AICPA issues standard for audits of exempt securities

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The American Institute of CPAs has released a new standard that provides guidance to auditors about their responsibilities when auditing securities exempt from registration under the Securities Act of 1933 and franchise offerings known as exempt offerings.

Statement of Auditing Standards No. 133 was developed by the AICPA’s Auditing Standards Board. It will take effect for exempt offering documents with which the auditor is involved that are initially distributed, circulated or submitted on or after June 15, 2018. Other types of securities offerings are covered under AU-C section 925, Filings with the U.S. Securities and Exchange Commission Under the Securities Act of 1933.

Before releasing the new standard, SAS No. 133, the AICPA has supplied best practice guidance to auditors who work on municipal securities offerings in some of its AICPA Audit and Accounting Guides. But SAS No. 133 provides a larger scope than the previous guides, addressing all offerings of securities exempt from registration under the Securities Act of 1933, as amended, along with franchise offerings.

SAS No. 133 covers municipal securities, franchise offerings, crowdfunding, small issues of securities such as Regulation A offerings, and securities issued by nonprofit religious, education and charitable organizations.

“Given both the size of the exempt market and the added complexities and risk, having standards-level guidance for when an auditor is considered involved in an offering, as well as the audit responsibilities once involved, is in the public interest and will promote consistency in practice,” said AICPA senior manager of governmental accounting and auditing Laura Hyland in a statement.

Under the new standard, the objectives when auditing an exempt offering document are to perform a specific set of procedures and respond appropriately if the auditor determines the information included or incorporated by reference in the exempt offering document could undermine the credibility of the financial statements and the auditor’s report. Auditors need to respond to any facts they learn after the date of the auditor’s report that, if they had been known at that time, could have caused the auditor to revise the report.

They also need to understand any procedures that management may have performed to identify any subsequent events, and ask management and those charged with governance about whether any such events have occurred that might affect the financial statements. They might also need to read the minutes of management meetings that have been held since the date of the auditor’s report and ask about the matters discussed at those meetings. They should also read the entity’s most recent subsequent interim financial statements, if there are any.

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