When a company changes their auditors, it can be a bit of a headache. As inconvenient as it can be, I've never heard a company express despair over it until I read this 8-K from Nano Labs Corp.
Their auditor was none other than Terry Johnson, the Florida CPA who didn't audit much for his clients and who was ceremoniously barred from practicing before the SEC.
Auditor Carousel spotted this in its weekly roundup up of changes and while Nano Labs dismissed Johnson back in May, the company:
The Company's Board of Directors has subsequently determined that the suspension of Johnson and the necessity of re-auditing the financial statements for fiscal year ended June 30, 2014 has caused disastrous economic and financial consequences for the Company. It has also presented insurmountable issues in obtaining working papers and financial data from Johnson pertaining to its prior financial statements for fiscal year ended June 30, 2014 as prepared by Johnson , which are being requested by the Company's current auditors [Malone Bailey]. Therefore, the Board of Directors has determined that it is in the best interests of the Company and its shareholders to de-register its securities and cease becoming a fully reporting company under the Securities Exchange Act of 1934, as amended.
The Board of Directors has determined that it will proceed with the requirements for listing as a pink sheet company with the OTC Markets.
First of all — and maybe I'm wrong — but if losing your auditor "caused disastrous economic and financial consquences" for your company, maybe you don't have a very good business! I mean, things happen and auditors come and ago; Auditor Carousel posts dozens of auditor changes every week and you don't hear about business pulling their securities as a result, including many of Terry Johson's clients!
Second, I don't understand why Johnson's workpapers are such an issue. He didn't have many workpapers to begin with! The only things Malone Bailey might learn from them is A) how to be grossly negligent when performing an audit and B) that they shouldn't have taken Nano Labs on as a client.
I guess the bright side is that auditors are valuable enough to some companies that their loss can have great consequences. The catch is, they may not be companies anyone should be investing in anyway.
[8-K via Auditor Carousel]
