Auditor Changes and more

This post has been sitting in draft form for a bit. The decision made, but not sure if I would change my mind. Three weeks later, my decision stands and this will be the last post on The Auditor Carousel. I’ve been publishing it for nearly four years, and it’s time for me to move on.

While our sister site, Big4 Auditor Carousel, was always more popular in terms of page views and clicks, The Auditor Carousel was where the fun was. Where else could you get:

• SaasMax and their auditor arguing like children
• An auditor giving a board of directors an ultimatum; either fire your CEO, or we quit
• Another auditor demanding payment before issuing an opinion, only to get paid, then not issue the opinion
• A sole practitioner jerking the PCAOB around
• And who could forget Sherb & Co. not doing their job

Without further ado (there’s been enough), here’s the last list:

Filing Date	Company	Location	Old Auditor	New Auditor	Dismissal / Resignation
6/27/2016	VitaCig, Inc.	CA	MaloneBailey, LLP	Weinstein & Co.	Dismissal
6/27/2016	Spotlight Innovation Inc.	IA	WithumSmith+Brown, PC	GBH CPAs, PC	Dismissal
6/28/2016	Dais Analytic Corporation	FL	BDO USA LLP	Mayer Hoffman McCann P.C.	Dismissal
6/28/2016	Kewaunee Scientific Corporation	NC	Cherry Bekaert LLP	Ernst & Young LLP	Dismissal
6/28/2016	Competitive Companies, Inc.	TX	Padgett Stratemann & Co., LLP	Akin, Doherty, Klein & Feuge, P.C.	Dismissal
6/29/2016	Asia Travel Corporation	Hong Kong	Dominic K.F. Chan & Co, CPA	DCAW (CPA) Limited	Resignation
6/30/2016	United Development Funding V	TX	Whitley Penn LLP	EisnerAmper LLP	Decline To Stand
6/30/2016	United Development Funding III, L.P.	TX	Whitley Penn LLP	EisnerAmper LLP	Decline To Stand
6/30/2016	United Mortgage Trust	TX	Whitley Penn LLP	EisnerAmper LLP	Decline To Stand
7/1/2016	Uni Line Corp.	United Kingdom	DKM Certified Public Accountants	Gillespie & Associates PLLC	Resignation
7/1/2016	Ignyta, Inc.	CA	Mayer Hoffman McCann P.C.	KPMG LLP	Dismissal
7/1/2016	VII Peaks Co-Optivist Income BDC II, Inc.	CA	Burr Pilger Mayer, Inc.	OUM & Co. LLP	Dismissal
7/1/2016	Bancorp of New Jersey, Inc.	NJ	BDO USA LLP	Baker Tilly Virchow Krause, LLP	Dismissal
7/1/2016	Dakota Plains Holdings, Inc.	MN	Mantyla McReynolds, LLC	Whitley Penn LLP	Decline To Stand

Before signing off, a shout out to Caleb over at goingconcern for the many mentions, which helped drive traffic here. If you’re looking for something to fill in for the Auditor Carousel, try goingconcern.

All the best,

John

Round and round and round…

Either the CEO Goes or We Go

Pretty unusual that we get something interesting enough to warrant a mid-week post. 6D Technologies put out an 8-K covering a number of items, beginning with the resignation of auditor BDO. Seems BDO took exception to some inconsistencies in past representations made by 6D CEO, Tejune Kang. Hard to to business with a CEO that can’t keep his story straight. According to the filing, BDO, “insisted that Mr. Kang separate or be separated from the Company as a condition of its continued representation of the Company as its independent registered public accounting firm.”

As you would expect, the CEO, “refused the request to resign in the belief that it was not in the best interests of the Company or its shareholders.” BDO then resigned on March 17, 2016. BDO also notified 6D that the 2014 financial statements should no longer be relied on.

That’s not all. Also on March 17, the 6D board of directors had a meeting. Adam Hartung, chairman of the audit committee, made a motion to terminate Mr. Kang. That motion, “was not seconded, and therefore was not voted upon.” Having been spurned, the AC chair then resigned, “because the Board did not support his decision to terminate Mr. Kang as CEO of the Company…and Mr. Hartung felt he would no longer be an effective member of the Board.” For some reason, his resignation isn’t effective until April 16, 2016. Because, of course that makes sense.

But it doesn’t end there. With the CEO still in place, the board felt it was an appropriate time to modify his employment agreement. Mr. Kang’s previous annual salary was $102,000, plus an additional allowance of up to $118,000 for living expenses.  Under the revised agreement, Mr. Kang no longer gets the allowance for living expenses, but his base salary is increased to $220,000. Because, of course that makes sense.

The 8-K also goes into a Section 10A independent investigation, but that’s for another day.

This is all from the company’s perspective. You can read BDO’s version in this letter to 6D.

Round and round and round…

PCAOB Nuggets

Every so often I go to the PCAOB website to see if anything interesting has happened. I usually start in the Enforcement section, because that’s where you read about CPAs behaving badly.

