Application of Requirements
|These responses represent the views of the staff of the Division of Corporation Finance and the Division of Investment Management. They are not a rule, regulation, or statement of the Securities and Exchange Commission. Further, the Commission has neither approved nor disapproved this information.|
Since the Commission's adoption of Release No. 33-8070 and Release No. 34-45589, Requirements for Arthur Andersen LLP Auditing Clients, we have received questions regarding the implementation and interpretation of the rules. We encourage these questions and written correspondence, where necessary. Calls should continue to be directed to the Division of Corporation Finance's hotline at (202) 942-2816 or the Division of Investment Management hotline at (202) 942-0590. Letters requesting accommodation or relief should be sent by facsimile to the Division's Office of Chief Accountant at (202) 942-9582 or the Division of Investment Management at (202) 628-9002. Our responses to certain questions received to date are set forth below.
A number of these questions relate to the requirement that an issuer file, as an exhibit to its filing, a letter stating that Andersen has represented to it that the audit was subject to Andersen's quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards. This letter must also state that there was appropriate continuity of Andersen personnel working on audits, availability of national office consultation and availability of personnel at foreign affiliates of Andersen to conduct the relevant portions of the audit. We refer to this letter as an assurances letter. In cases where the issuer does not have to file an assurances letter, we would nonetheless, of course, expect that issuers would satisfy themselves that proper standards and procedures have been followed.
Q: The release requires an issuer, under some circumstances, to file an assurances letter as an exhibit to its filing. Under what circumstances should an issuer obtain the specified assurances from Andersen? When should an issuer obtain these assurances?
A: An issuer that makes a filing that includes an accountants' report from Andersen that was issued to it after March 14, 2002 should obtain the specified assurances from Andersen and file an assurances letter as an exhibit to the filing. In this regard, issued means the earlier of the date the report was given to the issuer or the date Andersen formally approved the inclusion of its report in a filing. The specified assurances from Andersen should be as of the date the accountants' report was issued.
Q: Is an issuer required to provide an assurances letter when Andersen issues a consent under the Securities Act of 1933 if it is not also issuing an accountant's report?
A: No. The release did not contemplate circumstances in which the letter would be necessary when related to the performance of procedures required to issue a consent. The requirement to provide an assurances letter is triggered by the issuance of an audit report after March 14, 2002.
Q: Is an issuer required to file an assurances letter when Andersen completes the review of interim financial statements, performed in accordance with Statement on Auditing Standard 71 (SAS 71), included in a Form 10-Q or 10-QSB for fiscal quarters ending between January 26, 2002 and June 15, 2002?
A: No. There is no requirement that the issuer obtain the specified assurances in connection with a SAS 71 review and file an assurances letter as an exhibit to the Form 10-Q or Form 10-QSB.
Q: If an issuer provides audited financial statements for an entity with a fiscal year end outside the period specified in Temporary Note 1T, and the audit report is issued after March 14th, is it required to file an assurances letter?
A: Yes. For example, an entity with a fiscal year end of September 30th that files its initial public offering with an accountants' report from Andersen issued after March 14th must file an assurances letter as an exhibit to its filing. Issuers who have already filed an assurances letter in a Form 10-K (or in the case of an investment company, in the annual report to shareholders) would not need to re-file it if the financial statements with an accountants' report from Andersen issued after March 14, 2002 are incorporated by reference or are re-printed in another filing. The issuer is required to file only one assurances letter for that accountants' report.
Q: Does an audit committee need to disclose the considerations it gave to the assurances the issuer will receive from Andersen?
A: No. Neither Release 33-8070 nor the indictment of Andersen alters the requirements of Item 306 of Regulation S-K.
Q: Who should sign the assurances letter that is filed by, and on behalf of, the issuer as an exhibit related to the specified assurances received from Andersen?
A: Anyone who has signed the filing, or an authorized officer with responsibility for accounting or financial matters, may sign the letter.
Q: Is an issuer required to obtain the specified assurances from Andersen and file an assurances letter as an exhibit to its filing in a situation where the principal auditor relies on the work of Andersen and makes reference to Andersen in its accountants' report, resulting in the inclusion of Andersen's accountants' report in the filing?
A: Yes. The assurances letter must be provided if the filing includes financial statements that are audited in part by Andersen, and the principal auditor makes reference to Andersen's audit work in its accountants' report, resulting in the inclusion of Andersen's accountants' report in the filing.
