Super Micro Computer's stock plummeted Wednesday following the news that Ernst & Young resigned as its auditor, just months after the firm flagged significant issues regarding internal controls over financial reporting. The audit firm notified Super Micro of its resignation in a letter dated October 24, as revealed in a filing with the US Securities and Exchange Commission.
Super Micro had engaged Ernst & Young in March 2023 to oversee its financial statements for the fiscal year ending June 30, 2024, and the resignation occurred amidst the ongoing audit process. In late July, Ernst & Young had raised serious concerns related to governance, transparency, and the completeness of communication, as well as other issues concerning the company's internal controls over financial reporting.
They indicated that the timely filing of Super Micro's annual report was at 'significant risk.' In response to these concerns, the company's board took decisive action by forming an independent special committee and bringing in Cooley LLP and forensic accounting firm Secretariat Advisors to investigate the situation.
Ernst & Young subsequently communicated to this committee that new information had surfaced, sparking doubts regarding the company's ethical standards and the commitment of the board's audit committee and the board to operate independently of the executive management team. In their resignation letter, Ernst & Young cited that they could no longer trust the representations made by Super Micro's management and audit committee, and stated they could not associate themselves with the financial statements prepared by the company.
As a result, Super Micro's shares fell by 31% in late-afternoon trading on Wednesday, although the stock has risen by 19% year to date. The company expressed its disagreement with Ernst & Young's resignation, indicating that the special committee has not yet completed its investigation. Super Micro is currently in the process of selecting a new public accounting firm.
Furthermore, the company emphasized that it does not anticipate any restatements of quarterly reports for the fiscal year ending June 30, 2024, or for previous fiscal years based on the issues raised by Ernst & Young or under consideration by the special committee. Ernst & Young did not provide a response to requests for comment.
In late August, Super Micro had already announced a delay in the filing of its annual Form 10-K report, following allegations of 'accounting manipulation' from short-seller Hindenburg Research. Additionally, Super Micro recently received a noncompliance notice from Nasdaq for failing to submit its 2024 annual report by the August 29 deadline.
Notably, the company is set to announce its fiscal first-quarter financial results on Tuesday..