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Auditor wants waiver

We are a small private company (100 emp) whose financials are audited by a large international auditor. Recently, we reimbursed $280k to a related entity (controlled by our controlling shareholder) for loan transactions that occured several years ago, and which necessitated a restatement of financials for last year. Our auditor now wants the controlling shareholder to sign a formal waiver of any further reimbursements. Does this sound reasonable?


Sara Voight
Title: Controller
Company: Critical Signal Technologies, Inc
(Controller, Critical Signal Technologies, Inc) |

As a general rule, since the repayment was material (from my viewpoint), it makes sense for the auditor to request this. If you are concerned about limiting future related party transactions, you can specify in the letter what the reimbursements were for and that no additional past transactions have occured which are not already recorded. The controlling shareholder is providing documentation/comfort to your auditor that the findings and re-statement were a one-time deal and won't be happening again. (That they can't keep reviewng their books and showing up at your door with another outstanding item.)

You would want the same thing if you were a major investor in your company and already felt the sting of one re-statement to make sure it won't happen again. If there is a bank involved, it becomes even more sensitive.

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

They seek either a waiver or an unchangeable specific amount to be reflected, together with a written representation that the specific amount is complete. Large public firms are increasing sensitive to "surprises" of a material nature, and particularly do not like those from "related parties".

Robert Honeyman
Title: CFO
Company: Advanced Predictive Analytics
(CFO, Advanced Predictive Analytics) |

If you had to restate, it sounds to me like the loan may not have been reported as a liability on the company books. If so, I'm guessing your auditors want to know how much more is owed and why that's not on the books as a liability. If the controlling shareholder views the money as callable, the books should reflect that. If the controlling shareholder does not view the money as callable, they should have no problem with issuing a formal waiver. If they refuse to issue a waiver, it's possible that their entire investment needs to be reported as a liability.

Or, is there something else going on?

Jeff Fisher
Title: Audit Manager
Company: Windes & MCClaughry
(Audit Manager, Windes & MCClaughry) |

Typically your auditor should not ask for a waiver, but rather should obtain a confirmation of the total outstanding balance from your related party, although maybe this is just semantics. A waiver for any further reimbursements from old loans would not be as good of evidence as confirming the full outstanding balance at year-end, depending on the quantity and types of transactions you have with this related party.

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

Dear Anonymous - basically your auditor has no way of knowing whether there is another $200k or $200M in liabilities out there. They can't sign off on financials w/ this degree of uncertainty. The procedure, or one similar to a confirmation of specific liability amount per Jeff's response, is not just reasonable but required by them according to professional standards.


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