The ESOP Association's Interdisciplinary Advisory Committee on Fiduciary Issues has published a White Paper on Recommended Procedure for ESOP Companies in Response to Auditors Request for ESOP Valuation Report. It discusses conflicts that can occur when auditors review the stock valuation report, including the auditor's potential conflicts with ESOP sponsors, ESOP trustees or other fiduciaries, and valuation firms, and notes that "recent anecdotal evidence indicates the conflicts have resulted in a number of fiduciaries to release the reports, requests for indemnification by valuation firms, termination of auditors, and insistence by auditors that a valuation be performed by another firm." As a result of these potential conflicts, the Committee developed a recommended procedure for ESOP sponsors and fiduciaries to protect the confidentiality of the report and provide the appropriate legal protection while providing the auditors with the information they need:
The consensus of the Task Force is that reports can be released under circumstances where the (i) person making the request confirms in writing the confidentiality standards applicable to the review of reports, and (ii) fiduciaries and their valuation firms obtain "no sue" and/or indemnification undertakings from the person requesting the report.
The Task Force also recommends the following procedures for ESOP sponsors and fiduciaries when receiving requests for valuation reports:
Requests for Reports Should be in Writing. – The requester should also provide the purpose for the request.
Person(s) Responsible for Providing Reports. – The fiduciary or valuation firm (and not the plan sponsor) should release the report.
Agreements Regarding Reports. – The fiduciary or valuation firm should consider releasing the report under a written agreement which confirms the confidentiality and/or includes a release or indemnification provision.
Dealing With Requester's Questions. – The fiduciary should document all discussions with the plan sponsor and auditors.
Role of Counsel to the Fiduciary. – Counsel for the fiduciary and the plan sponsor should be involved and review any agreements.
Members of the ESOP Association can access a suggested form letter from the ESOP Trustee to the Auditor that contains the conditions of release of the stock valuation report.