Auditor-Related Considerations for 20-F Filers Involved in Government Investigations
In recent years, a significant number of Latin American, Asian and European companies have been caught up in investigations and enforcement actions involving alleged payments to government officials and executives at state-owned companies. When the company that is the subject of such a government investigation is a foreign private issuer with securities listed in the United States, it is particularly important for the company to take a considered and thoughtful approach to interactions with its auditor as the auditor seeks to gain its own understanding of the nature and scope of any misconduct. In particular, a company that is subject to the reporting requirements of the U.S. Securities and Exchange Commission (the “SEC”), including the requirement to file an annual report on Form 20-F, must stay focused on the importance of obtaining an unqualified audit opinion.
Without such an opinion, a company will not be able to file a 20-F that meets the relevant SEC requirements. And an extended delay in the filing of a 20-F will ultimately lead to the company being delisted, with its attendant consequences: a decrease in the price of the issuer’s ADSs and underlying shares, civil litigation on the heels of any such significant price drop, covenant defaults, etc. With that in mind, we set forth a list of considerations for a 20-F filer when interacting with the company’s auditor in the midst or aftermath of a government investigation or enforcement action.