November 16, 2004

Analysis of Auditor Engagement Letters

I have posted 12 questions that audit committees should consider asking themselves when they negotiate this year’s engagement letter with their independent auditor – as well as analysis of some of the new provisions that auditors are sticking in their letters (all of this resides in our “Audit Committees” Practice Area).

More important now than in the past, audit committees should attempt to negotiate these letters as auditors are attempting to pass off as much potential liability as possible. As indicated in the analysis, some audit committees are finding success in pushing back in certain areas. If you have had a different experience with your auditor than what is described in this analysis, please let me know.

More Sample 404 Management Reports

In our Internal Controls Practice Area, we continue to post additional samples of 404 Management Reports – both with material weaknesses identified and without.

Why Would the SEC Deny the Withdrawal of a Registration Statement?

Proving that you learn something new each day, I couldn’t figure out why the SEC would bring this enforcement action to deny withdrawal of a registration statement. I presumed that even if a company withdrew and there had been fraud, the SEC could still act because they have jurisdiction if the fraud has occurred – or is likely – to reoccur.

But I learned that the SEC takes action to deny withdrawal once in a blue moon – because if the company withdraws before they sell anything, the SEC apparently loses jurisdiction (although don’t ask me how – got this answer from an old timer and I would think 10b-5 and Section 5 could help against a fraudulent offer). Gotta get those fraudulent red herrings!