Must I? Auditor Obligations with Regard to Exempt Offerings

Transcription

1 Moderator/Speakers: Diane Reichard Chief Financial Officer, City of Plant City, FL Christopher Telli Partner, BKD, LLP 1:30 2:20 pm May 6, 2018 Room th Annual Conference May 6-9, 2018 St. Louis, Missouri Must I? Auditor Obligations with Regard to Exempt Offerings #GFOA2018

2 Must I? Auditor Obligations with Regards to Exempt Offerings SAS 133: Auditor Involvement with Exempt Offering Documents Christopher J. Telli, CPA Partner, BKD, LLP Diane Reichard, CPA, CGMA, CGFO, CPFO, Chief Financial Officer, City of Plant City, FL. GFOA 112th Annual Conference, St. Louis, MO May 6, 2018

3 Outline Overview of AU C 945 (SAS 133) Chris What s included When is the auditor involved Auditor s responsibilities when involved Procedures to be performed Practical Example & Best Practices Diane

4 Statement on Auditing Standards 133: Auditor Involvement with Exempt Offering Documents AICPA Professional Standards, AU C 945 Amends: SAS 122: Clarification and Recodification Section 560 Subsequent Events and Subsequently Discovered Facts Section 925: Filings With the U.S. Securities and Exchange Commission

5 SAS 133: Scope When is the auditor considered involved with an exempt offering document? When the auditor s report is included in an offering document relating to either: 1. Securities exempt from registration under Securities Act of Franchise offerings regulated by FTC Auditor performs certain activities with respect to exempt offerings SAS 133 addresses the auditor s responsibilities when both above items exist

6 Scope: Exempt Offerings Made pursuant to federal or state securities/franchise laws and regulations Securities Act of 1933 (the Act) offers two broad exemptions from registration requirements Exempt securities (section 3 of Act) Exempt transaction (section 4 of Act)

7 Scope: Exempt Securities Examples of exempt securities include: Securities issued or guaranteed by federal, state and local governments Securities issued or guaranteed by banks or employee benefit plans Short term commercial paper (maturity < 9 months) Securities issued by non profit religious, educational or charitable organizations Securities issued by S&L and farmers coops Railroad equipment trusts Insurance policies & annuity contracts Securities issued by certain church employee plans Security futures products and standardized options Equity securities issued in connection w/acquisition by bank holding company or a bank or savings association

8 Scope: Exempt Transactions Examples of exempt transactions include: Transactions by any person other than an issuer, underwriter or dealer Transactions by an entity not involving any public offering (private placement exemption), including Reg D Rule 506 and Rule 144A Transactions by a dealer (with certain exceptions) Broker s transaction executed on customer orders Offers or sales by an entity to accredited investors (under certain conditions) Regulation CF transactions Private resales of securities Small issues of securities (under certain regulations/rules) Voluntary exchanges between entity and security holders Judicially or administratively approved exchanges Intrastate offerings

9 Auditor s Involvement Auditors are considered involved with an exempt offering when both the following exist Auditor s report included in exempt offering Performs one of following (next slide):

10 Involvement: Activities Assisting in preparing information in offering doc Reading draft of offering doc at entities request Issuing comfort letter (AU C section 920) AUP report (AT C Section 215) Participating in due diligence discussions Issuing attestation report relating to exempt offering Providing written agreement for use of auditors report Updating auditor s report for inclusion in exempt offering doc

11 Auditor s Responsibility when Involved Read the offering document (AU C Section 720) Purpose: Identify material inconsistencies with FS May also identify material misstatement of fact If identified material inconsistencies or misstatement of fact, auditor s actions depend on: When inconsistency/misstatement of fact identified Management s response (refuses to change?)

12 Subsequent Events Auditor must perform subsequent event procedures from date of auditor s report to date of distribution, circulation or submission of exempt offering document Obtain understanding of procedures mgmt has performed Mgmt (and possibly governance) inquiries Read subsequent minutes Read any interim FS

13 Example Government will need to allow time for this review Financial Statements Fiscal Year Ending December 30 Reports issued by June 30 Exempt Offering in September Read subsequent minutes 9 months Read any interim FS 2 if quarterly or 8 if monthly Expectation of cost

14 Subsequent Events Obtain updated MRL that includes certain representations: Any information has come to mgmt s attention that causes mgmt to believe prior representations need modification Any event have occurred subsequent to date of auditor s report Mgmt provided complete minutes since previous reps Mgmt provided any communications from regulators concerning noncompliance with financial reporting Additional rules apply when predecessor auditor report included in offering document

15 Considerations Has a subsequent event occurred after auditor s report? Has a new audit firm been selected? RFP process New auditor selected Relationship with previous auditor Has there been a change in management? Additional debt already issued

16 Component Units Auditor may have to consider component units Who is obligated for the debt (guarantees) Who actually issues the debt (responsible for payments) Who's FS are actually included in offering document Procedures may extend beyond primary government or not even include primary government

17 Closing Remarks More communication will be necessary Better coordination regarding timing of issuing debt The onus is on the auditors The standard provides the procedure Auditor depends on management

18 Effective Date Here and now! Offering document initially distributed, circulated, or submitted on or after June 15, 2018

19 Questions?

20 Thank You!

21 Speaker Contact Information: Diane Reichard Phone: Christopher Telli Phone: Questions: 112 th Annual Conference May 6-9, 2018 St. Louis, Missouri Speakers will take questions and comments. This session is being recorded, please utilize the microphone in the aisle to ask all questions. Provide Feedback: Please take a few minutes to provide your feedback at Discuss/Comment: Join the discussion at #GFOA2018 Contact GFOA: To contact GFOA about session topics please research@gfoa.org #GFOA2018