What the Independent Private Sector Audit of Your Conflict Minerals Report Will Cost

Read this important update about IPSAs for calendar year 2013.

As we near the end of the first reporting year for conflict minerals disclosures, the regulated community is seeking to understand what the Independent Private Sector Audit (IPSA) of the conflict minerals report (CMR) will entail and cost, as numerous companies are expecting to trigger the IPSA for 2013.

The CMR IPSA is different from other types of audits required by the Securities and Exchange Commission.  The SEC recognized that the IPSA “differs significantly from the objectives of other audits required by our rules” [p. 218 of the final release] and that it “is not as comprehensive as an audit objective requiring an auditor to express an opinion or conclusion as to whether the due diligence measures were effective, or to express an opinion or conclusion as to whether or not the issuer’s necessary conflict minerals are “DRC Conflict Free”. [p. 219]

Two notable differences are the stated audit objective and the required audit standard – and each of these shapes the cost of the IPSA.

The audit objective makes it clear that the issuer has a significant amount of control over the audit boundaries/effort by virtue of how the company chooses to describe the due diligence framework and activities performed.  The more concise, clear and auditable the company’s descriptions as set forth in the CMR, the easier, less time consuming and lower cost the IPSA should be.  We previously offered thoughts on one way to define “due diligence” that forms the foundation of what the CMR language could describe aligned with this concept.

The audit standard to be used for all IPSAs is the US Government Accountability Office (GAO) generally accepted government auditing standards (commonly referred to as “GAGAS” or “the Yellow Book”).   Because these standards are mandated, auditors should be following the prescribed activities for either the Attestation Engagements or Performance Audits.  Issuers may feel that the amount of information to be reviewed on-site is minimal and may not justify more than a day or two on-site.  However, on-site audit activities are only one aspect of the audit; the required preparation, planning, peer review and reporting tasks may be more time-intensive than the on-site work, but they are necessary nonetheless – and also impact the cost.

As stated in the proposal and final regulation, the SEC thinks the IPSA should cost around $25,000 for a small company, or up to $100,000 for a large company.  So what will your CMR IPSA cost?  It depends on a number of factors, some of which are directly influenced by the audited entity.  But based on the IPSA proposals we have submitted, SEC’s estimates may frequently be generally on-target – and in some cases, even high.

If you are interested in having Elm submit a proposal for your CMR IPSA, feel free to contact us.

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