Compliance with non-rule 203 pronouncements before SAS 69: The case of accounting for greenmail payments

Before the adoption of Statement on Auditing Standards (SAS) 69 in 1992, not all accounting pronouncements were mandatory under the AICPA Code of Professional Conduct. As a result, auditors were not obligated to qualify opinions on financial statements that did not comply with certain pronouncements. One class of transactions - greenmail payments - is subject to a non-rule 203 pronouncement, namely FASB Technical Bulletin 85-6 (FTB 85-6). Because FTB 85-6 is subject to several interpretations, compliance can only be judged relative to an interpretation of the rule. A number of firms are documented that did not comply with even a very liberal interpretation, and some are documented that did not comply with an interpretation that is consistent with the purpose of the pronouncement. The results indicate that SAS 69 can be justified by reporting from a compliance point of view and that an accounting rule that allows for discretion by reporting firms may give rise to interpretations that were unintended by rulemakers and that are not consistent with the purpose of the rule.