Auditor change — Item 4.01
Built around the two words people read too narrowly. A disagreement does not require an argument, and reportable events are disclosable where there was no disagreement at all.
Dates and characterisation
The test is not whether you fell out
These apply even if there was no disagreement
Item 304(a)(1)(v) requires the same disclosure for each of these even though you and the accountant never expressed a difference of opinion about it. This is the half of the item that gets skipped after a “no” above.
Required content and the letter mechanics
This does not certify that you have no disagreements. That representation covers two years of audit history on a definition satisfied by a conversation nobody wrote down, and this tool has read none of it.
Two words do most of the damage in an Item 4.01 filing
The first is disagreement. Asked whether there were any, most finance teams search their memory for conflict, find none, and answer no. The rule is not asking about conflict. It asks whether there was a difference of opinion on accounting principles or practices, financial statement disclosure, or auditing scope or procedure which — had it not been resolved to the auditor’s satisfaction — would have caused them to refer to it in their report. The instruction states the point directly: no argument is needed, merely a difference of opinion. A cut-off the audit team pushed back on before you moved, a going concern paragraph drafted and then not needed, a scope extension resisted and then agreed: none of those registers as a disagreement at the time, and each one is a candidate. Two further sentences close the usual exits. Resolution does not remove the disclosure. And an oral exchange with the engagement partner generally suffices, so the audit file will not settle it.
The second is reportable event. These sit immediately after the disagreement paragraph, read like a continuation, and get skipped by anyone who has just answered no. They are not a continuation: the same disclosure is required for four specified events even though the registrant and the accountant never expressed a difference of opinion about them. They are also more serious than most disagreements, because each is the auditor saying something about reliability rather than about treatment — the controls needed for reliable statements are absent, they can no longer rely on management’s representations, they called for a scope expansion that never happened, or they concluded something materially affects a prior report and departed with it unresolved.
Then there is the number everyone remembers wrongly. The Exhibit 16 letter is not a ten-business-day obligation. Ten business days is the outer limit for obtaining it; the sentence that follows requires the letter to be filed by amendment within two business days of receipt, notwithstanding the ten. Receive it on day three and you are due on day five. And before any of that, the former accountant must receive your disclosures no later than the day you file them — which is both mandatory and the single step that most affects whether the letter you get back agrees with you.
Finally, an obligation that outlives the filing. Where there was a disagreement or a reportable event, Item 304(b) requires you to disclose, during that fiscal year and the next, any similar material transaction accounted for differently from what the former accountants would apparently have required — and to state the effect on the financial statements had their method been followed. It runs for up to two years after the auditor has gone, and it is almost never diarised.
What this tool does not do
The dates are reliable - the 8-K deadline uses the same Form 8-K General Instruction B.1 implementation as the rest of this product, including the sentence about an event falling on a weekend, and the Exhibit 16 amendment date applies the two-business-day rule with its own weekend sentence. The questions are the rule's own tests, worded as the rule words them rather than as people remember them. What the tool cannot do is answer them. Whether there was a difference of opinion in two fiscal years and a stub period, on a definition satisfied by an oral exchange, is a question for the people who were in the clearance meetings.
- Whether you actually had a disagreement or a reportable event - it asks the question properly and names who can answer it
- Reading your audit file, your clearance memos, or your audit committee minutes
- Drafting the Item 4.01 disclosure, or characterising a mutual parting as a resignation or a dismissal
- Anything about the successor's independence, their PCAOB inspection history, or whether the engagement terms are reasonable
- Item 4.02 non-reliance, which frequently accompanies this but is a separate determination with its own tool
- Exchange notification requirements on an auditor change, and any lender or indenture covenant that is triggered by one
- The audit committee's own process for selecting and overseeing the successor
- Whether a late or amended Item 4.01 filing affects Form S-3 eligibility
Frequently asked questions
We parted on good terms. Do we still have to answer the disagreements question?
Yes, and the answer may not be no. Instruction 4 to Item 304 says it is not necessary for there to have been an argument to have had a disagreement — merely a difference of opinion. The test is whether there was a difference on accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, had it not been resolved to the auditor's satisfaction, would have caused them to refer to it in their report. Good terms and no disagreements are different facts.
It was resolved. Does it still get disclosed?
Yes. The item says in terms that the disagreements required to be reported include both those resolved to the former accountant's satisfaction and those not resolved. The only carve-out is narrower: an initial difference based on incomplete facts or preliminary information that was later resolved to the accountant's satisfaction once everyone had the information — and not where it went away because you changed the accounting.
Nothing was ever put in writing. Does that settle it?
No. Instruction 5 says an oral communication from the engagement partner, another person responsible for rendering the opinion, or their designee will generally suffice — both to constitute a reportable event and to establish a disagreement at the decision-making level. The audit file cannot answer this question. The people who attended the clearance meetings can.
We genuinely had no disagreements. Are we done?
Not necessarily. Item 304(a)(1)(v) requires the same disclosure for four kinds of reportable event even though the registrant and the accountant did not express a difference of opinion about them: the controls needed for reliable statements do not exist; the accountant could no longer rely on management's representations or was unwilling to be associated with the statements; they said the scope needed to expand significantly and it was not done; or they concluded something materially affects a prior report and left with it unresolved.
How long do we have to file the Exhibit 16 letter?
Two business days from receipt — not ten. Ten business days is the outer limit for obtaining the letter after filing the 8-K. The next sentence overrides it: notwithstanding the ten business day period, the registrant shall file the letter by amendment within two business days of receipt. The same two-day rule applies to an interim letter, which also has to be filed.
When does the former accountant get to see what we wrote?
No later than the day you file it. That is a requirement, and it is also the step that determines what their letter says — their Exhibit 16 letter is a response to your text. Send the draft early enough that any argument about how the departure is described happens before the filing rather than in the exhibit attached to it.