4110.1 PCAOB Rule 2100 requires each firm (domestic or foreign) to register with the PCAOB that:
prepares or issues any audit report with respect to any issuer; or
plays a substantial role in the preparation or furnishing of an audit report with respect to any issuer.
4110.2 A public accounting firm not registered with the PCAOB may be able to perform some audit services for an issuer if the firm does not play a substantial role in the preparation or furnishing of the audit report as defined by PCAOB Rule 1001(p)(ii).
4110.3 In accordance with PCAOB Rule 2107(b)(1), a firm that was once registered and then later withdrew may reissue or give consent to the use of a prior report that it issued while registered. However, the firm cannot update or dual-date a previously issued report after the firm is no longer registered, as that involves additional audit work.
4110.4 Issuer financial statements audited by a nonregistered firm are considered to be “not audited,” and any 10-K, proxy statement, or registration statement containing or incorporating by reference such financial statements is deemed substantially deficient. In addition, the 10-K is deemed not timely filed. The 10-K or filing should be amended immediately to remove the nonregistered auditor’s report and label the columns of the financial statements as “not audited.” The issuer would then need to file another amendment to file financial statements audited by a registered firm.
4110.5 The following chart outlines the application of
certain PCAOB requirements in various filings with the SEC.
(Last updated: 10/30/2020)
Entities for which an audit report on
the financial statements is included in the document
filed with SEC1:
Auditor’s report on financial
statements in current filing must be issued by a public
accounting firm registered with the PCAOB?
Auditor’s report on financial
statements must refer to PCAOB standards?
Entity that has filed an initial registration
Operating company (predecessor) whose financial
statements are filed by a special purpose acquisition
Operating company (predecessor) whose pre-acquisition
financial statements are filed by an issuer that at the time
the reverse merger is consummated is a public “shell
company” (See Section 12250.1)
Operating company (predecessor) whose pre-acquisition
financial statements are filed by an issuer that at the time
the reverse merger is consummated is not a public “shell
company” (See Section 12250.2)
No, but see Section 12250.2
No, but see Section 12250.2
Operating company (predecessor) whose post-acquisition
audited financial statements are filed by the issuer after
consummation of a reverse merger
Non-issuer subsidiary, division, branch, component or
investment for which an audit report is filed under S-X
4110.6 For purposes of Item 5 of the table above, a non-issuer entity could also be a bidder in a Schedule TO or an acquirer in a proxy statement.
4110.7 As noted in the table above, subsidiary guarantors are considered issuers whose financial statements filed under S-X 3-10 must be audited by a PCAOB-registered firm using PCAOB standards. However, relief from these requirements may be available for recently-acquired subsidiary guarantors in certain circumstances. Registrants should consult with CF-OCA prior to filing any S-X 3-10(g) financial statements that are not audited by a PCAOB-registered firm. (Last updated: 3/31/2011)
4110.8 The audited balance sheet of a non-issuer general partner that is included in a transactional filing or registration statement of a limited partnership issuer is not required to be audited by a PCAOB registered firm. The audit report also is not required to refer to PCAOB standards.
>4115 Involuntary PCAOB Deregistration
(Last updated: 9/30/2009)
4115.1 If the PCAOB revokes the registration of an audit firm, audit reports issued by that firm may no longer be included in a registrant’s filings made on or after the date the firm’s registration is revoked, even if the report was previously issued before the date of revocation. Financial statements previously audited by a firm whose registration has been revoked would generally need to be reaudited by a PCAOB registered firm prior to inclusion in future filings or if included in a registration statement that has not yet been declared effective. (Last updated: 6/30/2011)
4115.2 In providing the information that Item 304 of Regulation S-K requires regarding a change in accountants for a firm whose registration is revoked by the PCAOB, a company should indicate that the PCAOB has revoked the registration of its prior auditor. If a company previously explained the PCAOB registration revocation in its Item 4.01 Form 8-K, it need not repeat this disclosure in its Form 10-K.
>4120 Duly Registered and in Good Standing Under the Laws of the Accountant’s Place of Residence or Principal Office [S-X 2-01]
(Last updated: 9/30/2011)
4120.1 The SEC will not recognize any person as a certified public accountant unless duly registered (licensed to practice) and in good standing under the laws of the place of the accountant’s residence or principal office.
[S-X 2-01(a)] However, S-X 2-01(a) does not affect the applicability of any other registration, licensing or qualification requirements that may apply in any State or competent jurisdiction.
4120.2 The staff may question the location from which the audit report was rendered if there does not appear to be a logical relationship between that location and the location of the registrant’s corporate offices, its principal operations, its principal assets, or where the audit work was principally conducted. The staff will consider all relevant factors in questioning the location from which the audit report was rendered.
4120.3 An auditor whose report is included in a domestic registrant’s filings should be an expert in U.S. GAAP and the standards of the PCAOB (U.S. GAAS for non-issuers).
>4130 Independence [S-X 2-01(b) and (c), SOX 201]
4130.1 Questions regarding independence should be directed
to OCA. Auditor reports on financial statements that refer to PCAOB
standards must comply with the independence rules of both the SEC and the
PCAOB. The SEC’s independence rules are promulgated in S-X 2-01. The PCAOB
has also issued certain independence and ethics rules, which are part of its
adopted standards. See https://pcaobus.org/. Compliance with
these rules is required to issue a PCAOB opinion.
4130.2 S-X 2-01 is designed to ensure that auditors are
qualified and independent both in fact and in appearance. Accordingly, the
rule sets forth restrictions, including but not limited to, on financial,
employment, and business relationships between an accountant and an audit
client and restrictions on an accountant providing certain non-audit
services to an audit client. These restrictions are prescribed in paragraphs
(c)(1) to (c)(8) of S-X 2-01. The general standard of independence is set
forth in S-X 2-01(b). The rule does not purport to, and the SEC could not,
consider all the circumstances that raise independence concerns, and these
are subject to the general standard in paragraph 2-01(b). In considering
this standard, the SEC looks in the first instance to whether a relationship
or the provision of a service: (a) creates a mutual or conflicting interest
between the accountant and the audit client; (b) places the accountant in
the position of auditing his or her own work; (c) results in the accountant
acting as management or an employee of the audit client; or (d) places the
accountant in a position of being an advocate for the audit client. See also
OCA: Application of the Commission’s Rules on Auditor Independence
Frequently Asked Questions available here. (Last updated: 10/30/2020)
4130.3 SEC Independence rules also apply to Regulation A,
except for Tier 1 offerings where the AICPA independence standards may be
applied and Regulation D filings, and when separately audited financial
statements of an equity investee is included in a filing under Rule 3-09 of
Regulation S-X. [Form 1-A Part F/S and Section O. Other Independence in
OCA: Application of the Commission’s Rules on Auditor Independence
Frequently Asked Questions.] (Last updated: 10/30/2020)
>4140 Principal Auditor [S-X 2-05, PCAOB AS 1205]
4140.1 When an independent auditor uses the work and reports of other independent auditors to audit the financial statements of one or more subsidiaries, divisions, branches, components, or investments included in the financial statements presented, such independent auditor must decide whether it may serve as the principal auditor. Generally, the principal auditor is expected to have audited or assumed responsibility for reporting on at least 50% of the assets and revenues of the consolidated entity. If it is impracticable for a principal auditor to assume that extent of responsibility for one or more of the periods presented, the staff will evaluate whether to accept the audit reports as sufficient for reliance in filings with the SEC depending on the facts and circumstances.
