When Is an Auditor’s Consent Letter Required?

An auditor’s consent letter is a formal document from an independent auditor that grants a client permission to include the auditor’s report in a public filing. This letter is a component of regulatory compliance for companies submitting documents to the U.S. Securities and Exchange Commission (SEC). The consent confirms the auditor is aware of how their report is being used and agrees to be associated with the information in the filing.

When an Auditor’s Consent is Required

An auditor’s consent is required when a company includes its audited financial statements in public filings under the Securities Act of 1933. A consent must be filed as an exhibit whenever an auditor’s report is part of a registration statement. Common examples of these registration statements include Form S-1 for an initial public offering (IPO), Form S-3 for streamlined offerings by established companies, and Form S-8 for securities offered to employees.

The requirement extends beyond initial offerings. If a company has an effective registration statement, such as a Form S-3, its annual report on Form 10-K must also include an auditor’s consent. This is because the 10-K is automatically incorporated by reference into the existing registration statement. This rule protects investors by linking the auditor to the registration statement, which subjects them to potential liability under Section 11 of the Securities Act for material misstatements in the portion they certified.

The consent confirms the auditor has performed procedures to be aware of events up to the filing’s effective date. The consent must be re-issued if significant changes are made to the financial statements or if a substantial amount of time, often considered 30 days or more, passes between the initial filing and the effective date of the registration statement.

Information Needed to Request a Consent Letter

To issue a consent, an auditor must understand the context in which their report will be presented. The company must provide the auditor with a complete and near-final draft of the document containing the audit report. This allows the auditor to read the entire filing, such as a draft Form S-1, to ensure the financial data is consistent with the audited financial statements.

Beyond the draft filing, the company needs to supply specific details about the transaction. This includes the exact names of the securities being registered and the anticipated date the company plans to file the document with the SEC. This information allows the auditor to properly date their consent and reference the specific registration statement.

The auditor’s review of these materials is a distinct engagement from the original audit of the financial statements. Companies should anticipate that this process requires lead time and may involve additional fees.

The Process of Obtaining and Filing the Consent

The auditor begins their review process by reading the prospectus and relevant sections of the registration statement. This ensures their name and report are not used in a way that implies greater responsibility than they intend. This step also verifies that the information is consistent with the audited financial statements and that no subsequent events have occurred that would materially affect those statements.

If there have been material events since the date of the original audit report, the auditor may need to perform additional procedures. This can lead to a “dual-dated” report, where the original audit report date is retained, but a second date is added to address the specific subsequent event. Once satisfied, the auditor will draft and manually sign the consent letter, dating it very close to the actual filing date.

The company receives the signed consent letter from the auditor and includes it as an exhibit in its SEC filing. The auditor’s consent is typically filed as Exhibit 23 to a registration statement. Without this filed consent, the registration statement is not considered complete, and the securities offering cannot proceed.