THE IMPACT OF THE SUPREME COURT’S OMNICARE DECISION ON AUDITED FINANCIAL STATEMENT DISCLOSURE

Authors

  • Michael Bitter Stetson University
  • Valrie Chambers Stetson University
  • Brian Elzweig University of West Florida
  • Waleed Ikram Stetson University

DOI:

https://doi.org/10.60154/jaepp.2021.v22n1p1

Keywords:

Financial statement disclosures, registration statement disclosures, Omnicare, AS 4101

Abstract

Since the enactment of the Securities Act of 1933 and 1934, both the legal system and the accounting profession have struggled with the question, “to what extent accountants should rely on the statements of other accounting and non-accounting experts and when should they include parts of expert’s written statements in financial statement disclosures.” The Supreme Court considered this issue in Omnicare v. Laborers District Council Construction Industry Pension Fund (2015) (hereafter, Omnicare). The Omnicare decision refined the expectations of preparers and external auditors working on prospectuses for U.S. registrants. Omnicare considered disclosures in Omnicare’s registration statement regarding their opinions of their perceived compliance with federal regulations and laws. After Omnicare was charged with violations, the Court considered when opinions in registration statements could be treated as misstatements of material fact that could lead to accountant liability.
The clarification to accounting disclosures is important for limiting liability for future registrants as well as for auditors who express an audit opinion on financial statements contained in registration statements. Omnicare created a new rational basis test which is precedential to future cases deciding whether an opinion statement included in a registration statement becomes a misstatement of fact or the lack of an opinion statement constitutes a material omission. Therefore, the rational basis test should be considered by accountants in preparing and auditing registration and post-registration statements, and this article contributes to the accounting and auditing literature by providing new suggested language for incorporation into SEC guidelines and/or PCAOB standards going forward.

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Published

2023-04-24

How to Cite

Bitter, M., Chambers, V., Elzweig, B., & Ikram, W. (2023). THE IMPACT OF THE SUPREME COURT’S OMNICARE DECISION ON AUDITED FINANCIAL STATEMENT DISCLOSURE. Journal of Accounting, Ethics & Public Policy, JAEPP, 22(1), 1. https://doi.org/10.60154/jaepp.2021.v22n1p1