February 7, 1991
TO: SEC RULES MEMBERS NO. 8-91
ACCOUNTING/TREASURERS MEMBERS NO. 3-91
RE: SEC STAFF ACCOUNTING BULLETIN FOR FORMER CLIENTS OF
LAVENTHOL AND HORWATH
__________________________________________________________
Laventhol & Horwath (L&H), a public accounting firm, filed
for bankruptcy on November 21, 1990 and ceased to perform audit
and accounting services. As a result, some SEC registrants will
be unable to file manually signed audit reports and manually
signed accountants’ consents required to be included in specified
Commission filings. The attached SEC Staff Accounting Bulletin
(SAB) provides guidance as to the disclosure to be provided by,
and the relief to be granted to, registrants who are former
clients of L&H.
With respect to registration statements and post-effective
amendments under the Securities Act of 1933, the SAB states that,
while the exact content of disclosures will vary with individual
facts and circumstances, prominent summary disclosure should
advise investors of L&H’s bankruptcy and discontinuance of audit
and accounting services. The SAB further states that registrants
should consider advising investors of the effect of the
bankruptcy filing on investors’ rights to sue and recover damages
from L&H for material misstatements or omissions, if any, in the
registration statement and prospectus, including the financial
statements. The SAB also identifies certain related matters that
should be addressed in more detailed disclosures and which differ
in accordance with the timing of a particular filing in relation
to the timing of the L&H bankruptcy, whether a particular filing
contains an L&H audit report and/or consent, and a number of
other scenarios.
In instances where independent accounting firms recently
engaged by former L&H clients have insufficient time before a
registrant’s filing deadline to complete their engagement and
sign the audit report required to be included in a post-effective
amendment or Form N-SAR, the SAB states that the Commission staff
will grant registrant submissions to substitute temporarily
unaudited financial statements for the most recent fiscal year
-2-
under Rule 3-13 of Regulation S-X due to a company’s inability to
file timely audited financial statements and the independent
accountant’s audit report, where the company represents that,
solely by reason of the L&H bankruptcy and cessation of audit and
accounting services, the company was unable to timely file the
audited financial statements and audit report without
unreasonable effort or expense. As part of the submission, a
company must undertake to file the report timely with unaudited
year-end financials and to file the required audited financial
statements and audit report on or before the date specified in
the request, but no later than April 30, 1991. If a company or
its agent delivers the document containing unaudited financial
statements to investors for any reason, a company also must
undertake to deliver the audited financial statements and related
financial information if such audited financial statements and
related financial information differ materially from the
information previously furnished. Submissions for additional
extensions of time will be considered where the audit cannot be
reasonably completed within the time period specified in the
initial request. Submissions by investment companies should be
directed to Lawrence A. Friend, Chief Accountant, Division of
Investment Management, Securities and Exchange Commission, 450
5th Street, NW, Washington, D.C. 20549
The Commission staff indicates in the SAB that it intends to
make public, as a supplement to the SAB, any additional guidance
on this matter that it develops based on reponses to inquiries
from affected registrants.
We will keep you informed of developments.
Donald J. Boteler
Director of Operations/
Fund Accounting
Attachment(in .pdf format)