A relatively quiet week in terms of auditor changes. BDO lost two clients who collectively bought in $1.16 million in audit fees last year while EY lost a client which bought in $470K in audit fees.
A week with quite a few changes despite the COVID-19 pandemic. KPMG lost a big client in Global Eagle Entertainment during the week. This client bought in $7 million in total fees for KPMG. Marcum LLP had a big week with 4 wins including Global Eagle Entertainment. The details of changes for the week is as follows:
Bad week for KPMG with three losses. Around $3 million in annual audit fee loss. There are some interesting changes for this week. Sportsman’s Warehouse Holdings Inc. dismissed KPMG and appointed GT. KPMG had reported a material weakness on the ITGC general controls over IT systems that support the company’s financial reporting processes for the fiscal year ended February 1, 2020. SusGlobal Energy Corp dismissed KPMG and appointed MNP LLP as it auditors. The interesting fact here is that KPMG acquired the previous independent auditor, SF Partnership LLP in May 2020. SF Partnership is chartered accounting firm in Ontario, Canada. The details are below:
From this week on, there is a change in how auditor changes are tracked. We’ll look into all changes and not just the big4 firms. Makes sense to make the blog all inclusive. You might notice some small companies here so please bear with me folks!
Company
Old Auditor
New Auditor
Nature of change
Total Fee Previous Auditor (‘000) $
electroCore Inc.
KPMG
Marcum LLP
Dismissed
630
Paysign Inc.
Squar Milner
BDO
Dismissed
81
Poweverde Inc.
Cherry Bekaert LLP
–
Resigned
53
Apollo Endosurgery Inc.
KPMG
Moss Adams LLP
Dismissed
758
Arma Services Inc.
Haynie & Co.
Zia Masood Kiani & Co.
Dismissed
4
HYB Holding Corp
De Leon & Co.
Prager Metis
Resigned
–
Auditor changes 7/3/20
Bad week for KPMG. Lost two audit engagements which bought in $1.3 million in revenues last year. For electroCore Inc., KPMG provided IPO services in 2018 which bought in an additional $767K in revenues. Interestingly, both companies switched from Big4 to a mid-tier firm.
Most interesting change for this week is in HYB Holding Corp merely because of the wording of the 8-K. Let me quote from the 8-K
On February 12, 2020, the Board of Directors of HYB Holding Corp. was notified that De Leon & Company, P.A., which had been the principal independent accountant for HYB Holding Corp. for the year ended June 30, 2019, had terminated its operations. There is no audit committee of the Board of Directors of HYB Holding Corp.
For enthusiasts would like to read further, here is a link to the SEC filing.
HYB Holdings 8-K
Any other changes this week? Do leave a note in the comments section!
Its June 30! End of another month under lockdown. Here are some stats on auditor changes for this month. Folks as an FYI, just looked into big4 auditor changes. So either the appointed or dismissed auditor had to be a big4 firm. Big month for Deloitte with no loss and gain of 7 audit engagements.
Auditor changes in June 2020 (#)
Here are the changes from a dollar perspective. Deloitte won engagements worth $86 million [Thanks to GE!]. The dollar gain was computed by using the fees paid to the dismissed auditor. The new auditor is probably not going to be paid that much but still a good datapoint! KPMG lost engagement worth $83 million [Again, Thanks to GE!] and won engagements worth $2 million.
Auditor changes in June 2020 ($)
So the score for the month of June is as follows;
Firm
Wins
Loss
Net
Deloitte
7
0
7
PwC
4
2
2
EY
6
12
-6
KPMG
2
4
-2
Big4 client changes in June 2020
Firm (in $’000)
Wins
Loss
Net
Deloitte
86,192
–
86,192
PwC
2,203
(6,860)
(4,657)
EY
8,506
(10,823)
(2,317)
KPMG
1,928
(82,534)
(80,606)
Big4 client changes in June 2020
I know some of my enthusiasts would like to see the data behind these numbers. Sure folks! that’s what this blog is all about. Openness and analytics! If you want the excel file for this calculation, drop a note in the comment section. Plus, if I missed any changes let me know!
Company
Previous Auditor
New Auditor
Total Fee Previous Auditor (‘000) $
Tetra Technologies Inc.
EY
GT
1,238
CSI Compressco LP
EY
GT
–
Marinus Pharmaceuticals
KPMG
EY
650
Bristow Group Inc.