4140.2 A principal auditor must decide whether to make reference in its report to the audit performed by another auditor. If the principal auditor decides to assume responsibility for the work of the other auditor insofar as that work relates to the principal auditor’s expression of an opinion on the financial statements taken as a whole, no reference should be made to the other auditor’s work or report.
4140.3 If a principal auditor decides not to assume responsibility for the work of the other auditor insofar as that work relates to the principal auditor’s expression of an opinion on the financial statements taken as a whole, the principal auditor’s report should make reference to the audit of the other auditor and should indicate clearly the division of responsibility between the principal auditor and the other auditor in expressing his opinion on the financial statements. Regardless of the principal auditor’s decision, the other auditor remains responsible for the performance of its own work and for its own report.
4140.4 If a principal auditor makes reference to the work of the other auditor in the principal auditor's report on either the financial statements or ICFR, the separate report of the other auditor shall be filed. [S-X 2-05] (Last updated: 9/30/2012)
4140.5 If a principal auditor makes reference to the work of the other auditor in the principal auditor’s report, the other auditor must comply with all requirements with which the principal auditor must comply, with the exception of PCAOB registration when the other auditor does not meet the “substantial role” threshold defined in PCAOB Rule 1001(p)(ii) in the audit of the issuer. The other auditor must register with the PCAOB if it meets the “substantial role” threshold defined in PCAOB Rule 1001(p)(ii) in the audit of the issuer, regardless of whether the principal auditor refers to the work of the other auditor. (Last updated: 9/30/2012)
4200 Accountants’ Reports [S-X 2-02]
(Last updated: 6/30/2009)
>4210 General – Audit Reports
4210.1 The accountant’s report must be dated, electronically signed [S-T 302(a)], indicate the city and state where issued, and identify the financial statements covered.
4210.2 The report should refer to any supplemental schedules presented pursuant to SX Article 12 (or a separate report on those schedules may be included with the schedules).
4210.3 The report must contain clear statements as to the
scope of the audit. It must include representations that the audit is
conducted in accordance with the standards of the Public Company Accounting
Oversight Board (United States) for issuers or applicable professional
standards (that is, U.S. GAAS as issued by the AICPA) for non-issuers (with
certain exceptions noted in Section 4210.4). (Last updated:
4210.4 Audit reports on non-issuer financial statements may, but are not required to, refer to PCAOB standards, except in certain cases. An audit of non-issuer financial statements must be conducted in accordance with PCAOB standards if the issuer’s principal auditor makes reference to the work performed by the non-issuer auditor. (Last updated: 9/30/2012)
4210.5 The report must contain a clear statement as to the auditor’s opinion that the financial statements are presented in conformity with GAAP, and any exceptions taken. All financial statements must be prepared in accordance with
U.S. GAAP for domestic issuers. Foreign private issuers may present their financial statements in accordance with IFRS as issued by the IASB without a reconciliation to U.S. GAAP, or in accordance with non-IFRS home country GAAP reconciled to U.S. GAAP as permitted by Form 20-F.
4210.6 Auditors’ reports must refer to each period for which audited financial statements are required, except that audit reports opining on only the most recently completed fiscal year are permitted in an annual report to shareholders. Including an audit report on only the current period precludes the incorporation by reference of those financial statements into the Form 10-K or other filings unless the audit reports for previous years are separately included or incorporated by reference from another document. [Proxy Rules 14a-3(b)(1), Note 1]
4210.7 See Section 4320 for further requirements regarding ICFR audit reports, including PCAOB standard requirements.
>4220 Qualified Audit Reports
The audit report that an independent auditor issues under PCAOB standards (or
U.S. GAAS for non-issuers) may indicate that the financial statements do not
satisfy the requirements of the SEC's rules or the audit procedures applied
omitted certain procedures deemed necessary by the auditor. There may be
rare instances when the staff will not object to an audit report
on the financial statements that contains a qualification. However, a waiver
from CF-OCA would need to be requested and obtained before filing. Examples
of audit reports on the financial statements that represent a substantial
deficiency in the filing are set forth in 4220.1 through 4220.4. In
substantial deficiency situations, the related filing, e.g. Form 10-K, is
deemed not timely filed and would impact compliance with certain rule and
form eligibility requirements – such as, Regulation S, Rule 144, Form S-3
and Form S-8. (Last updated: 10/30/2020)
4220.1 Disclaimer of Opinion
S-X Article 2 requires the clear expression of an opinion on the financial statements. A report that states that the auditor is disclaiming an opinion on the financial statements for any reason does not satisfy the requirements of S-X Article 2.
4220.2 Adverse Opinion
An audit report that states that the financial statements taken as a whole are not presented fairly in conformity with GAAP does not satisfy the requirements of S-X Article 2.
4220.3 Scope Qualifications [SAB Topic 1E.2]
A qualification with respect to the scope of the audit of the financial statements results in a finding by the staff that the audit of the financial statements required by SEC rules has not been performed.
Sometimes an auditor is not present for observation of inventory. In that case, the auditor must be able to satisfy himself or herself through alternative procedures. No language in the report should imply a qualification as to scope or conclusions. [FRC 607.01]
4220.4 Qualifications as to Accounting Principles or Disclosures [SAB Topic 1E.2]
Audit reports that express a qualified or “except for” opinion due to a departure from GAAP do not meet the requirements of S-X Article 2. Financial statements not in conformity with GAAP are presumed to be inaccurate or misleading, notwithstanding explanatory disclosures in footnotes or in the accountant’s report. [FRC 607.01]
4220.5 In the case of an auditor’s issuance of an adverse
opinion on a company’s ICFR, the auditor should determine the effect an
adverse opinion on ICFR has on the auditor’s opinion on the financial
statements. An auditor should disclose whether or not an adverse opinion on
ICFR affected its audit opinion on the financial statements. [AS 2201,
>4230 Other Report Modifications
4230.1 Going Concern Modifications [AS 2415]
Going concern modifications are required by PCAOB
standards and U.S. GAAS in certain circumstances.
Filings that include reports having going
concern modifications must also include appropriate and
prominent disclosure of the financial difficulties giving rise
to that uncertainty. Discussion of a viable plan that has the
capability of removing the threat to the continuation of the
business must be included. The plan may include a “best efforts”
offering so long as the amount of minimum proceeds necessary to
remove the threat is disclosed. The plan should enable the
issuer to remain viable for at least the 12 months following the
date of the financial statements being reported on. If
management has no viable plan, the use of going concern
financial statements may be inappropriate and liquidation-basis
financial statements may be necessary or the classification and
amounts of assets and liabilities may need to be adjusted. [FRC
607.02] AU 341 does not apply to an audit of financial
statements based on the assumption of liquidation.
Going concern opinions that do not use the words
“substantial doubt” when referencing a going concern matter do
not comply with PCAOB standards/U.S. GAAS.
Going concern opinions that use conditional
language in expressing a conclusion concerning the existence of
substantial doubt about the entity’s ability to continue as a
going concern are not appropriate.
A disclaimer of opinion, “except for” opinion, or
an adverse opinion resulting from going concern matters is
permitted by (AS 2415), but none of these types of opinion
comply with the requirements of S-X Article 2.
