Has the SEC ever been Willing to Accept Qualified Audit Opinions for a GAAP Departure?

Abstract

Auditing standards promulgated by the Public Company Accounting Oversight Board (PCAOB) outline four alternatives for auditors’ reports: unqualified, qualified, adverse, and disclaimer.  However, at the present time, the Securities and Exchange Commission (SEC) generally accepts only one of these alternatives: an unqualified opinion.  Prior to the elimination of “subject to” qualified opinions in 1988, the SEC allowed such opinions in the case of material uncertainties.  However, the SEC has not, as a general rule, accepted opinions qualified for departures from generally accepted accounting principles (GAAP) since it issued Accounting Series Release (ASR) No. 4 on April 25, 1938.  This paper describes an instance where the SEC agreed to accept opinions qualified for a departure from compliance with GAAP.