The disclosure document that provides financial and nonfinancial information related to the entity issuing the exempt offering (or in the case of a franchise offering, the franchisor) and the offering itself. Exempt offerings are made pursuant to federal or state securities laws and regulations or pursuant to federal or state franchise laws and regulations, including, in each case, the antifraud provisions thereof.1 Exempt offerings include, but are not limited to, the following:
• Securities transactions that are exempt from the registration requirements of Section 5 of the Securities Act of 1933, such as private placement offerings, exempt public offerings, and municipal securities offerings
• Offerings of securities issued or backed by governmental, municipal, banking, tax-exempt, or other entities that are exempt from registration under the Securities Act of 1933
• Franchise offerings 1 Exhibit A, “Examples of Exempt Offerings,” provides examples of types of offerings within the scope of this Statement on Auditing Standards. Effective Date
Exempt Offering
Securities offering that does not require a registration statement to be filed with the Securities and Exchange Commission. Exempt offerings include Regulations A, D, and intrastate offerings. Exempt offerings differ from registered offerings, as typically there are no laws or regulations requiring auditors to undertake procedures related to an exempt offering document or prohibiting the issuer from including the auditor’s report without obtaining the auditor’s permission. In some cases, the engagement contract between the auditor and the entity will require the auditor’s permission to be obtained. Instead, an indirect system of regulation exists for exempt offerings. The SEC imposes certain regulatory requirements on the underwriters of exempt offerings, related to the entity’s disclosure at the time of issuance as well as after issuance. For example, municipal securities offerings are subject to primary market disclosures at the time of sale, which are made by issuing an official statement. In addition, the underwriter must obtain a covenant from the issuer that after issuance, the issuer will provide disclosures to the market throughout the life of the securities. Known as “continuing disclosures” or “secondary market disclosures” throughout the life of the securities, these disclosures include financial information—including audited financial statements—and material events notices. Official statements and continuing disclosure statements are filed electronically with the Electronic Municipal Market Access (EMMA) system maintained by the Municipal Securities Rulemaking Board. The investing public can obtain information free of charge through EMMA.
SAS on Exempt Offerings
Scope of This Statement on Auditing Standards
This Statement on Auditing Standards (SAS) addresses the auditor’s responsibilities when both of the following conditions exist:
• The auditor’s report on financial statements or the auditor’s review report on interim financial information of an entity is included or incorporated by reference in an offering document relating to either of the following:
o Securities, when either the transaction or the securities themselves are exempt from registration under the Securities Act of 1933, as amended (Securities Act of 1933)
o Franchise offerings regulated by the Federal Trade Commission (FTC) or applicable state franchise laws Hereafter, such security and franchise offerings are referred to as “exempt offerings” for purposes of this SAS.
This SAS is effective for exempt offering documents with which the auditor is involved that are initially distributed, circulated, or submitted on or after June 15, 2018.
Objectives
The objectives of the auditor when involved with an exempt offering document are to perform procedures specified in this SAS and respond appropriately as follows:
• When the auditor determines that information included or incorporated by reference in the exempt offering document could undermine the credibility of the financial statements and the auditor’s report thereon
• To facts that become known to the auditor after the date of the auditor’s report that, had they been known to the auditor at that date, may have caused the auditor to revise the auditor’s report.
What Constitutes “Involvement”?
The SAS outlines when the auditor is involved in an offering as well as the required procedures. The auditor is considered involved if both of the criteria below are met:
• The auditor’s report on financial statements is included in an exempt offering document.
• The auditor performs any of the activities defined in paragraph 8(b) of the SAS. One example is reading a draft of the document at the entity’s request.
Involvement Requirements
The auditor is involved with an exempt offering document and should apply the requirements of this SAS in connection with an exempt offering document when both of the following conditions exist:
• The auditor’s report is included in the exempt offering document.
• The auditor performs one or more of the following activities with respect to the exempt offering document:
o Assisting the entity in preparing information included in the exempt offering document
o Reading a draft of the exempt offering document at the entity’s request
o Issuing a comfort or similar letter in accordance with AU-C section 920, Letters for Underwriters and Certain Other Requesting Parties, or an agreed-upon procedures report in accordance with AT-C section 215, Agreed-Upon Procedures Engagements, in lieu of a comfort or similar letter on information included in the exempt offering document
o Participating in due diligence discussions with underwriters, placement agents, broker-dealers, or other financial intermediaries in connection with the exempt offering
o Issuing a practitioner’s attestation report on information relating to the exempt offering
o Providing written agreement for the use of the auditor’s report in the exempt offering document
o Updating an auditor’s report for inclusion in the exempt offering document When the auditor is involved with an exempt offering document, the auditor should perform the procedures in paragraphs 9–15 at or shortly before the date of distribution, circulation, or submission of the exempt offering document, and as appropriate upon any subsequent distribution, circulation, or submission of the exempt offering document.
When are auditors ‘involved’?