4230.2 Changes in Accounting Principles [ASC 250, AS 2820,
A change in accounting principle that has a material
effect on the financial statements should be recognized in the
auditor’s report. [AS 2820, paragraph 8]
The correction of a material misstatement in
previously issued financial statements should be recognized in the
auditor’s report on the audited financial statements through the
addition of an explanatory paragraph. [AS 2820, paragraph 9]
presumption that an entity should not, in the absence of the
issuance of a new accounting standard, change an accounting
principle may be overcome only if the enterprise justifies the
use of an alternative acceptable accounting principle on the
basis that it is preferable. [ASC 250-10-45-12] The
registrant is required to file a letter from its independent
accountant concurring with its conclusion as to the new method’s
preferability. [S-X 10-01; SAB Topic 6G.2.b]
Preferability letters must be
included in Form 10-Q or Form 10-K as Exhibit 18 and
need only be filed once in the first applicable 1934
Act filing following the change. Preferability
letters are not required in 1933 Act filings. A
preferability letter generally is required in Form
10-K only when a change in accounting occurs in the
fourth quarter. Even though the independent
accountant referred to the change in its audit
report as required by PCAOB standards and concluded
as to the preferability of the change, S-K 601
requires that a preferability letter be included as
an exhibit to the Form 10-K (unless it was
The staff has objected to the change
from one acceptable method to another acceptable
method if the registrant and its independent
accountants cannot demonstrate that the new method
is preferable. Conforming to industry practice may
not justify a change if industry practice is not the
Preferability letters are not
required after a business combination where changes
in the acquired entity's accounting are made to
conform to those of the acquiring entity.
A preferability letter is not
required for a change in estimate effected by a
change in accounting principle.
A preferability letter is not
required for changes that are mandatory or will be
4230.3 Clarification in Audit Report Regarding No Audit of
Internal Control Over Financial Reporting [SOX 404(b), S-K 308(b), AS 3105]
In a financial statement audit of an issuer or non-issuer that has determined it
is not yet required to obtain, nor did it request the auditor to perform, an
audit of internal control over financial reporting under SOX 404(b) and S-K
308(b), a firm may, but is not required to, expand its audit report to
clarify this fact. A firm may include a statement that the purpose and
extent of the auditor’s consideration of internal control over financial
reporting was to determine that the nature, timing, and extent of tests to
be performed are appropriate in the circumstances, but was not sufficient to
express an opinion on the effectiveness of internal control over financial
reporting. If a firm chooses to expand its report to clarify this point, the
scope paragraph in the audit report should follow the suggested language in
4300 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING [SOX 404, AS 2201
and S-K 308, SEC Interpretive Guidance, ICFR FAQs, PCAOB Staff Guidance]
(Last updated: 6/30/2009)
>4310 Management’s Annual Report on Internal Control Over Financial Reporting [S-K 308]
4310.1 S-K 308(a) requires management to provide its report on ICFR containing its assessment of the effectiveness of ICFR as of the end of the most recent fiscal year in its annual report on Form 10-K, 20-F, or 40-F (including transition reports filed on such forms upon a change in fiscal year-end). If the registrant is a non-EGC accelerated filer or a large accelerated filer, S-K 308(b) requires management to provide the registered public accounting firm’s attestation report on the registrant’s ICFR. Filings without the required report or reports are deficient and considered not timely, except for the limited situation described in Section 4310.6 below. Non-accelerated filers (both domestic and foreign) and EGCs (both domestic and foreign) are not required to include an auditor attestation report under S-K 308(b).
NOTE: Management’s report on ICFR and the accompanying attestation report are not required in registration statements (whether under the 1933 Act or 1934 Act) or Forms 11-K. (Last updated: 6/30/2013)
4310.2 A non-EGC that enters accelerated filer status at the end of a fiscal year (based upon its public float as of the end of its second fiscal quarter) is required to include an auditor attestation report in the Form 10-K for that year. Similarly, a company that exits accelerated filer status at the end of its fiscal year (based upon its public float as of the end of its second fiscal quarter) would not be required to include an auditor attestation report in the Form 10-K for that year. (Last updated: 6/30/2013)
4310.3 The staff’s Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, Frequently Asked Questions (“ICFR FAQs”) is available at
4310.6 Pursuant to S-K 308, a newly public company need not provide management’s report on ICFR until it either had been required to file or had filed a Form 10-K with the Commission for the prior fiscal year. A company that historically reported under the Exchange Act as a voluntary filer or because of registered debt, and therefore filed annual reports up to and through the date of its IPO, in which it was required to comply with the disclosures required by Item 308(a) of Regulation S-K, is therefore required to provide management’s report on ICFR in its first annual report following the IPO.
Only “accelerated filers” that are not EGCs and “large accelerated filers” are required to provide an auditor’s attestation report on ICFR under Item 308(b) of Regulation S-K. The definitions of “accelerated filer” and “large accelerated filer” require that the issuer has been subject to reporting under Section 13(a) or 15(d) and has filed at least one annual report. Newly public companies and companies that historically reported under the Exchange Act as voluntary filers or because of registered debt do not satisfy the definitions of “accelerated filer” or “large accelerated filer” for purposes of their first annual report following their IPO, and therefore are not required to include an auditor’s attestation report on ICFR under S-K 308(b) in that first annual report.
A registrant should include a statement in its first annual report in substantially the following form:
"This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies." [Instruction 1 to S-K 308] (Last updated: 6/30/2013)
4310.7 The framework on which management bases its evaluation of ICFR must be a suitable, recognized control framework. Many companies follow the COSO framework, but other frameworks are also acceptable. In assessing effectiveness, management evaluates whether its ICFR system addresses the elements of internal control that its chosen framework describes as necessary for an internal control system to be effective. There are no specifically required methods or procedures for evaluating ICFR, so it will vary from company to company. Management will have to use its best judgment. The evaluation must be based on procedures sufficient to evaluate both the design and operating effectiveness of ICFR. In June 2007, the SEC issued interpretative guidance regarding management’s report on ICFR. [Release No. 33-8810] An evaluation following this interpretative guidance is one way to satisfy the evaluation requirements of ICFR.
Under any method of evaluating ICFR, management must attain a level of "reasonable assurance" when making conclusions about the effectiveness of ICFR. While “reasonable assurance” is a high level of assurance, it does not mean absolute assurance. The term “reasonable assurance” relates to similar language in the Foreign Corrupt Practices Act. 1934 Act Section 13(b)(7) defines “reasonable assurance” as the degree of assurance that would satisfy prudent officials in the conduct of their own affairs. There is a range of judgments that an issuer might make as to what is reasonable in implementing SOX 404 and the SEC’s rules.
4310.8 S-K 308 does not specify the exact content of management’s annual report on ICFR. Management should tailor the wording of the report to fit its company’s particular circumstances. However, management’s annual report on ICFR must state or disclose the following:
Management’s responsibility for establishing and maintaining adequate ICFR for the company.
The framework used by management as criteria for evaluating the effectiveness of ICFR.
Management’s assessment of the effectiveness of the company’s ICFR at year end, including a statement as to whether or not ICFR is effective.
Any material weaknesses in the company’s ICFR identified by management (See Section 4320.8 for definition of material weakness).
The fact that the company’s independent public accountant, who audited the financial statements included in the annual report, has issued an attestation report on the company’s ICFR (if applicable).
