepted

the interpretation in the 1981 Opinion. 
12 [84 Op. Att’y

 That definition, which remains the same after SSARS No.7, reads:

11

Financial Statement. A presentation of

financial data, including accompanying notes,

derived from accounting records and intended to

communicate an entity’s economic resources or

obligations at a point in time, or the changes

therein for a period of time, in accordance with

generally accepted accounting principles or a

comprehensive basis of accounting other than

generally accepted accounting principles.

Financial forecasts, projections and similar

presentations, and financial presentations included

in tax returns are not financial statements for

purposes of this statement... . 

SSARS No. 1, §100.04 (footnotes omitted). 

III

Amendments of Professional Standards

In 1992, the AICPA promulgated SSARS No. 7, which

amended certain portions of SSARS No. 1 concerning compilation

and review reports. See 175:3 Journal of Accountancy (March 1993)

at pp. 98-102. In particular, it made two changes pertinent to your

inquiry. First, it amended the introductory paragraph of the

reporting language for both compilation and review reports to

include specific citation of the “Statements on Standards for

Accounting and Review Services issued by” the AICPA, rather than

a general reference to “standards established by” the AICPA. This

change does not appear to alter the substance of the language that the

AICPA recommends for compilation and review reports, but simply

makes the reference to AICPA standards more specific. 

Second, SSARS No. 7 added one footnote and expanded a

second footnote to a paragraph of SSARS No. 1 that includes a

definition of “financial statement” ) a term used in the definitions 11

of both “compilation” and “review” in SSARS No. 1. The new

footnote language added by SSARS No. 7 clarifies a reference to

GAAP in the definition and provides cross-references to other
Gen. 3] 13

 The preparation of financial statement on the basis of generally 12

accepted accounting principles would not necessarily require a license

under the Public Accountancy Act. The Act permits an unlicensed person

to provide certain services, including the preparation of financial

statements. BOP §2-102(a)(3)(iii). The State Board of Public

Accountancy has adopted a definition of “financial statement,” similar to

the definition in SSARS No. 1, that indicates that financial statements are

prepared in accordance with GAAP “or another comprehensive basis of

accounting.” COMAR 09.24.01.01A(3).

AICPA pronouncements concerning GAAP and other bases of

accounting.12

These amendments in SSARS No. 7 clarify, but do not change

the substance of, the definitions of “compilation” and “review” used

in the 1981 Opinion. Accordingly, they do not themselves mandate

revision of the 1981 Opinion. 

IV

Critique of the 1981 Opinion

This Office does not readily revisit the conclusion of a prior

opinion, even one issued during the term of a prior Attorney

General. A 1987 opinion stated the standards that we apply:

Although the opinions of this office do

not have the binding effect of judicial

decisions, nevertheless they “serve as

important guides to those charged with the

administration of the law.” In the absence of

judicial decisions, Attorney General opinions

promote steady application of the law.

Accordingly, this office stands by its

precedent, much as a court would. Like the

judicial doctrine of stare decisis, our respect

for precedent is not simply reflexive

conservatism. It “serves the broader societal

interests in evenhanded, consistent, and

predictable application of legal rules. When

rights have been erected or modified in

reliance on established rules of law, the

arguments against their change have special
14 [84 Op. Att’y

See pp. 12-13 below. Indeed, that reporting language is often 13

proffered in court as a disclaimer that precludes reliance on the financial

statements by third parties and protects the preparer from liability. See,

e.g., City National Bank of Florida v. Checkers, Simon & Rosner, 32 F.3d

(continued...)

force.” We do not overrule a prior opinion

simply because we might have resolved a

close question the other way, were we first

presented with it. At the same time, we will

not perpetuate a significant mistake in legal

reasoning. We are also prepared to recognize

that a prior opinion has been eroded by

changed circumstances.

72 Opinions of the Attorney General 200, 202 (1987) (citations

omitted).

A. General Assessment of the 1981 Opinion

Upon review, the 1981 Opinion appears to be a reasonable

construction of the State law governing public accountants as it

applies to accounting practices that are not specifically defined in,

or explicitly regulated by, the statute. The 1981 Opinion interprets

the statute in a manner that ensures regulatory oversight of auditing

practices, while not unduly restricting competition for other types of

accounting services. In the nearly two decades since the 1981

Opinion was issued, the Court of Appeals has apparently not had

occasion to construe the Act to different effect. Nor has the

Legislature expressed a contrary intent, despite several opportunities

in bills amending the Act. 

