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January 23, 2023

Auditor Swap: AZZ Says Buh-Bye to BDO USA, Hires Grant Thornton

Thumbs down BDO LLP

Auditor shopping has made the news a little more than usual of late, with high-profile companies like Fitbit and Goldman Sachs in the U.K. both kicking PwC to the curb in favor of a fresh, new set of eyes. Then there’s General Electric, which might end its century-old relationship with KPMG after this year.

While specialty equipment maker AZZ Inc.’s engagement with BDO USA wasn’t even one-tenth as long as GE’s with KPMG, it decided the time was right to look elsewhere.

CFO Journal reported:

AZZ’s audit committee dismissed BDO USA LLP and replaced the Chicago-based auditor with Grant Thornton LLP. AZZ said it informed BDO of the dismissal last week.

AZZ’s move comes after two years of accounting difficulties. The company delayed filing its fiscal 2019 and 2018 annual reports and had disclosed separate material weaknesses in its internal controls over financial reporting of revenue in both years.

On Thursday [May 30], in a filing with the Securities and Exchange Commission, AZZ said that BDO included “adverse opinions” on the effectiveness of the company’s oversight of financial reporting contained in the auditor’s assurance reports. The dismissal wasn’t over disagreements with BDO’s accounting and auditing principles and practices, AZZ said in the filing.

Then why did AZZ drop Bravo Delta Oscar? Fees? I don’t have any figures to back this up, but I can’t imagine hiring Grant Thornton was because AZZ was bargain hunting. AZZ CFO Paul Fehlman told CFO Journal the company was planning to hire a new auditor before AZZ filed its most recent annual report, adding, “It’s always considered best practice to do a rotation to refresh the auditor relationship.”

So this must be a decades-old relationship with BDO, right? Not really. I reviewed AZZ’s 10-Ks and found that BDO has been its auditor for only about 10 years, back when BDO was known as BDO Seidman, replacing EY at the time.

I’m just spitballin’ here, but you’re telling me the fact that AZZ had to restate its financial results for the 2017 fiscal year, as well as quarterly periods ended May 31, 2017, and Aug. 31, 2017, to correct errors it made by applying the wrong accounting treatment to certain contracts within its energy business didn’t play a teensy-weensy part in its decision to drop BDO? Is it wrong that my B.S. detector went off?

AZZ disclosed that it had previously engaged GT on advisory services related to the company’s adoption of new accounting standards for revenue recognition and leasing, and tax advisory services related to tax compliance and optimization. And by the looks of it, AZZ CEO Tom Ferguson is a big fan of the Purple Rose of Chicago.

“Previously we worked with members of the GT team on matters relating to revenue recognition, leasing, and tax issues. Our experience was truly outstanding. Selecting GT as our independent accounting firm is based on our belief that they will deliver timely, high-quality audit services while understanding the complexities of our business.”

It probably was a good move for AZZ to dump one Chicago-based top seven firm for another. I mean, BDO has been sucking at this auditing thing for a while now, while Grant Thornton is probably somewhere in Wicker Park on its victory lap tour for having a surprisingly outstanding 2017 PCAOB inspection report.

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