In a scathing letter to the Securities and Exchange Commission, the Bond Market Association and the Securities Industry Association took issue with what they called “anti-investor positions” taken by the American Institute of Certified Public Accountants.
The two securities groups object to an AICPA draft white paper that, they maintain, “advises auditors involved in due diligence discussions with underwriters to refrain from answering basic questions about a securities issuer’s financial statements, including whether or not the auditor suspects fraudulent activity.” In effect, they continue, the draft white paper proposes “effectively to withdraw from the due diligence process in securities offerings, to the detriment of investors.”
In their letter, the securities groups wrote that despite expressing their concerns to the AICPA about the draft white paper, AICPA representatives promoted several ideas in the paper at an October 11 meeting hosted by the association.
One point made during the meeting that especially riled the securities groups was the statement that auditing standards for written reports should also apply to oral due-diligence discussions.
“This is just wrong,” wrote the securities groups, “as evidenced by decades of auditor involvement in due diligence without reference to auditing standards as a limitation on what may be discussed.” Moreover, they continued, the AICPA’s draft white paper calls for reduced auditor due diligence and continued exclusion of investors and regulators from the due diligence process. The industry groups also insisted that “despite repeated requests by various meeting participants, no understandable rationale was offered by the AICPA for their desire to reduce auditor due diligence involvement.
The Bond Market Association and the Securities Industry Association requested that the SEC encourage the AICPA to publicly repudiate the draft white paper.