Auditing standards promulgated by the Public Company Accounting Oversight Board (PCAOB) outline four alternatives for auditors' reports: unqualified, qualified, adverse, and disclaimer. However, at the present time, the Securities and Exchange Commission (SEC) generally accepts only one of these alternatives: an unqualified opinion. Prior to the elimination of “subject to” qualified opinions in 1988, the SEC allowed such opinions in the case of material uncertainties. However, the SEC has not, as a general rule, accepted opinions qualified for departures from generally accepted accounting principles (GAAP) since it issued Accounting Series Release (ASR) No. 4 on April 25, 1938. This paper describes an instance where the SEC agreed to accept opinions qualified for a departure from compliance with GAAP.

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