The key question now, as then, is whether a “compilation” or

“review” involves an “opinion on the correctness of the information

or the fairness of the presentation of the information” in the financial

statements. Compare BOP §2-101(f) (definition of “practice

certified public accountancy”) with former Article 75A, §15(e). The

AICPA definition of “compilation” states that the accountant gives

no assurance on the financial statements. Moreover, the

recommended reporting language that is to accompany a compilation

report is more in the nature of a disclaimer than an assertion as to

correctness or fairness of the financial statements. Thus, the 13
Gen. 3] 15

 (...continued) 13

277, 281 n.1 (7 Cir. 1994) (district court dismissed fraud and negligence th

action against accounting firm based in part on “clear and unambiguous

disclaimers” in compilation reporting language); Ashland Oil Co., Inc. v.

Arnett, 875 F.2d 1271, 1284-85 (7 Cir. 1989) (“disclaimer” in th

compilation reporting language does not relieve accountant from duty to

refrain from knowing participation in fraud).

A regulation adopted by the State Board of Public Accountancy 14

in 1992 may support such a view. In that regulation, the Board defined

“written certificate or opinion as to the correctness of the financial

statement or as to the fairness of the presentation” to include “any...form

of language which expressly disclaims an opinion when that form of

language is conventionally understood to imply any positive assurance as

to the reliability of the financial statements...” COMAR

09.24.01.01A(9)(b)(i).

 The reporting language recommended for a review report is 15

markedly similar to an example provided in the Restatement 2d of Torts

of circumstances in which an accountant would not be held liable for

negligent misrepresentation. See Restatement 2d Torts §522, Comment

(continued...)

conclusion in the 1981 Opinion as to compilations appears soundly

grounded in the statute. 

With respect to reviews, the issue is less clear. The AICPA

definition of “review” characterizes it as a “limited assurance” that

no material modifications need be made to the statements to conform

with generally accepted accounting principles (GAAP). The

recommended language that is to accompany a review asserts, with

somewhat less force, that the accountant is not aware of any

significant deviations from GAAP. Thus, a review arguably

involves an “assurance” concerning the financial statements that,

although stated in negative terms ) i.e., lack of knowledge of

deficiencies in the statements, has affirmative implications as to the

information in the statements. In that view, only licensed

accountants may provide such services. 

14

On the other hand, the reporting language recommended for a

review report is phrased in such negative terms that it is not

unreasonable to conclude, as the 1981 Opinion did, that it falls short

of an affirmative “opinion on the correctness” of the information in

the financial statements or the fairness of its presentation.15
16 [84 Op. Att’y

 (...continued) 15

c, Illustration 3. See also Union Bank v. Ernst & Whinney, 278 Cal. Rptr.

490, 495-96 (Cal. Ct. App. 1991) (quoting reporting language and holding

that accountant’s review report may not be basis for fraud or negligence

claim by third party).

If the General Assembly intended to prohibit unlicensed 16

accountants from preparing review reports, it need only have looked to the

laws of Virginia for an example of a clear prohibition. Virginia law

prohibits an unlicensed accountant from using the term “generally

accepted accounting principles” in connection with the preparation of a

financial statement, from using the term “review”or “SSARS” with

respect to financial statements, and from implying proficiency with

financial standards established by the AICPA. See Va. Code Ann. §54.1-

2007(A)(5)-(7). The Virginia statute also explicitly permits unlicensed

accountants to prepare compilations. See Va. Code Ann. §54.1-2001(B)-

(C).

 The AICPA subsequently modified each of these introductory 17

paragraphs in SSARS No. 7. Those amendments do not affect the

conclusion in this opinion. See Part III of this opinion.

Moreover, the Act explicitly permits unlicensed persons to prepare

financial statements and reports not “expressly included in the

definition of practice certified public accountancy.” BOP §2-102(a)

(emphasis added). In such circumstances, absent a contrary directive

from the Legislature or the appellate courts, we would ordinarily

decline to modify the 1981 Opinion.16

B. Omission of Part of Reporting Language

A significant omission in the 1981 Opinion, however, has been

brought to our attention. In measuring the definitions of

“compilation” and “review” against the Public Accountancy Act, the

1981 Opinion quoted reporting language recommended by the

AICPA for compilations and for reviews. See 66 Opinions of the

Attorney General at 192 (compilation reporting language), 194

(review reporting language). At the time of the 1981 Opinion, the 17

AICPA recommended the following language:

for compilations:

I (we) have compiled the accompanying

balance sheet of XYZ Company as of
Gen. 3] 17

December 31, 19XX, and the related

statements of income, retained earnings, and

cash flows for the year then ended, in

accordance with standards established by the

American Institute of Certified Public

Accountants.

A compilation is limited to presenting in

the form of financial statements information

that is the representation of management

(owners). I (we) have not audited or reviewed

the accompanying financial statements and,

accordingly, do not express an opinion or any

other form of assurance on them.

for reviews:

I (we) have reviewed the accompanying

balance sheet of XYZ Company as of

December 31, 19XX, and the related

statements of income, retained earnings, and

cash flows for the year then ended, in

accordance with standards established by the

American Institute of Certified Public

Accountants. All information included in

these financial statements is the representation

of the management (owners) of XYZ

Company. 

