United States

Auditor involvement with exempt offering documents

FINANCIAL REPORTING INSIGHTS  | 

Certain securities are exempt from registration under the Securities Act of 1933, as amended. The SEC cannot directly regulate such offerings, so there is no requirement by the SEC for auditor involvement with exempt offerings. Franchise offerings regulated by the Federal Trade Commission (FTC) are similar in that there is no requirement for auditor involvement with such offerings.

As a matter of practice risk management, RSM US LLP and other firms generally require involvement with exempt offerings when the auditor’s report is included in the offering document. Currently, the only guidance regarding auditor involvement with exempt offerings is industry-specific guidance included in AICPA Audit and Accounting Guides State and Local Governments and Health Care Entities. To provide performance requirements when an auditor is involved with an exempt offering document, the AICPA Auditing Standards Board recently issued Statement on Auditing Standards (SAS) 133, Auditor Involvement with Exempt Offering Documents.

In this SAS, exempt offerings are defined as (a) securities, when either the transaction or the securities themselves are exempt from registration under the Securities Act of 1933, as amended, or (b) franchise offerings regulated by the FTC or applicable state franchise laws. Although auditors will not be precluded from becoming voluntarily involved with an offering document in other circumstances, the SAS requires an auditor to become involved in an exempt offering when both of the following conditions exist:

  • The auditor’s report is included in the exempt offering document; and
  • The auditor performs one or more of the following activities with respect to the exempt offering document:
    • Assisting the entity in preparing information included in the exempt offering document
    • Reading a draft of the exempt offering document at the entity’s request
    • Issuing a comfort or similar letter in accordance with AU-C section 920, Letters for Underwriters and Certain Other Requesting Parties, or an agreed-upon procedures report in accordance with AT-C section 215, Agreed-Upon Procedures Engagements, in lieu of a comfort or similar letter on information included in the exempt offering document
    • Participating in due diligence discussions with underwriters, placement agents, broker-dealers or other financial intermediaries in connection with the exempt offering document
    • Issuing an attestation report on information relating to the exempt offering
    • Providing written agreement for the use of the auditor’s report in the exempt offering document
    • Updating an auditor’s report for inclusion in the exempt offering document

When the auditor is involved with an exempt offering document, the auditor is required to perform certain procedures, including, among others, (a) reading the document to identify material inconsistencies with the financial statements and (b) determining whether any material events occurred subsequent to the report date that require adjustment to, or disclosure in, the financial statements.

SAS 133 is effective for exempt offering documents with which the auditor is involved that are initially distributed, circulated or submitted on or after June 15, 2018.