GT
KPMG
1,024
Transworld Entertainment Corp
KPMG
Fruci & Co.
926
Open Lending Corp
Withum
EY
–
Office Properties Income Trust
EY
Deloitte
1,044
Diversified Healthcare Trust
EY
Deloitte
1,512
Service Properties Trust
EY
Deloitte
2,261
RMR Group Inc.
EY
Deloitte
749
Industrial Logistics Properties Trust
EY
Deloitte
1,080
Tremont Mortgage Trust
EY
Deloitte
446
Menlo Therapeutics Inc.
Kesselman
PwC
335
Urogen Pharma Ltd.
Kesselman
PwC
571
Priority Technology Holdings Inc.
RSM
EY
777
Nikola Corp
RSM
EY
–
Riviera Resources Inc.
KPMG
BDO
1,858
Circor International Inc.
PwC
EY
6,611
Plymouth Industrial REIT
Marcum
PwC
867
Barings BDC Inc.
EY
KPMG
904
Uranium Energy Corp.
EY
PwC
430
Histogen Inc.
EY
Mayer Hoffman
502
Houston Wire & Cable Co.
EY
BKD LLP
657
BRT Apartments Corp
BDO
EY
468
Comstock Holding Companies Inc.
BDO
GT
363
GE Inc.
KPMG
Deloitte
79,100
Nexpoint Capital Inc.
PwC
RSM
249
Big4 changes in June 2020
You’ll notice that EY lost a bunch of REIT clients. It’s all part of the RMR group Inc. Would be interesting to know why they switched. Also, Credit Suisse in Switzerland switched from KPMG to PwC as part of auditor rotation and filed with SEC the change this month. It was 64 million CHF in audit fees or $67 million USD. Would guess there are some Credit Suisse funds in the US which would have a new auditor this year! Did not include that change in this table since we don’t know the impact to the US firm. There will be a blog post soon on International auditor changes. Europe would be fun to watch here.
So by now, all of you have heard of Wirecard and the turmoil the company is in. So what exactly is the scandal and what is the background. Not worth writing a lengthy article on it. Here are quick points for your information.
1. Wirecard is a German company that links banks, retailers, and consumers. Basically an intermediary for an online transaction.
2. Started around in 1999, it grew exponentially between the periods 2015 to 2018 [that’s what they say]. At one point market cap was $24 billion euros. Now its around $6 billion. Spare a thought for the poor investors.
3. There were a lot of issues on the business model of the company. Not going into that now. We’ll focus on the current crisis that forced the company to file for bankruptcy.
4. EY was the independent auditor beginning from the period ending December 31, 2009. Audit fees was nominal in 2010 with the total payment being 292K euros
5. The below information is from Financial Times. For all enthusiasts who want to dig deeper, here is the link to the FT Article
March 2019 – FT reports half of Wirecard’s business is actually outsourced who then pay a commission to Wirecard. FT attempts to visit Wirecard offices in Philippines only to find a retired seaman and his family [Imagine living in a regional HQ of a global payments company. I’d take that]
April 2019 – SoftBank invests 900 million euros into the company. Seems like Wework is not the only laggard for the Japanese billionaire Masayoshi Son.
October 2019 – FT reports that profits in Dubai and Dublin offices were fraudulently inflated and customers in the list provided to EY for audit did not exist. KPMG appointed to conduct special audit.
March 2020 – EY postpones publication of full-year audited results. EY receives documents from a Wirecard trustee in Philippines confirming 1.9 billion euros held in two banks in the country.
April 2020 – KPMG report published. Report says KPMG cannot verify arrangements that are responsible for lion share of profits from 2016 to 2018. Also says no sufficient evidence for 1 billion euros of cash balance. Interestingly, CEO Braun tells investors that EY is ready to sign-off on 2019 results.
June 2020 – Philippine banks inform EY that documents detailing 1.9 billion euros of bank balance is spurious. Wirecard confirms 1.9 billion euros is missing. Also says previously issued audited results not reliable. [You bet!]. CEO Braun is arrested and on June 23, the company informs it will file for insolvency.
6. EY’s fees for 2018 was 2.3 million euros. [probably not worth the negative publicity its getting]
For all the first year associates out there. Cash confirmation is a critical audit procedure. Not sure enough credit is given for that when everyone is running behind impairment and what not! So hopefully you are now better informed for the latest accounting scandal.
