The Securities Commission granted The Limestone Boat Company Limited (the Filer) an exemption from the requirement that an auditor’s report accompanying audited acquisition statements must express an unqualified opinion, as per subsection 3.12(2) of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107). This decision was made in the context of the Filer’s acquisition of Ebbtide Holdings, LLC, which constituted a significant acquisition under National Instrument 51-102 Continuous Disclosure Obligations, triggering the need for a business acquisition report (BAR).
The Filer faced challenges in obtaining an unqualified audit opinion on the 2020 Annual Financial Statements of Ebbtide due to insufficient audit evidence over inventory balances and cost of goods sold. Despite efforts, the Filer’s auditor could not obtain the necessary evidence to support an unqualified opinion, primarily because the auditor was not present for inventory counts and could not perform alternative procedures to verify the inventory.
The exemption was granted on the condition that the Filer includes in its BAR: the 2020 Annual Financial Statements with an auditor’s report qualified only in respect to inventory and cost of goods sold, unaudited annual financial statements for 2019, unaudited interim financial statements for the period ended March 31, 2021, and an audited statement of assets acquired and liabilities assumed at the transaction’s closing date.
The decision was made under the securities legislation of Ontario, with the Ontario Securities Commission acting as the principal regulator, and the exemption was intended to be relied upon in British Columbia and Alberta as well. The Filer was otherwise in compliance with securities legislation and believed that the inventory was not materially misstated. The exemption was contingent upon the Filer’s ability to provide sufficient alternative information about the acquisition in the BAR.