Q: Is the relief provided by the Commission in Temporary Note 1T available to issuers filing financial statements that are audited by an auditor who places reliance on the work of Andersen, normally referencing Andersen in its accountants' report, and who is unable to obtain the accountants' report from Andersen to include in the filing?
A: Yes. Relief is available if the filing includes the financial statements that are audited in part by Andersen and on whom the principal auditor makes reference in their accountants' report in the filing.
Q: Is an assurances letter required if the prior year financial statements were audited by Andersen and included in the filing?
A: No. The release did not contemplate circumstances in which the assurances letter would be necessary if Andersen simply performed the procedures required to re-issue an accountants' report.
Q: Is an issuer required to obtain the specified assurances letter from Andersen and file an assurances letter as an exhibit when Andersen issues an accountants' report when financial statements required by Rules 3-05, 3-09 or 3-14 of Regulation S-X or Item 310(c) of Regulation S-B are included in a filing?
A: Yes. Temporary Notes 3T (Regulation S-X) and 2T (Regulation S-B), and General Instruction A-T2 to Form 20-F, require an assurances letter for audited financial statements provided in a filing with an accountants' report issued by Andersen after March 14th. The temporary notes do not differentiate between the various rules in Regulation S-X that require financial statements.
Q: Is the relief provided by the Commission in the release relating SAS 71 reviews for the financial statements filed in a Form 10-Q or 10-QSB only available to an issuer who has not been issued an accountants' report before March 15, 2002?
A: No. The relief applies to issuers for which Andersen has been acting as independent public accountant with fiscal quarters ending between January 26, 2002 and June 15, 2002.
Q: Is the relief provided by the Commission in Temporary Note 1T available to issuers filing financial statements under Rules 3-05, 3-09, or 3-14 of Regulation S-X or Item 310(c) of Regulation S-B for which Andersen had been engaged as the independent public accountant on or after March 14th?
A: The relief is available to an issuer filing financial statements required by Rule 3-09 of Regulation S-X if the fiscal year end of the entity to which the financial statements relate is the same as contemplated in Temporary Note 1T(a)(2)(i). However, an issuer that is required to file financial statements under Rules 3-05 or 3-14 of Regulation S-X or Item 310(c) of Regulation S-B that requires relief or accommodation should follow the procedures outlined in Rule 3-13 of Regulation S-X.
Q: Does the phrase "the examination of which Andersen had been engaged on or after March 14, 2002" in Temporary Note 1T mean that the issuer's agreement to engage Andersen must have begun after March 14th?
A: No. The phrase means that the engagement was ongoing on or after March 14th. It does not mean the engagement initially began on or after March 14th
Q: For foreign private issuers, is the issuance date of the accountants' report the date the report (on the financial statements prepared in accordance with local generally accepted accounting principles ("GAAP")) is issued under local generally accepted auditing standards ("GAAS") or the date the report is issued under U.S. GAAS?
A: The issuance date of the accountants' report is the date the U.S. GAAS accountants' report is issued on financial statements that are in accordance with U.S. GAAP or that include a reconciliation to U.S. GAAP in accordance with Item 17(c) of Form 20-F.
Q: The relief provided by the Commission in the release and the order permit eligible foreign private issuers to include unaudited financial statements with an unaudited reconciliation to U.S. GAAP pursuant to Item 17(c) of Form 20-F. Is a foreign private issuer that is required to, or elects to, file under Item 18 of Form 20-F, rather than Item 17, also required to include all other information required by U.S. GAAP and Regulation S-X as specified in Item 18(b)?
A: Yes. If a foreign private issuer files under Item 18 rather than Item 17 of Form 20-F, the filing that includes unaudited financial statements, pursuant to the relief, should include the information required by both Item 18 (a) and (b).
Q: Does the relief provided by the Commission in the release and the order apply to an issuer filing under the multi-jurisdictional disclosure system ("MJDS")?
A: No. An issuer using the MJDS system will follow the requirements of the law of Canadian jurisdiction.
Q: Does an issuer who retains Andersen as their independent public accountant need to include a risk factor in its filing?
A: We are not suggesting risk factor disclosure on a blanket basis. Each issuer must make its own determination if risk factor or other disclosure beyond the assurances letter it has filed as an exhibit to its filing is appropriate based on its own facts and circumstances.
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