The American Institute of CPAs’ Auditing Standards Board has issued an exposure draft of a proposed standard for auditors who are involved with securities offerings that are exempt from registration with the Securities and Exchange Commission.
The Proposed Statement on Auditing Standards (SAS), Auditor Involvement with Exempt Offering Documents, proposes specific performance requirements when an auditor is involved with an exempt offering.
Auditors are not required to become involved in offering documents, except when certain benchmarks defining involvement are met, the AICPA noted. However, auditors are also not precluded from becoming voluntarily involved with an offering document under other circumstances.
While certain securities are exempt from registration, the AICPA pointed out, they remain subject to the antifraud provisions of the Securities Act of 1933, as amended. The provisions prohibit any person from misrepresenting or omitting material facts in an offering or sale of securities. The SEC can’t directly regulate such offerings, so there’s no requirement by the SEC for auditor involvement with exempt offerings. Companies that issue exempt offerings can include an auditor’s report in an offering document without getting the auditor’s permission, since there are no laws or rules that prohibit it. Franchise offerings regulated by the Federal Trade Commission similarly don’t require auditor involvement.
The AICPA had earlier provided industry-specific auditing guidance about an auditor’s professional responsibilities when the audit report is included in a municipal security offering document. The guidance described situations in which an auditor was considered to be “involved” with the offering, and the procedures that should be performed in such situations.
“Some firms require involvement with municipal securities and other exempt offerings as a matter of practice risk management,” said the AICPA. “They typically accomplish this by including a provision in the engagement letter requiring the client to obtain the auditor’s permission before using the auditor’s report in the offering or disclosure documents.”
Prior to the AICPA Auditing Standards Board’s project to clarify the auditing standards, the old standards included the use of the term “should,” which led auditors to believe there were industry-standard requirements. However, the “should” statements were revised or eliminated in the clarified standards, and now they do not address what actions constitute “involvement” or define the requirements for auditors governing exempt offerings. The board then set up a task force to address the issue of auditor involvement with exempt offerings.
The proposed standard would apply to offering documents with which an auditor is involved that are initially distributed, circulated or submitted on or after June 15, 2018. The AICPA is asking for comments on the exposure draft by Oct. 13, 2016.
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