An auditor’s involvement with an exempt offering document is established under SAS No. 133 if both of the following occur:
• The auditor’s report on financial statements or the auditor’s review report on interim financial information is included or incorporated by reference in an exempt offering document; and
• The auditor performs one or more specified activities with respect to the exempt offering document. These activities include:
o Assisting the entity in preparing information included in the exempt offering document.
o Reading a draft of the exempt offering document at the entity’s request.
o Issuing a comfort or similar letter in accordance with AU-C Section 920, Letters for Underwriters and Certain Other Requesting Parties, or an agreed-upon procedures report in accordance with AT-C Section 215, Agreed-Upon Procedures Engagements, in lieu of a comfort letter or similar letter on information included in the exempt offering document.
o Participating in due-diligence discussions with underwriters, placement agents, broker-dealers, or other financial intermediaries in connection with the exempt offering.
o Issuing a practitioner’s attestation report on information relating to the exempt offering.
o Providing written agreement for the use of the auditor’s report in the exempt offering document.
o Updating an auditor’s report for inclusion in the exempt offering document.
What if the Auditor Doesn’t Know about an Exempt Offering?
In most exempt offerings, the entity making the offering may use the auditor’s report without discussing it with or obtaining permission from the auditor. Therefore, the SAS outlines triggering activities so that auditors would not unknowingly find themselves subject to this standard. The auditor has to take an action related to the offering to be involved (see paragraph 8(b) of the SAS). If a client issues an exempt security using the auditor’s report without making the auditor aware, the auditor would not have met any of the triggering activities, and therefore would not be considered involved. As part of their risk management process, some firms may include a requirement in the terms of their engagement for clients to alert them when they are going to market. This engagement clause would not in and of itself constitute involvement. However, if a client alerts the auditor about including their report in the offering and, for example, asks the auditor to give the offering document a read, issue a comfort letter or take part in any of the other stated triggering activities, the SAS’s requirements apply.
Auditor’s responsibilities
When the auditor is involved with an exempt offering document, the auditor should do the following:
• Perform procedures designed to identify events occurring between the date of the auditor’s report and the date of the distribution, circulation, or submission of the exempt offering document that, had they been known to the auditor as of the date of the auditor’s report, may have caused the auditor to revise the auditor’s report (hereafter referred to as “subsequent events” for purposes of this SAS). Such procedures should include the following:
o Obtaining an understanding of any procedures that management may have performed to identify such events.
o Inquiring of management and, when appropriate, those charged with governance about whether any such events have occurred that might affect the financial statements.
o Reading minutes, if any, of the meetings of the entity’s management and those charged with governance that have been held since the date of the auditor’s report and inquiring about matters discussed at any such meetings for which minutes are not yet available.
o Reading the entity’s most recent subsequent interim financial statements, if any.
• Obtain updated written representations from management about the following:
o Whether any information has come to management’s attention that would cause management to believe that any of the previous representations should be modified.
o Whether any events have occurred subsequent to the date of the auditor’s report that would require adjustment to, or disclosure in, the financial statements.
o That management provided complete minutes of the meetings of the entity’s management and those charged with governance, or summaries of actions of recent meetings for which minutes have not yet been prepared since previous representations were provided.
o That management provided communications received from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices since previous representations were provided.
Exempt Securities Lawyer
Exempt securities are financial instruments sold by publicly-traded companies or the government to investors. The revenue from the sale of securities is used as a means of raising capital. Many of these instruments must be registered with the SEC and abide by the provisions of the Securities Act of 1933. In short, the Securities Act of 1933 does a couple of things. It requires that a publicly held company disclose full financial information and that the information is truthful. However, not every security issuance must register with the SEC. Certain types of securities can be granted an exemption from full filing requirements. Exempt securities, under Section 4 of the Securities Act of 1933, are financial instruments that carry government backing and typically have a government or tax-exempt status. Securities that do not need to be registered with the SEC under the Security Act of 1933 or the Securities Exchange Act of 1934. Examples of exempt securities include small issues, agency securities, most other debt instruments issued by the federal or a local government, and issues made only in a single state. Private placements are also usually exempt from registration.
Securities Exempt from Registration
There are many securities which are exempt from the Securities Act of 1933—requiring neither registration nor a prospectus. There are several reasons why securities may be exempt from registration requirements:
• the securities are considered safe because they are issued by a government authority, such as US Treasuries or municipal bonds;
• the sale of the securities is restricted to a given geographic area, usually within a state; or
• the securities are sold to accredited investors, either wealthy individuals or institutions who are considered to have the wherewithal and expertise to manage their money and to avoid fraudulent schemes.
Tax-Exempt Security
A tax-exempt security is an investment in which the income produced is free from federal, state, and/or local taxes. Most tax-exempt securities come in the form of municipal bonds, which represent obligations of a state, territory or municipality. For some investors, U.S. Savings Bond interest may also be free from federal income taxes.
Exempt Transaction Attorney
An exempt transaction is a type of securities transaction where a business does not need to file registrations with any regulatory bodies, provided the number of securities involved is relatively minor compared to the scope of the issuer’s operations and that no new securities are being issued. Exempt securities are the instruments used that the government backs, which have tax-exempt status. An exempt transaction is a securities exchange that would otherwise have to register with the Securities and Exchange Commission (SEC) but does not because of the nature of the transaction in question.
Securities Lawyers In Utah
When you need legal help with securities law in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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