PCAOB plans to update rules on auditor comfort letters
- Key Insight: Uncover how proposed PCAOB rules will change the timeline for auditors issuing negative assurance.
- What’s at Stake: Issuers risk losing access to capital markets under a decades-old auditing restriction.
The Public Company Accounting Oversight Board is proposing changes in an auditing standard for providing comfort letters to underwriters and other parties involved in providing capital to companies.
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The PCAOB issued a set of
“This proposal is yet another step in the PCAOB’s efforts to improve our standards,” said PCAPOB chairman Demetrios (Jim) Logothetis in a statement Tuesday. “Updating this outdated provision better aligns an auditor’s ability to keep investors informed about company performance with current reporting and filing deadlines. This proposal would preserve investor protection, support efficient capital formation, and make clear that the decision to provide negative assurance remains solely a matter of the auditor’s professional judgment. We look forward to receiving comments from stakeholders across the audit and financial reporting ecosystems.”
The PCAOB noted that comfort letters are an important source of information for underwriters, such as investment banks, to consider when companies raise capital. When a public company wants to raise capital, an underwriter involved in the fundraising often asks an auditor to provide a comfort letter concerning the company’s unaudited condensed interim financials and other information.
In a comfort letter, an auditor’s comments usually relate to changes, increases or decreases in specified financial statement items during a period subsequent to the date and period of the latest financial statements included in the registration statement.
Currently under AS 6101, the auditor can provide negative assurance (meaning the auditor finds no evidence to dispute certain facts) as to subsequent changes in specified financial statement items. However, the standard says the auditor may provide negative assurance as to subsequent changes in specified financial statement items as of a date that is less than 135 days from the end of the most recent period for which financial statements were audited or reviewed. The current day-count convention assumes a quarterly filing cadence.
Under the current requirements within AS 6101, which has not been substantially amended since its adoption as an interim standard in 2003, an auditor might not be able to provide negative assurance as to subsequent changes in select financial statement items in a comfort letter solely because more than 135 days have passed since the company’s most recent audit or review – even when the company remains current with all applicable Securities and Exchange Commission filing requirements.
For instance, for a calendar-year filer, the auditor is unable to provide negative assurance between a date that is 135 days after the third quarter reporting date (generally, September 30) and the annual report filing deadlines (which is generally due no earlier than March 1 and up to March 31). As a result, issuers could be unnecessarily constrained in accessing capital markets if underwriters are unwilling to engage in offerings after the 135-day period without an auditor’s ability to provide negative assurance as to subsequent changes. Such obstacles can impede capital formation, with no clear benefit to investors.
If adopted, the proposal would replace the 135-day convention with an issuer’s reporting obligations, regardless of any potential future changes to those obligations.
The PCAOB is asking for comments on the proposal by Jan. 4, 2027 They can be emailed to
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