If a principal auditor decides not to assume responsibility for the work of the other auditor insofar as that work relates to the principal auditor’s expression of an opinion on the financial statements taken as a whole, the principal auditor’s report should make reference to the audit of the other auditor and should indicate clearly the division of responsibility between the principal auditor and the other auditor in expressing his opinion on the financial statements.
Regardless of the principal auditor’s decision, the other auditor remains responsible for the performance of its own work and for its own report.
If a principal auditor makes reference to the work of the other auditor in the principal auditor’s report on either the financial statements or ICFR, the separate report of the other auditor shall be filed.
However, the firm cannot update or dual-date a previously issued report after the firm is no longer registered, as that involves additional audit work.
Issuer financial statements audited by a nonregistered firm are considered to be “not audited,” and any 10-K, proxy statement, or registration statement containing or incorporating by reference such financial statements is deemed substantially deficient. The 10-K or filing should be amended immediately to remove the nonregistered auditor’s report and label the columns of the financial statements as “not audited.” The issuer would then need to file another amendment to file financial statements audited by a registered firm.
Auditor reports on financial statements that refer to PCAOB standards must comply with the independence rules of both the SEC and the PCAOB.
The SEC’s independence rules are promulgated in S-X 2-01.
Registrants should consult with CF-OCA prior to filing any S-X 3-10(g) financial statements that are not audited by a PCAOB- registered firm.