4310.9 Management must reach one of two conclusions for its assessment of ICFR – ICFR is either effective or not effective. Management cannot conclude that its ICFR is effective if there are one or more material weaknesses. Additionally, management cannot qualify its conclusion by stating that its ICFR is effective with certain qualifications or exceptions. However, management may state that its controls are ineffective for specific reasons. Because of the substantial overlap between ICFR and DCP, if management concludes that ICFR is ineffective, it must also consider the impact of the material weakness on its conclusions related to DCP. (Last updated: 9/30/2010)
4310.10 In certain circumstances, management may encounter difficulty in assessing certain aspects of ICFR. Management must still conclude whether ICFR is effective or not since management is not permitted to issue a report with a scope limitation (except under the limited circumstances described in Section 4310.11). Therefore, management must determine whether an inability to assess certain aspects of ICFR is significant enough to conclude that ICFR is not effective.
4310.11 If management does not have the ability to assess
certain aspects of ICFR, management must conclude whether ICFR is effective
or not, taking into consideration any scope limitation. Scope limitations
are not permitted in management’s report, except for the following
limited exceptions (see 4310.3 for link to FAQs referenced):
A variable interest entity in existence prior to
December 15, 2003 that is consolidated AND the registrant does
not have the right or authority to assess the internal controls
of the consolidated variable-interest entity and also lacks the
ability, in practice, to make that assessment. A similar
exception is available for an entity accounted for via
proportionate consolidation in accordance with ASC
810-10-45-14 if management does not have the
ability to assess ICFR. [ICFR FAQ 1]
Equity method investments. [ICFR FAQ 2]
A current year acquisition (includes initial
consolidation resulting from becoming the primary beneficiary of
a variable interest entity) when it is not possible to conduct
an assessment of the acquired business’s ICFR in the period
between the consummation date and the date of management’s
assessment. The exclusion may not extend beyond one year from
the date of the acquisition nor may it be omitted from more than
one annual management report on ICFR. [ICFR FAQ 3] (Last
A reverse acquisition between an issuer and a
private operating company when it is not possible to conduct an
assessment of the private operating company or accounting
acquirer’s ICFR in the period between the consummation date of a
reverse acquisition and the date of management’s assessment of
ICFR. See the Division of Corporation Finance’s C&DIs for
Regulation S-K, Question 215.02.
For foreign private issuers who file their financial statements in their home country GAAP, management's evaluation of ICFR should consider, in addition to controls related to preparation of the primary financial statements, controls related to the preparation of the U.S. GAAP reconciliation because the reconciliation is a required element of the financial statements. [ICFR FAQ 12]
(Last updated: 9/30/2010)
4310.12 Management should consider disclosing the following with respect to a material weakness:
Describe the nature of the material weakness;
Describe its impact on the financial reporting and ICFR, if any; and
Describe management’s current plans or action already undertaken, if any, for remediating the material weakness.
4310.13 Management must communicate all significant deficiencies and material weaknesses it detects to the audit committee and external auditor. The SOX 302 certifications include an affirmative statement to this effect. Management must also provide written representations to the auditor regarding its internal controls.
4310.14 S-K 308 does not specify where management’s internal control report must appear in the annual report on Form 10-K, but it should be located in close proximity to the corresponding attestation report issued by the company’s auditor. [Release No. 33-8238] Management’s report is not required to have a title. Management’s report does not need to be dated or signed, but may include the date and/or the names or signatures of management.
4310.15 Our rules do not address whether the assessment of
ICFR covers supplementary financial information, Regulation S-X schedules,
932 oil and gas disclosures. Internal controls over
supplementary information do not need to be included in an assessment of
ICFR, although adequate internal controls over the preparation of
supplementary information are required. [ICFR FAQ 11]
4310.16 There is no requirement for a company to reevaluate the effectiveness of its internal controls and/or reissue a revised management’s report on ICFR when a company restates its financial statements to correct errors in the financial statements. However, a company may need to consider whether or not its original disclosures in management’s report continue to be appropriate in light of these errors, and should modify or supplement its original disclosure to include any other material information that is necessary for such disclosures not to be misleading in light of the restatement. The company should also disclose any material changes to ICFR, as required by S-K 308(c).
4310.17 If a company’s management concludes that its original assessment of ICFR was incorrect, it should consider whether or not to revise its original report on ICFR. A company should also reevaluate the appropriateness of its prior disclosures regarding the effectiveness of the company’s DCP and make any necessary revisions. For example, a company disclosed that its Chief Financial Officer and Chief Executive Officer concluded its DCP were effective in its original Form 10-K. Subsequently, the company filed a Form 10-K/A to restate its financial statements for errors. In the Form 10-K/A, the company revised its disclosures to state that the Chief Financial Officer and Chief Executive Officer concluded its DCP were not effective, and the reasons why they were not effective.
>4320 Auditor’s Report on ICFR [AS 2201, S-X 2-02(f)]
4320.1 AS 2201 requires an auditor to perform an
audit of a company’s ICFR that is integrated with an audit of the financial
statements. A report on the audit of ICFR, which may be combined with or
separate from the report on the financial statements, must include the
A title that includes the word
A statement that management is responsible for
maintaining effective internal control over financial reporting
and for assessing the effectiveness of internal control over
An identification of management’s report on
A statement that the auditor’s responsibility is
to express an opinion on the company’s internal control over
financial reporting based on his or her audit;
A definition of internal control over financial
reporting as stated in AS 2201, paragraph A5;
A statement that the audit was conducted in
accordance with the standards of the Public Company Accounting
Oversight Board (United States);
A statement that the standards of the Public
Company Accounting Oversight Board require that the auditor plan
and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was
maintained in all material respects;
A statement that an audit includes obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal
controls based on the assessed risk and performing such other
procedures as the auditor considered necessary in the
A statement that the auditor believes the audit
provides a reasonable basis for his or her opinion;
A paragraph stating that, because of inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements and that projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate;
The auditor’s opinion on whether the company
maintained, in all material respects, effective internal control
over financial reporting as of the specified date, based on the
The manual or printed signature of the auditor’s
The city and state (or city and country, in the
case of non-U.S. auditors) from which the auditor’s report has
been issued; and
The date of the audit report.
4320.2 In addition, S-X 2-02(f) requires the audit report on ICFR to identify the period covered by the report.
4320.3 If the audit report on ICFR is separate from the audit report on the financial statements, both reports must be dated the same. See paragraphs 87-88 of AS 5 for sample Illustrative Reports on Internal Control Over Financial Reporting.
4320.4 AS 2201 requires the auditor to modify its report
on ICFR if any one of the following five conditions exists:
Elements of management’s annual report on
internal control are incomplete or improperly presented;
There is a restriction on the scope of the
The auditor decides to refer to the report of
other auditors as the basis, in part, for the auditor’s own
There is other information contained in
management’s annual report on internal control over financial
Management’s annual certification pursuant to SOX
302 is misstated. [AS 2201, paragraphs C1-C15]
The report modification may be in one of the following forms, depending on the condition:
an explanatory paragraph;
an adverse opinion; or
a disclaimer of opinion.
4320.5 The auditor’s report on ICFR should clearly state whether or not it is the auditor’s opinion that a company maintained, in all material respects, effective ICFR at year end. It is not appropriate for the report to state that ICFR is effective with certain qualifications or exceptions. For example, language indicating that the company maintained effective ICFR, except for a certain weakness in a control, is not acceptable. Language indicating that the company maintained ICFR that are “sufficiently effective” or “adequate” is also not appropriate.
