Chairman Logothetis Statement on Negative Assurance Related to Comfort Letters

Remarks as prepared for delivery

Good morning. The proposal before us today reflects an important part of our standard-setting work: keeping our standards current and practical. Some standards require broad changes. Others need focused updates to address a specific issue. This proposal takes the second approach. It would make targeted changes to AS 6101 so that an outdated timing convention does not stand in the way of auditors providing negative assurance when they believe it is appropriate. The change is narrow, but it matters. It would help ensure that the standard continues to work as intended in today's capital markets. 

When Chairman Atkins appointed me to this position he gave me one mission: reform the PCAOB and refocus it on our mission. This is yet another key step in fulfilling that mandate.

The Role of Auditors in Securities Offerings 

Auditors play an important role in securities offerings. Underwriters often look to auditors for added confidence in the financial information included in offering documents. In many cases, auditors provide what is known as negative assurance. Put simply, the auditor reports that nothing came to the auditor's attention suggesting that specified financial statement items contain a material misstatement. That assurance can help underwriters carry out their due diligence responsibilities and make informed decisions about whether to proceed with an offering. 

The Current Convention 

Under the current standard, an auditor cannot provide negative assurance on financial information dated 135 days or more after the end of the most recent period for which financial statements were audited or reviewed. Once that point is reached, the auditor is limited to reporting procedures performed and findings obtained. This convention can prevent an auditor from providing the broader comfort that an underwriter may seek, even when the company is current in its required filings. 

Why This Matters 

The existing convention can have real consequences. An underwriter may be unwilling to move forward without negative assurance from the company's auditor. As a result, a company that has met its filing obligations could face an unnecessary obstacle in accessing the capital markets solely because of the passage of time. 

The Proposed Approach 

The proposal would remove the 135-day convention when the company is current in its filing obligations. This focused change would better align the standard with today's reporting schedules and filing deadlines. It also would allow the standard to adapt more readily if the Securities and Exchange Commission changes its filing requirements in the future. 

The proposal would not require an auditor to provide negative assurance. That decision would remain with the auditor, based on the facts and circumstances. An auditor may conclude that providing negative assurance is not appropriate in a particular situation. The proposal therefore makes clear that the auditor retains its ability to exercise professional judgment and includes examples of factors that may inform the auditor's decision. 

The Importance of Public Comment 

Public input is important to our standard-setting work. I encourage investors, audit firms, companies, underwriters, and other interested parties to review the proposal and share their views. We are particularly interested in whether the proposed approach addresses the practical issue we have identified while maintaining appropriate investor protections. The 60-day comment period for these targeted amendments should provide stakeholders sufficient time to consider the proposal and respond to our questions. 

Closing 

This proposal would remove a convention that predates the PCAOB's adoption of AS 6101. It would give auditors greater flexibility to decide whether negative assurance is appropriate, while preserving their professional judgment and responsibilities. When an auditor determines that such assurance can be provided, the proposal could remove an unnecessary barrier to a company's access to the capital markets. These are targeted amendments, but nonetheless meaningful ones. 

I would like to recognize and thank the staff from across the PCAOB's divisions and offices who contributed to today's proposal, especially Dominika Taraszkiewicz, Jessica Watts, Lisa Calandriello, Kevin Lombardi, and Clair Sever in the Office of the Chief Auditor; Ying Compton, Rahsan Inget, John Cook, and Shayna Vereen in the Office of Economic and Risk Analysis; and George Kostolampros, Katherine Kelly, and Jayme Herschkopf in the Office of the General Counsel. 

I also would like to thank my fellow Board Members and their staff for their collaboration along with the staff from my team who worked on this project. 

Finally, I would like to thank the staff of the Securities and Exchange Commission, including the Office of the Chief Accountant, for their support and assistance.