[The following paragraph was amended, effective for audits of fiscal years beginning on or after December 15, 2010. See PCAOB Release No. 2010-004.

Return to the current version.]


A legal letter that includes an inadequate opinion, inappropriate limitations, or a disclaimer of opinion, or that effectively limits the scope of the opinion to facts and circumstances that are not applicable to the transaction, does not provide persuasive evidence to support the entity’s assertion that the transferred assets have been put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership. Likewise, a legal letter that includes conclusions that are expressed using some of the following language would not provide persuasive evidence that a transfer of financial assets has met the isolation criterion of FASB Statement No. 140 (see paragraphs .20 and .21 of this interpretation):

  • “We are unable to express an opinion...”
  • “It is our opinion, based upon limited facts...”
  • “We are of the view...” or “it appears...”
  • “There is a reasonable basis to conclude that...”
  • “In our opinion, the transfer would either be a sale or a grant of a perfected security interest...” fn 11
  • “In our opinion, there is a reasonable possibility...”
  • “In our opinion, the transfer should be considered a sale...”
  • “It is our opinion that the company will be able to assert meritorious arguments...”
  • “In our opinion, it is more likely than not ...”
  • “In our opinion, the transfer would presumptively be...”
  • “In our opinion, it is probable that...”

Furthermore, conclusions about hypothetical transactions may not be relevant to the transaction that is the subject of management’s assertions. Section 326, Evidential Matter, paragraph .21, states that “to be competent, evidence, regardless of its form, must be both valid and relevant.” Additionally, conclusions about hypothetical transactions may not contemplate all of the facts and circumstances or the provisions in the agreements of the transaction that is the subject of management’s assertions, and generally would not provide persuasive evidence. fn 12

[Issue Date: December, 2001.]