4320.6 The auditor must express an adverse opinion on the company’s ICFR when one or more material weaknesses in ICFR exist, unless there is a restriction on the scope of the engagement. See Section 4320.12. An adverse opinion on ICFR must include:
The definition of a material weakness; and
A statement that a material weakness has been identified and an identification of the material weakness described in management’s assessment.
4320.7 The auditor should determine the effect an adverse
opinion on ICFR has on the auditor’s opinion on the financial statements.
Also, the auditor should disclose whether or not the adverse opinion on ICFR
affected its audit opinion on the financial statements. [AS 2201, paragraph
4320.8 A material weakness is a deficiency, or combination
of deficiencies, in ICFR such that there is a reasonable possibility that a
material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis. [S-X
1-02(a)(4); AS 2201, paragraph A7]
4320.9 A deficiency or combination of deficiencies is an
indicator of a material weakness if the auditor determines that the
deficiency or combination of deficiencies might prevent prudent officials in
the conduct of their own affairs from concluding that they have reasonable
assurance that transactions are recorded as necessary to permit the
preparation of the financial statements in conformity with GAAP. [AS 2201,
4320.10 AS 2201 lists four indicators of a material
weakness in ICFR, which are:
Identification of fraud, whether or not material,
on the part of senior management;
Restatement of previously issued financial
statements to reflect the correction of a material misstatement;
Identification by the auditor of a material
misstatement of financial statements in the current period in
circumstances that indicate that the misstatement would not have
been detected by the company’s internal control over financial
Ineffective oversight of the company’s external
financial reporting and internal control over financial
reporting by the company’s audit committee. [AS 2201, paragraph
4320.11 If the material weakness was not included in
management’s assessment, the auditor’s report on ICFR should be modified to
state that a material weakness has been identified but not included in
management’s assessment. Also, the auditor’s report should include a
description of the material weakness, which should provide the users of the
audit report with specific information about the nature of the material
weakness and its actual and potential effect on the presentation of the
company’s financial statements issued during the existence of the weakness.
If the material weakness was included in management’s assessment but the
auditor concludes that management’s disclosure of the material weakness is
not fairly presented in all material respects, the auditor’s report should
describe this conclusion as well as the information necessary to fairly
describe the material weakness. [AS 2201, paragraph 91]
4320.12 Any report modification due to a scope limitation would result in a disclaimer of opinion on the audit of ICFR. Reports that result in a disclaimer of opinion are expected to be rare. [S-X 2-02(f)] Reports on audits of ICFR that disclaim an opinion due to a scope limitation should be discussed with CF-OCA in advance of filing. (Last updated: 9/30/2011)
4320.13 When disclaiming an opinion due to a scope
limitation, the auditor must state that the scope of the audit was not
sufficient to warrant the expression of an opinion. Also, the auditor’s
report on ICFR should provide the substantive reasons for the disclaimer in
a separate paragraph. [AS 2201, paragraph C4]
4320.14 When the auditor plans to disclaim an opinion on
the audit of ICFR due to a scope limitation and the limited procedures
performed by the auditor cause the auditor to conclude that a material
weakness existed, the auditor’s report on ICFR should include the definition
of a material weakness and a description of any material weakness
identified, as described in 4320.6. [AS 2201, paragraph C5]
4320.15 If management discloses additional information in
the report (e.g., its plans to implement new controls, corrective actions
taken after the date of assessment, or a statement that management believes
the cost of correcting a material weakness would exceed the benefits to be
derived from implementing new controls), the auditor is required to modify
its report regarding any additional information and disclaim an opinion on
this information. [AS 2201, paragraphs C1 and C12-14]
4320.16 The auditor should inquire about and examine
relevant documents for events which occurred subsequent to the date as of
which ICFR is being audited but before the date of the auditor’s report.
Such subsequent events could include changes in internal controls or other
factors. If the auditor obtains knowledge about subsequent events that
materially and adversely affect the effectiveness of the company’s ICFR as
of the date specified in the assessment, the auditor should issue an adverse
opinion on ICFR. If the auditor is unable to determine the effect of the
subsequent event on the effectiveness of ICFR, the auditor should disclaim
an opinion. [AS 2201, paragraphs 93-96]
4320.17 The auditor may obtain knowledge about subsequent
events with respect to conditions that did not exist at the date specified
in the assessment but arose subsequent to that date and before issuance of
the auditor’s report. If a subsequent event of this type has a material
effect on the company’s ICFR, the auditor should include an explanatory
paragraph in its report on ICFR describing the event and its effects or
directing the reader to the event and its effects as disclosed in
management’s report on ICFR. [AS 2201, paragraph 97]
4320.18 An audit report on ICFR may be based, in part, on
the work of another auditor when another auditor has audited the financial
statements and ICFR of a subsidiary, division, branch or component of
a company. The principal auditor should determine whether or not it will
make reference in its report on ICFR to the audit of ICFR performed by
another auditor. The auditor’s decision to make reference or not is based on
factors analogous to those in AU 1205 when a principal auditor decides to
make reference to the report of another auditor when reporting on a
company’s financial statements. As a result, the decision to make reference
to another auditor’s report on ICFR may differ from the decision to make
reference to another auditor in the principal auditor’s report on the
financial statements. When the auditor decides to make reference to the
report of the other auditor in its report on ICFR, the principal auditor’s
report on ICFR should refer to the report of the other auditor when
describing the scope of the audit and expressing an opinion on ICFR. [AS
2201, paragraphs C8-C11]
4320.19 If the auditor makes reference to another auditor’s report on ICFR, the separate report of the other auditor on ICFR must also be included in the filing. [S-X 2-05]
4320.20 AS 6115 establishes requirements and provides
guidance that apply when an auditor is engaged to report on whether a
previously reported material weakness in internal control over financial
reporting continues to exist as of a date specified by management.
4320.21 The auditor’s objective in an engagement to report on whether a previously reported material weakness continues to exist is to obtain reasonable assurance about whether the previously reported material weakness exists as of a date specified by management and to express an opinion thereon. The auditor’s opinion relates to the existence of a specifically identified material weakness as of a specified date and does not relate to the effectiveness of the company’s ICFR overall.
4400 Review and Compilation Reports
(Last updated: 6/30/2009)
>4410 Review Reports on Interim or Pro Forma Data [AS 4105, AT Section
4410.1 Prior to filing, interim financial statements included in quarterly or transition reports on Form 10-Q must be reviewed by an independent registered public accountant using PCAOB standards and procedures for conducting such reviews, as may be modified or supplemented by the SEC. If the company states in any filing that interim financial statements have been reviewed by an independent public accountant, a report of the accountant on the review must be filed with the interim financial statements. [S-X 10-01(d)] Otherwise, the report is not required to be included in Form 10-Q.
4410.2 If a Form 10-Q that contains a review report on pro forma data or interim financial statements is incorporated by reference into a registration statement, the auditor must acknowledge use of its review report in a letter filed as Exhibit 15 to the registration statement. [S-K 601]
4410.3 If the review was not performed by a registered public accounting firm, the Form 10-Q is considered substantially deficient and not timely filed. In addition, the Form 10-Q must include the following disclosures:
Identify the report as deficient;
Label the columns of the financial statements as “not reviewed”; and
Describe how the registrant will remedy the deficiency.
When the review is completed by a registered accounting firm, the registrant must file an amendment to remove the references to the deficiency and the financial statements as “not reviewed.”
