7.3.4. Audit Requirements for Financial Statements
Financial statements that are included in a registration statement must be audited by a registered public accounting firm. The audit must include:
• Procedures reasonably designed to detect illegal acts that would have a direct and material effect on the financial statements
• Procedures designed to identify related-party transactions that are material to the financial statements
• An evaluation of whether there is substantial doubt about the issuer’s ability to continue as a going concern during the following fiscal year
If, while conducting an audit, the accounting firm discovers that an illegal act likely occurred and the act is not “clearly inconsequential,” the auditor must determine the possible effect on the issuer’s financial statement and inform the issuer’s audit committee or board of directors. If, having done this, the accounting firm determines that the illegal act has a material effect on the issuer’s financial statements and perc’eives that the issuer’s senior management has failed to take timely, appropriate remedial actions, the firm must report its conclusions directly to the issu