A review consists principally of inquiries

of company personnel and analytical

procedures applied to financial data. It is

substantially less in scope than an audit in

accordance with generally accepted auditing

standards, the objective of which is the

expression of an opinion regarding the

financial statements taken as a whole.

Accordingly, I (we) do not express such an

opinion.

Based on my (our) review, I am (we are)

not aware of any material modifications that
18 [84 Op. Att’y

should be made to the accompanying financial

statements in order for them to be in

conformity with generally accepted

accounting principles.

SSARS No. 1. The recommended reporting language thus generally

describes the nature of the particular type of report. It also

distinguishes compilations and reviews from an audit and explicitly

disclaims any opinion that would be based upon an audit. 

With respect to both compilations and reviews, the 1981

Opinion accurately quoted portions of the recommended reporting

language, but in each instance omitted without explanation the

introductory paragraph of the reporting language recommended by

the AICPA. The 1981 Opinion concluded that an unlicensed

accountant may lawfully provide a compilation or review if, among

other things, the report includes language “substantially similar” to

that recommended by SSARS No. 1. However, the 1981 Opinion

provided no guidance on whether the unlicensed accountant is to

use, paraphrase, or ignore the introductory paragraph of the

recommended reporting language. We believe it is appropriate to fill

the gap left by the 1981 Opinion. 

C. Modification of Conclusion

Apart from stating the time period covered by the financial

statements ) which may be obvious from the statements themselves

) the introductory paragraph of the recommended reporting language

for both compilations and reviews adds nothing to the descriptions

of the terms “compilation” and “review” other than to make a

general reference to the standards of the AICPA. The drafter of the

1981 Opinion may simply have thought the initial paragraphs

redundant or without substance. Nonetheless, those paragraphs do

provide a reference, however general, that would permit a reader to

obtain further information on the nature of a compilation or review.

At the same time, however, in representing that the person has

prepared the statements “in accordance with standards established by

the American Institute of Certified Public Accountants,” the

introductory paragraphs create some potential for confusion as to

whether the preparer is a CPA ) i.e., a licensed accountant ) and

implicate the Act’s prohibition against the misleading use of the term

“certified public accountant.” 
Gen. 3] 19

 In theory, an unlicensed person preparing a compilation or review

18

could avoid such confusion by omitting any reference to the AICPA.

However, that solution would ultimately provide a user with less

information about the nature of the report.

Any such confusion can be remedied by an explicit statement

that the preparer of the report is not licensed. The reporting

language already distinguishes a compilation or review from an

audit. The report should similarly ensure that there is no suggestion

that the person providing the report is licensed to perform audits. To

this end, we modify the conclusion of the 1981 Opinion to state that

an unlicensed person may provide a compilation or review report,

but only if he or she uses reporting language substantially in

accordance with the language recommended by the AICPA that

includes not only a statement that the report is not the result of an

audit, but also a statement that the preparer is not licensed to perform

audits. Accordingly, the second paragraph of the reporting 18

language used by unlicensed persons who provide compilation or

review reports should include such a disclaimer. Such language,

indicated in italics, could read substantially as follows:

for compilations:

A compilation is limited to presenting in

the form of financial statements information

that is the representation of management

(owners). I (we) have not performed a review

of the accompanying financial statements. I

am (we are) not licensed to perform audits

and have not audited these statements.

Accordingly, I (we) do not express an opinion

or any other form of assurance on them.

for reviews:

A review consists principally of inquiries

of company personnel and analytical

procedures applied to financial data. It is

substantially less in scope than an audit in

accordance with generally accepted auditing

standards, the objective of which is the

expression of an opinion regarding the
20 [84 Op. Att’y

financial statements taken as a whole. I am

(we are) not licensed to perform audits and

have not audited these statements.

Accordingly, I(we) do not express an opinion

on the financial statements as a whole.

V

Conclusion

In summary, we confirm the conclusion of the 1981 Opinion

that an unlicensed person may issue compilation and review reports

on financial statements in certain circumstances. However, we

modify the conditions stated in that opinion to avoid confusion as to

the licensing status of the person issuing the report. Accordingly, in

our opinion, a person who performs accounting services but is not

licensed by the State Board of Public Accountancy may issue

compilation and review reports in accordance with the standards set

forth by the AICPA in the relevant SSARS, so long as that person:

(1) uses reporting language substantially in accordance with the

language recommended by the AICPA and includes a specific

statement that he or she is not licensed to perform audits; (2) does

not purport to represent that he or she has performed an “audit”; and

(3) does not provide an opinion as to the correctness, fairness, or fair

presentation of the financial statements.

 

J. Joseph Curran, Jr.

Attorney General

Matthew A. Lawrence

Assistant Attorney General

Robert N. McDonald

Chief Counsel

 Opinions and Advice