>4420 Selected Quarterly Financial Data [AS 4105]
4420.1 Selected quarterly financial data is required for all registrants except foreign private issuers, mutual life insurance companies, and smaller reporting companies, and in initial registration statements. If it is required to be presented, it must be reviewed by the independent registered accountant. [S-K 302]
4420.2 No reference in the audit report to the quarterly data accompanying the annual financial statements is necessary if the auditor’s review conformed with applicable standards and the auditor is not aware that the interim information is materially affected by a departure from GAAP. Otherwise, the auditor must discuss the departures that exist.
>4430 Compilation Reports
Compilation reports are not appropriate in any filings, including Regulation A filings, because the association of the accountant provides no basis for reliance. In addition, the presence of a compilation report may indicate a violation of SEC independence standards under S-X 2-01(c)(4)(i)(B).
4500 Change in Accountants [S-K 304, ITEM 4.01 FORM 8-K]
(Last updated: 6/30/2009)
>4510 Change in Accountants
4510.1 If a change in accountant for a registrant or a significant subsidiary on whose report the principal accountant relied occurred within 24 months prior to or in any period subsequent to the date of the most recent financial statements, the registrant should provide the required information in:
An Item 4.01 Form 8-K within 4 business days of the change;
Proxy statements, even though previously disclosed in Form 8-K, if required by Item 9 of Schedule 14A; and
Forms 10-K and 20-F, and registration statements, unless the change was previously disclosed.
NOTE: The disclosures about disagreements required by S-K 304(b) must
always be provided, where required, even if previously disclosed. [Instruction 1
to S-K 304; Instruction 2 to Item 16F of Form 20-F for registrants with fiscal
years ending on or after December 15, 2009]
4510.2 Disclosure of the following items should be provided:
Whether the accountant resigned, declined to stand for reelection or was discharged (one of these must be specifically stated in the filing);
The date of resignation or discharge;
Whether the decision was recommended or approved by the Board of Directors or a committee thereof;
Whether the accountant had issued a report in the last two fiscal years containing a disclaimer or adverse opinion, or that was qualified or modified. A modified opinion includes an opinion that expresses substantial doubt about a company’s ability to continue as a going concern;
Whether in connection with audits of the two most recent years through the date of resignation or discharge there were any disagreements with the former accountant on any matter which, if not resolved to the satisfaction of the accountant, would have caused the accountant to make reference in its report to the matter. Among other items specified in S-K 304(a)(1)(iv), the filing should describe the subject matter of any such disagreement. Disagreements required to be reported include both those resolved to the satisfaction of the accountant and those not resolved to the satisfaction of the accountant.
If there were any reportable events described under S-K 304(a)(1)(v) during the two most recent years and any interim period preceding the former accountant’s resignation or discharge, provide the disclosures required by S-K 304(a)(1)(iv). If the event led to a disagreement, then it should be reported as described under Section 4510.2(e) and need not be repeated.
4510.3 If the registrant amends the Item 4.01 Form 8-K disclosures for any reason, it must also file an updated letter from the auditor addressing the revised disclosures as Exhibit 16.
>4520 Unusual Issues Involving Changes in Accountants
4520.2 Predecessor Auditor Refuses to Furnish Exhibit 16 Letter
If the predecessor auditor refuses to furnish an Exhibit 16 letter stating whether it agrees with the registrant’s statements, the registrant should indicate that fact in the Item 4.01 Form 8-K or by amendment to the original Form 8-K. See the Division of Corporation Finance’s C&DIs for Exchange Act Form 8-K, Question 214.01.
4520.3 Reverse Acquisition
Unless the same accountant reported on the most recent financial statements of both the registrant and the accounting acquirer, a reverse acquisition always results in a change in accountants. An Item 4.01 Form 8-K should be filed within four business days of the change in accountants, which often occurs on the date the reverse merger is consummated. The accountant that will no longer be associated with the registrant’s financial statements is the predecessor accountant. If a decision has not been made as to which accountant will continue as the successor auditor as of the date of filing the Item 2.01 Form 8-K, an Item 4.01 Form 8-K must be filed within four business days of the date the decision is made.
The disclosures required by S-K 304 with respect to any changes in the accounting acquirer’s auditor which occurred within 24 months prior to, or in any period subsequent to, the date of the acquirer’s financial statements must be provided in the filing. See Section 12230.
4520.4 Form 11-K Plans
Staff practice is not to object if a change in accountants for an employee stock purchase plan or similar plan filing a Form 11-K does not result in the filing of an Item 4.01 Form 8-K.
>4530 Additional Guidance
(Last updated: 12/31/2010)
4530.1 Guidance regarding changes in accountants can be found in the Division of Corporation Finance’s Compliance and Disclosure Interpretations. Questions are grouped into the following categories and sections:
Regulation S-K, Sections 111 and 211 - Item 304 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Subsequent interim period
No reportable events
Remediation of internal control deficiencies
Material weakness or significant deficiency in ICFR
Explanatory paragraph in report on ICFR
Revocation of accountant’s PCAOB registration
Time period preceding resignation, declination or dismissal
Exchange Act Form 8-K, Section 114 and 214 -Item 4.01 Changes in Registrant’s Certifying Accountant
Revocation of accountant’s PCAOB registration
New principal accountant related to former principal accountant
Business combination between principal accountant and another accounting firm
Former accountant declines to provide agreement letter
Requirement to use Form 8-K
4600 Non-Reliance on Previously Issued
Financial Statements or Related Audit Report or Completed Interim Review [Item 4.02 Form 8-K]
(Last updated: 6/30/2009)
>4610 Non-Reliance on Previously Issued Financial Statements [Item 4.02(a) Form 8-K]
4610.1 An Item 4.02(a) Form 8-K should be filed when a registrant’s board of directors, committee of the board, or board authorized officer(s) concludes any previously issued financial statements should no longer be relied upon due to an accounting error.
4610.3 The staff believes that filing an Item 4.02(a) Form 8-K without also filing an Item 4.02(b) Form 8-K would be acceptable unless the auditor’s conclusion that the financial statements can no longer be relied on relates to a different error or matter from that which triggered the registrant’s filing under Item 4.02(a) Form 8-K. See the Division of Corporation Finance’s C&DIs for Exchange Act Form 8-K, Question 115.01.
4610.4 The Form 8-K should disclose:
The date that the registrant concluded the financial statements should no longer be relied upon and identify the financial statements and years or periods covered that should no longer be relied upon;
A description of the facts underlying the conclusion to the extent known to the registrant at the time of filing; and
Whether the audit committee, or the board of directors in the absence of an audit committee, or authorized officer(s), discussed the disclosed matters with the registrant’s independent accountant.
>4620 Non-Reliance on Previously Issued Audit Report or Completed Interim Review [Item 4.02(b) Form 8-K]
4620.1 An Item 4.02(b) Form 8-K should be filed if the registrant’s current or former independent accountant advises or notifies it must disclose or take action to prevent future reliance on a previously issued audit report or completed interim review related to previously issued financial statements.
4620.2 The filing of an Item 4.02(b) Form 8-K may, but does not necessarily, result in non-reliance on previously issued financial statements, and require the filing of an Item 4.02(a) Form 8-K. It would depend upon the underlying reasons that the accountant advised a registrant that its audit report or completed interim review should no longer be relied on.
4620.4 The Form 8-K should disclose:
The date on which the accountant advised or notified the registrant;
The specific financial statements that should no longer be relied upon;
A brief description of the information provided by the accountant; and
A statement of whether the audit committee, or the board of directors in the absence of an audit committee, or authorized officer or officers, discussed the matters disclosed in the filing under Item 4.02(b) of Form 8-K with the accountant.
