Navigating the Landscape of Auditing Standards Board: Insights into Exempt Offerings

Navigating the Landscape of Auditing Standards Board: Insights into Exempt Offerings

In the dynamic financial landscape, nonpublic entities are exploring diverse avenues to raise funds, ranging from crowdfunding and private placement offerings to franchise offerings, municipal securities, and digital currency issuances. Notably, the offering documents associated with these fundraising activities may not be subject to SEC regulation, falling under exemptions from the Securities Act of 1933. Even public offerings of securities, falling below $5 million within a one-year period (referred to as Regulation A offerings), are considered exempt offerings.

Addressing the nuances of audited financial statements in the context of exempt offerings, the Auditing Standards Board (ASB) recognized the need for clarity regarding an auditor's responsibilities. This includes auditors associated with exempt offerings and may extend to predecessor auditors of former clients. The elucidation of these responsibilities comes through Statement on Auditing Standards (SAS) No. 133, titled "Auditor Involvement with Exempt Offering Documents." While SAS No. 133 does not override existing guidance, it serves to define when an auditor is considered "involved" with an exempt offering and mandates compliance with its provisions.

Key Responsibilities Outlined by SAS No. 133:

  • Reading the Exempt Offering Document:

  • Auditors are tasked with thoroughly reviewing the exempt offering document associated with fundraising activities. This encompasses understanding the intricacies of the document and gaining insights into the financial aspects outlined within.

  • Evaluation of Credibility Impact:

  • The auditor must assess whether any information, either included in the offering document or incorporated by reference, has the potential to undermine the credibility of the financial statements and, consequently, the auditor's report. This step is crucial in maintaining the integrity of the financial information presented.

  • Clarifying Auditor's Role:

  • SAS No. 133 requires auditors to ascertain that their role is not misrepresented in the offering document. It emphasizes that the description of the auditor's responsibility within the document should align with the auditor's actual scope, avoiding any indication of a greater responsibility than intended.

  • Identification of Subsequent Events:

  • Auditors are obligated to perform procedures aimed at identifying subsequent events and facts that transpire between the date of the auditor's report and the distribution, circulation, or submission of the offering document. This proactive approach addresses the potential need for revisions to the auditor's report based on new information.

  • Obtaining Updated Management Representation:

  • An essential aspect of the auditor's responsibilities under SAS No. 133 involves obtaining an updated written management representation letter. This letter serves as a confirmation of the management's stance and assertions regarding the financial statements and related information.

  • Effective Implementation and Timeline:

  • SAS No. 133, introduced by the ASB, is effective for exempt offering documents that undergo initial distribution, circulation, or submission on or after June 15, 2018. This ensures that auditors engaged in exempt offerings adhere to the clarified responsibilities outlined in SAS No. 133, contributing to a more standardized and transparent approach in this domain.

    About the Author:

    Jennifer Louis, the author of the original article, boasts over 25 years of experience in designing and instructing high-quality training programs. Her expertise spans a wide array of technical and soft-skills topics crucial for both professional and organizational success. In 2003, she founded Emergent Solutions Group, LLC, dedicating her energy to crafting and delivering practical and engaging training programs in the realms of accounting and auditing. Jennifer initiated her career in Audit with Deloitte & Touche LLP and graduated summa cum laude from Marymount University with a B.B.A. in Accounting. Her contributions to the field underscore a commitment to advancing the knowledge and proficiency of accounting professionals.

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