Proposed statement on auditing standards : letters to underwriters in conjunction with filings under the securities act of 1933 and letters issued to a requesting party in conjunction with other financing transactions;Letters to underwriters in conjunction with filings under the securities act of 1933 and letters issued to a requesting party in conjunction with other financing transactions
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The service of accountants providing letters to underwriters developed following enactment of the Securities Act of 1933 (the "Act"). Section 11 of the Act provides that underwriters, among others, could be liable if any part of a registration statement contains material omissions or misstatements. The Act also provides for an affirmative defense for underwriters if it can be demonstrated that, after a reasonable investigation, the underwriter had reasonable grounds to believe that there were no material omissions or misstatements. Consequently, underwriters request accountants to assist them in developing a record of reasonable investigation, called "due diligence," to help establish their affirmative defense under section 11 of the Act. The accountants' letters to underwriters, also known as "comfort letters," are one of a number of elements developed to establish that an underwriter has conducted this reasonable investigation. Other elements, not necessarily involving accountants, include (1) the due diligence meetings, which afford members of the underwriting group an opportunity to hear management's presentation about an offering and to question management, (2) various meetings held by the managing underwriter and its representatives with management to develop the disclosure document, (3) field inspections, and (4) inspection of the issuer's books and records. Thus, obtaining the accountants' letter is but one of an array of activities that underwriters undertake to respond to the liability imposed on them under section 11 of the Act. The guidance in paragraphs 2-48 provides for this traditional service. Included is the present practice of providing negative assurance about the presentation of unaudited financial data in accordance with generally accepted accounting principles. The accountant provides that negative assurance as long as the underwriter specifies the procedures the accountant is to perform for the underwriter's purposes. Furthermore, the guidance in Statement on Auditing Standards (SAS) No. 49, Letters for Underwriters, concerning an accountant's comments in a comfort letter on a financial forecast, pro forma financial information, and other assertions has been revised to be consistent with related guidance (that is, Statements on Standards for Attestation Engagements Attestation Standards, Financial Forecasts and Projections, and Reporting on Pro Forma Financial Information) issued subsequent to SAS No. 49. Since SAS No. 49 was issued, accountants have been requested to issue comfort letters to parties other than underwriters and in connection with securities offerings other than those registered under the Act. This proposed Statement provides guidance on those parties to whom accountants may provide comfort letters. It also provides guidance on the type of letters the accountant may provide for parties who do not have liability under section 11 of the Act. Under this service, the accountant may perform requested procedures and report on the findings obtained but would not provide negative assurance based on such procedures. This proposed Statement (Letters to Underwriters): 1. States that the accountant may provide comfort letters only to those parties with a due diligence defense under section 11 of the Act. 2. Prohibits the accountant from providing any additional letters to the underwriter or others in connection with the same transaction in which the accountant comments on items for which comment is otherwise precluded by this document. 3. Provides guidance on the effect on the comfort letter of an accountant's report on the audited financial statements included in the registration statement that contains an explanatory 4. Revises the guidance and related example letters to conform with the Statements on Standards for Attestation Engagements Attestation Standards, Financial Forecasts and Projections, and Reporting on Pro Forma Financial Information, which were issued subsequent to SAS No. 49. Two of the most significant changes are the following: a. This Statement removes the prohibition against commenting in a comfort letter on a financial forecast and provides guidance on how the accountant may comment in a comfort letter on a financial forecast. b. This Statement permits the accountant to give negative assurance on compliance as to form with certain specified disclosure requirements of Regulation S-K as long as specific criteria are met. This proposed Statement (Letters to a Requesting Party in Conjunction With Financing Transaction): 1. Limits statements by an accountant to procedures performed and findings obtained about (1) unaudited condensed interim financial information, (2) capsule financial information, (3) pro forma financial information, (4) financial forecasts, and (5) subsequent changes or decreases. 2. Prohibits the accountant from providing negative assurance based on agreed-upon procedures applied to the foregoing items. 3. In these situations, the accountant may perform a SAS No. 36 review on interim financial information and provide negative assurance thereon, if the client so requests. This proposed Statement (Letters in Connection With Matters Relating c76 to Solvency): 1.Incorporates the guidance from the February 1988 interpretation of Statement on Standards for Attestation Engagements Attestation Standards on responding to requests for reports on matters relating to solvency. 2. Revises the example letter to conform with the guidance in "Letters to a Requesting Party in Conjunction With Financing Transactions." The differences between SAS No. 49 and the proposed revision are discussed in greater detail in the appendix. This proposed Statement: 1. Will supersede SAS No. 49. 2. Amends SAS No. 35, Special Reportsâ€”Applying Agreed-Upon Procedures to Specified Elements, Accounts, or Items of a Financial Statement, to note that if the accountant is requested to perform an agreed-upon procedures engagement in connection with a financing transaction, as defined, he or she must follow the guidance in the SAS No. 49 revision. 3. Amends the Statements on Standards for Attestation Engagements Attestation Standards and Financial Forecasts and Projections to note that the practitioner must follow the guidance in the SAS No. 49 revision when requested to perform agreed-upon procedures on an assertion or on a forecast and report on such procedures in (1) a letter to an underwriter in connection with a filing under the Act, and (2) a letter to a party who does not have liability under section 11 of the Act in connection with a financing transaction. 4. Deletes paragraph 20 of AICPA Professional Standards, AU section 504, "Association With Financial Statements," because the guidance in paragraphs 49 through 61 of this proposed Statement would cover requests from those parties previously covered by AU section 504, paragraph 20.
Securities -- United States -- Accounting; Stocks -- United States -- Accounting; Auditors -- United States -- Correspondence
Accounting | Taxation
American Institute of Certified Public Accountants. Auditing Standards Board, "Proposed statement on auditing standards : letters to underwriters in conjunction with filings under the securities act of 1933 and letters issued to a requesting party in conjunction with other financing transactions;Letters to underwriters in conjunction with filings under the securities act of 1933 and letters issued to a requesting party in conjunction with other financing transactions" (1991). Statements of Position. 551.