4620.5 The Form 8-K should include any written notice received from the accountant as Exhibit 7.
4620.6 A registrant should provide the accountant with a copy of the disclosures the registrant is making in response to the Item 4.02(b) Form 8-K no later than the day that the disclosures are filed with the SEC.
4620.7 A registrant should request the accountant furnish the registrant as promptly as possible a letter addressed to the SEC stating whether the independent accountant agrees with the statements made by the registrant in response to the Item 4.02(b) Form 8-K and, if not, stating with what it does not agree. If the letter is not available on the date the 8-K is filed, a company should amend its previously filed Form 8-K to file the independent accountant’s letter as Exhibit 7 no later than two business days after the registrant’s receipt of the letter.
>4630 Other — Prior Disclosures Regarding Disclosure Controls and Procedures
A registrant should consider whether the disclosures provided under S-K 307 in prior filings need to be modified, supplemented or corrected in order to explain whether management’s previously discussed conclusions regarding the effectiveness of DCP continue to be appropriate in light of the restated financial statements or non-reliance on a previously issued audit report or completed interim review. [Release No. 33-8810]
4700 “To Be Issued” Accountant's Reports
(Last updated: 6/30/2009)
4710 Contingent Upon Future Event or Transaction
(Last updated: 10/30/2020)
If audited financial statements are required in a filing, the audit report should
be signed and unrestricted. Generally, the staff will not make a review
determination on or commence a review of a filing that does not meet that
requirement. In some circumstances, however, a transaction that will occur at or
immediately before the effectiveness of a registration statement is
retrospectively reflected in the annual financial statements. If the transaction
prevents the auditor from expressing an opinion on the financial statements at
the time of filing, the staff has accepted the filing of a “draft report” in the
form that it will be expressed at effectiveness. Such transactions may include,
but are not limited to:
stock splits; and
reorganizations in which the entities comprising an IPO registrant will
not be legally transferred to the registrant until immediately before
Another transaction where the staff has accepted the filing of a “draft report”
in the form that it will be expressed at effectiveness is if there is a
component that qualifies as a discontinued operation before an initial
registration statement is filed but after the date of the latest balance sheet
included in the initial filing. A “to-be-issued” report in this circumstance may
be included when:
The disposal of the discontinued operation has occurred;
The audit of the financial statements, including the retrospective
revision, is complete; and
The registrant has consulted with CF to confirm that the use of the
“to-be-issued” audit report is appropriate.
In these cases, the draft report should be accompanied by a signed preface of the
auditor stating that it expects to be in a position to issue the report in the
form presented at effectiveness. No registration statement can be declared
effective until the preface is removed and the accountant’s report
>4720 Contingent Upon Future Underwriting Agreement
(Last updated: 6/30/2010)
An auditor may conclude that it is appropriate to include an explanatory paragraph about the registrant’s ability to continue as a going concern in the auditor’s report. The auditor may believe that upon the receipt of the proceeds from the offering that the explanatory paragraph could be removed. As the receipt of the proceeds occurs upon closing — not at effectiveness — the auditor’s report should include the explanatory paragraph that the auditor believed was appropriate at the time of effectiveness. It would not be appropriate for the report to indicate that the explanatory paragraph would be removed at closing as that event takes place after effectiveness.
4800 Other Matters
(Last updated: 6/30/2009)
4810 Consents to the Use of Audit Reports
4810.1 Registrants must file a copy of the auditor’s consent to the use of its audit report or an acknowledgement letter regarding the use of its review report in any filing under the 1933 Act as an exhibit. The primary purpose of obtaining a consent or acknowledgement letter is to assure that the auditor is aware of the use of its report and the context in which it is used.
4810.2 The consent or acknowledgement letter must indicate the date and a conformed EDGAR signature. A manually signed consent or acknowledgement letter must be kept on file by the registrant.
4810.3 A new consent or acknowledgement letter is required:
Whenever any change, other than typographical, is made to the financial statements;
For an amendment if there have been intervening events since the prior filing that are material to the company; and
Prior to the effectiveness of a registration statement if an extended period of time passes since the last filing. An extended time is generally any period which is more than 30 days.
(Last updated: 12/31/2010)
4810.4 1934 Act Reports
Filing of a consent to the use of an audit report (or acknowledgment letter) is not required in 1934 Act reports, other than an annual report on Form 40-F, unless the 1934 Act report is automatically incorporated by reference into a previously filed 1933 Act filing, such as a Form S-3 or Form S-8. In addition, a consent is required in a registration statement on Form 20-F [Item 10.G of 20-F] and in registration statements and annual reports on Form 40-F.
(Last updated: 12/31/2010)
Periodic reports on Forms 10-K and 20-F, and 1934 Act registration statements on Form 10 or Form 20-F must include a signed audit report. The signature must be a conformed EDGAR signature. [S-T 302] The original manually signed report must be kept on file by the registrant.
Definitive proxy statements that include financial statements must have a manually signed audit report.
A reissuance of the auditor’s report is required when a previously filed 1934 Act filing is amended to include restated financial statements or retrospectively adjusted financial statements.
A registrant need not file an updated consent on the annual financial statements when the registrant forward incorporates a Form 10-Q into a pre-effective Form S-3. However, the auditor’s Section 11 liability extends through the effective date of the registration statement regardless of the inclusion of the updated consent.
(Last updated: 9/30/2009)
4810.5 Waivers [Regulation C, Rule 437]
In rare circumstances, such as situations involving hostile takeover
attempts, a consent may be waived if the registrant submits a
request to CF-OCA for a waiver and provides an affidavit
complying with Rule 437 of Regulation C.
A registrant offering its own securities in a hostile exchange offer for a target’s stock may seek and not be able to obtain the target’s cooperation in providing either its audited financial statements or the target auditor’s consent to the use of its report in the required registration statement. The acquirer/registrant should use its best efforts to obtain the target’s permission and cooperation for the filing or incorporation by reference of the target’s financial statements and the target auditor’s consent to the inclusion of its report on the financial statements. At a minimum, a registrant is expected to write to the target requesting these items and to allow a reasonable amount of time for a response prior to effectiveness of the filing.
If a registrant uses its best efforts but is unsuccessful in obtaining the target’s permission and cooperation for the filing or incorporation by reference of its financial statements and its auditor’s consent to the inclusion of its report on the financial statements, the registrant may request a waiver of the consent. The affidavit included in the request should document the specific actions taken by the registrant to obtain the cooperation of the other party for the filing as well as the efforts to obtain the auditor’s consent. Correspondence evidencing the registrant’s request for these items should accompany the affidavit.
Depending on the facts and circumstances, the staff may agree to waive the requirement to include or incorporate by reference the target auditor’s audit report in the event the target is unwilling to cooperate. In that situation, disclosure should be made that, although an audit report was issued on the target’s financial statements and is included in the target’s filings, the auditor has not permitted use of its report in the registrant’s registration statement. The auditor should not be named. Any legal or practical implication for shareholders of the registrant and the target resulting from the inability to obtain the cooperation of the target or consent of the target’s auditor should be explained. No disclosure in the registration statement should expressly or implicitly disclaim the registrant’s liability for the target’s financial statements. In the event that circumstances change, the registration statement should be amended to include the audited financial statements and the auditor’s consent required by the form.