Take for example, David A. Aronson. David was was barred from being associated with a registered public accounting firm for a number of reasons, the most egregious being auditing companies, “for which Aronson’s son had acted in an accounting role during the period under audit.” He did this knowingly, as Aronson was the one to recommend his son’s bookkeeping firm to his audit clients. Wow. You can read the full PCAOB report here.

Elsewhere on the PCAOB site, I came across a list of companies who want out. They have have pending requests to withdraw from PCAOB registration. Seems like they just want to be done with auditing public companies. There were a couple familiar names on the list: De Joya Griffith and DKM CPAs. Previous to this, I’d noticed De Joya Griffith had lost a number of clients this year (more than 30), while just picking up one new one. Guess who’s on the “I’m done” list? Same story for DKM Certified Public Accountants; 30+ clients lost with just a few new ones in 2015, and a request to withdraw from registration. The funny thing here is that if you want to stop auditing public companies, you need the PCAOB’s OK. Note these requests are pending. If the PCAOB denies the request, is the auditor forced to continue auditing public companies? That seems odd.

I’m guessing it’s just a way for the PCAOB to make sure you’re current on your fees before you disappear. I say this because Nancy Pei Hui is also on the pending withdrawal list. In August, the PCAOB fined Nancy $1,000 because Hui didn’t pay timely the annual PCAOB fee for 2014. The sanction letter concludes by saying that once Nancy pays the fine, the PCAOB will, “consider Hui’s Form 1-WD and whether to grant it leave to withdraw.” As far as the fine goes, that came about, “to protect the interests of investors and further the public interest.” Thanks for looking out for me, PCAOB.

Round and round and round…

Taking A Week Off

Though I’m sure many companies have switched auditors this week, I’m not spending any time thinking about it.  I’m too busy thinking about…nothing, and loving every minute of it.  A week in Hawaii will do that to you.

Tune in again next week for a super-sized version of the Auditor Carousel.

Mahalo!

Like Five Year Olds having an Argument

Came across a filing today that was just awesome. Reminded me of a couple of five year olds having an argument.  Back in November of last year, SaaSMax engaged Kyle L. Tingle, CPA, LLC as auditor. Then, in January, SaaSMax dismissed Tingle.  A January 8-K lays out in detail the company’s attempt to communicate with Tingle, and his apparent lack of response.  Well, according to today’s filing, Tingle finally responded. Here’s what he had to say:

“The Company filed Form 10-Q November 19, 2012 without the consent of this firm in violation of Regulation S-X Part 210.8-03. Inquires to Dina Moskowitz, CEO as to why the Form 10-Q was filed prior to auditor consent (the file was under concurring review), I was told her dad, Stanley V. Moskowitz, Esq. said it was ok and didn’t want to file late.”

Daddy said it was OK to file? Is this for real?  Apparently so, as SaaSMax responded by saying, “On February 4, 2013, Registrant filed a Form 10Q-A indicating that the Original 10-Q filed on November 19, 2013 was not reviewed, and that subsequently, the financial statements contained in the original 10-Q were reviewed by Registrant’s new accountant…” Uhh…I guess that’s considered a response, though it doesn’t address why a 10Q was filed without auditor review in the first place. Oh, and no one caught that this references a filing in November 2013, which, if my calendar is correct, hasn’t happened yet.

Tingle continues, “In review of the prior accountant’s workpapers, I did not find audit procedures with regard to the options. A volatility of 100% was used and labeled “conservative” and the risk free interest rate 0.69% was labeled “reasonable” in the workpapers, without documentation for those determinations.” Classic. He’s dragging the prior auditor into this.

More Tingle, “I also had questions with regard to the payment of invoices and the issuance of options on the first day of the quarter…I needed comfort on the timing of services provided with the posting of the invoices. In a telephone conference with Dina Moskowitz, CEO, and Carla Collignon, consultant, Ms. Moskowitz thought the options issued on the first day of the quarter were for the prior quarter and Ms. Collignon thought they were due upon issuance and posted them as expense on the first day of the quarter.” I think he’s saying here that if the client couldn’t keep their story straight, how was he supposed to figure anything out.  My response? That’s an auditor’s job. Further research shows Tingle may have been particularly sensitive to this topic as he’d already been dinged by the PCAOB in 2009 on a similar topic (you can read the whole report here, but I’ve already given you the highlights).

In another back and forth Tingle states, “For example, one contract from January 2011 indicated options as part of compensation. Options were issued in January 2012 and expensed over the four quarters of 2012, not 2011.”

SaaSMax responds with, “Registrant does not know what “January 2011” contract Tingle is referring to. The Company did not begin operations until January 19, 2011 and the SaaSMAX Stock Option Plan was not formed until July 2011.” Love the use of extraneous “quotes” here and elsewhere in the document. They also like to use defined terms. Things like, “Deadline,” and “New Accountant.” You’ll have to read it for yourself.

There’s a lot more to comment on, but I’ve said enough here. Go read the actual filing and I’m sure you’ll agree; these two would be better off if they stopped trying to communicate with words and instead sat down together in a sandbox and just started digging.