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Following an open meeting yesterday, the PCAOB announced that it has proposed amendments to AS 6101, Letters for Underwriters and Certain Other Requesting Parties, to be issued for public comment. The open meeting and proposed amendments follow a request for public comment on PCAOB standard setting issued in June, which explains that the amendments address one of the big questions everyone has been asking after the SEC’s semiannual reporting proposal:

Under the [Semiannual Reporting] Proposal, the existing financial statement requirements for periodic reports, registration statements, and proxy statements in Regulation S-X that govern the age of financial statements would be simplified and amended to reflect the new semiannual reporting option. AS 6101, Letters for Underwriters and Certain Other Requesting Parties, addresses the auditor’s responsibilities for performing engagements to issue comfort letters.

Certain provisions of AS 6101, specifically those that establish limitations on the auditor’s ability to provide negative assurance on subsequent changes in specified financial statement items, are based on the most recent audited or reviewed period and the existing SEC requirements for determining the age of financial statements, which assumes a quarterly filing cadence, and would change if the SEC Proposal were adopted. In conjunction with the SEC Proposal, the PCAOB is considering whether to make narrow, conforming amendments to AS 6101 to accommodate the changes the SEC may adopt to its reporting requirements.

But those existing limitations created complications unrelated to the semiannual reporting proposal (see the graphics in Figures 1 & 2 on pages 11 & 12 of the proposal showing the periods when underwriters are unable to provide negative assurance for a non-accelerated filer under quarterly reporting and semiannual reporting regimes), and the PCAOB has apparently decided that it’s time to address this now — without waiting on the SEC to adopt final rules related to semiannual reporting. The press release says:

Under the current requirements within AS 6101, which has not been substantially amended since its adoption as an interim standard in 2003, an auditor may be unable to provide negative assurance as to subsequent changes in select financial statement items in a comfort letter solely because more than 135 days have passed since the company’s most recent audit or review – even when the company remains current with all applicable U.S. Securities and Exchange Commission (SEC) filing requirements. For example, for a calendar-year filer, the auditor is unable to provide negative assurance between a date that is 135 days after the third quarter reporting date (generally, September 30) and the annual report filing deadlines (which is generally due no earlier than March 1 and up to March 31).

As a result, issuers could be unnecessarily constrained in accessing capital markets if underwriters are unwilling to engage in offerings after the 135-day period without an auditor’s ability to provide negative assurance as to subsequent changes. Such obstacles can impede capital formation, with no clear benefit to investors.

Here’s the TL; DR: The proposed amendments would move away from a fixed day convention by replacing the 135 day limitation with references to the filing deadline for the next annual or interim period for which financial statements are required to be filed. No more gaps between the date through which auditors can provide negative assurance and an issuer’s next filing deadline!

The proposal also contemplates the addition of a new note listing examples of risk factors that may influence the auditor’s decision to provide negative assurance, even within a permitted period. In addition to the length of time that has passed since the auditor’s last audit or review, those factors include management’s ability to respond to inquiries regarding changes in financial statement line items, changes in senior management, the effectiveness of the company’s ICFR, the company’s ability to continue as a going concern, restatements or other financial statement changes or the appointment of new accountants during the period. The proposal clarifies that these are meant to be reminders; the presence of one or more of these factors does not restrict an auditor’s ability to provide negative assurance. Also, while this list of factors is new, auditor discretion on negative assurance is not. Auditors have always had the ability to decline to provide negative assurance even within the 135 days, although I’m not sure I’ve ever seen that happen….

Public comments should be submitted by January 4, 2027.

– Meredith Ervine