4810.6 The consent of the independent accountant is not required for a report on financial statements which is not a part of a 1933 Act registration statement under Rule 412(c) of Regulation C, like superseded financial statements.
4820.1 When an accounting firm ceases operations, it may be unable to reissue a prior report or give consent to the use of a prior report. A company should submit a consent waiver request under Regulation C, Rule 437 with CF-OCA if the auditor does not reissue or give consent to the use of its prior report. The guidance in Section 4810.5 regarding consent waiver requests should be followed. If the firm still exists, although it is not practicing public accounting, and has the ability to reissue or give consent to the use its prior report, a waiver may not be granted.
NOTE: The footnote to Interpretation 15 of AI 23 states a
firm is considered to have ceased operations when it
no longer issues audit opinions either in its own
name or in the name of a successor firm. A firm may
cease operations with respect to public entities and
still issue audit opinions with respect to
4820.2 If the waiver request is granted, certain
disclosures should be made in any filings or reports that include the ceased
firm’s audit report. The predecessor auditor’s latest signed and dated
report on the financial statements should be reprinted with a legend
indicating that the report is a copy of the previously issued report and
that the ceased firm has not reissued the report. [AI 23.65]
>4830 Successor Auditor Reports [AI 23]
4830.1 If the prior period financial statements audited by
the predecessor auditor are unchanged, the successor auditor should indicate
in the introductory paragraph of his or her report that the financial
statements of the prior period were audited by another auditor, the date of
the predecessor auditor’s report, the type of report issued by the
predecessor auditor, and if the report was other than a standard report, the
substantive reasons for it. The successor auditor ordinarily should indicate
in its report that the other auditor has ceased operations. The successor
auditor should not name the predecessor auditor in the report. [AI 23.61]
4830.2 If the financial statements audited by the ceased
firm are restated, the successor auditor will need to either reaudit the
financial statements, or in certain cases, audit only the restatement
adjustments. The successor’s auditor’s report should state that the
predecessor auditor reported on the prior financial statements before
restatement. [AI 23.66]
4830.3 A full reaudit generally is necessary when the restatement adjustments include, but are not limited to:
Corrections of an error;
Reflection of a change in reporting entity;
Retrospective application of change in accounting principle:
with significant impact on previously reported amounts, or
that affect previously reported net income or net assets;
Reporting discontinued operations; and
Changes affecting previously reported net income or net assets. [AI 23.70]
4830.4 If the successor auditor is engaged to audit only the restatement adjustments to the prior period financial statements that were audited by a predecessor auditor, the successor auditor must be able to form an opinion that the adjustments are appropriate and have been properly applied. In determining whether he or she can form such an opinion, the successor auditor should consider the extent of the adjustments, the reason for the adjustments, and the cooperation of the predecessor auditor. [PCAOB Staff Questions and Answers, “Adjustments to Prior-Period Financial Statements Audited by a Predecessor Auditor”, Question 4]
4830.5 If the successor auditor is able to satisfy him or
herself as to the appropriateness of the restatement adjustments, he or she
may report on the restatement adjustments pursuant to the guidance in AS
3105.58. [AI 23.71]
4830.6 A successor auditor may audit the restatement adjustments in prior period financial statements audited by a predecessor auditor that has not ceased operations, so long as the auditor is independent and registered with the PCAOB.
4830.7 An auditor that is subsequently determined to be no
longer independent of its client may reissue previously issued reports and
consents to the use of those previously issued reports, as long as it was
independent at the time of original issuance of the report. An auditor may
perform the normal subsequent events procedures required by AS 4101 prior to
reissuing a report. Situations in which other audit work would be necessary
to reissue the report should be discussed with OCA prior to filing.
>4840 Accountant’s Refusal to Reissue Reports
4840.1 The staff is not in a position to evaluate the reasons for an accountant’s refusal to reissue its report and will not intervene in disputes between registrants and their auditors. Moreover, the staff will not waive the requirements for the audit report, the accountant’s consent to the use of its audit report, or the naming of the accountant as an expert in filings. If a registrant is unable to reuse the previously issued audit report in a current filing, the registrant must engage another accountant to reaudit those financial statements.
>4850 Illegal Acts
Section 10A of the 1934 Act requires that auditors report in a timely manner
certain uncorrected illegal acts to a registrant's board of directors. It
further requires the registrant, or the auditor if the registrant fails to
do so, to provide information regarding the illegal act to OCA. For
additional information, see Notices required under Section 10A-1 of
Exchange Act. (Last updated: 10/30/2020)
Wherever a signature is required, typed signatures or duplicated or facsimile versions of the manually signed document may be used. In any of these cases, each signatory must manually sign the document authenticating, acknowledging or otherwise adopting the signature that appears in the filing before or at the time that the filing is made, and the manually signed document must be retained by the filer for five years. A copy of this document must be furnished to the SEC upon request. [S-T 302]
In certain instances, an auditor may reissue its audit report. If the reissued report is included in a filing, it must be manually signed as described above. (Last updated: 12/31/2010)
>4870 Selected Financial Data
4870.1 An auditor may be engaged to report on
selected financial data using the guidance of AS 3315. Unless the auditor
reports on selected financial data using the guidelines in AS 3315, the
information should not be labeled or described as audited. However, it would
be acceptable to state that the information is derived from audited
4870.2 If an auditor was engaged to report on the selected financial data, the form of report specified by AU 552 should be included in the filing and the auditor’s consent to the report should make reference to its applicability to the selected financial data.
describes the staff’s application of PCAOB
registration requirements for an auditor whose
report is included in a filing with the SEC. There
are instances, not included in the table, when a
principal auditor will use the work of another
auditor and take responsibility for the other
auditor’s work. In these instances, the other
auditor’s report is not included in the filing
with the SEC. The determination of whether the
other auditor must be registered with the PCAOB is
made by reference to the Sarbanes-Oxley Act and
the PCAOB’s rules. In all such instances the
principal auditor is responsible for performing
the audit in accordance with PCAOB
The term ‘issuer’ means an issuer (as defined in
Section 3 of the 1934 Act), the securities of
which are registered under Section 12 of that Act,
or that is required to file reports under Section
15(d) of that Act, or that files or has filed a
registration statement that has not yet become
effective under the 1933 Act, and that it has not
withdrawn. See Section 2(a)(7) of the Sarbanes
Oxley Act and PCAOB Rule 1001.
The auditor of the financial
statements of the non-issuer entity must be
registered if, in performing the audit, the
auditor played a “substantial role” in the audit
of the issuer, as that term is defined in PCAOB
Rule 1001(p)(ii). If the “substantial role” test
is not met, the firm is not required to be
registered. The inclusion or exclusion of such a
report under S-X 2-05 does not affect this
S-X 2-02 requires that the auditor’s report state
the applicable professional standards under which
the audit was conducted. Under S-X 1-02 an audit
of the financial statements of an issuer means an
examination by an independent accountant in
accordance with the standards of the PCAOB. In the
situation identified in the chart above, the view
of the SEC staff is that the applicable
professional standards in S-X 2-02, as applied to
the other auditor’s report, relates to an issuer
and, therefore, the other auditor’s report must
refer to the standards of the PCAOB.
If a principal auditor is making reference to
another auditor’s report on the financial
statements of the non-issuer entity, the other
auditor’s report must refer to the standards of
the PCAOB. See footnote 4 above. If a principal
auditor does not make reference to another
auditor’s report on the financial statements of
the non-issuer entity, the other auditor’s report
need not refer to the standards of the