Supermicro plunges after Ernst & Young resigns as registered public accountant

Shares of Supermicro (SMCI) are sharply lower in pre-market trading after it was disclosed in a regulatory filing that on October 24, Ernst & Young LLP sent the members of the Audit Committee a letter of resignation as the company’s registered public accounting firm. “In late July 2024, EY communicated to the Audit Committee concerns about several matters relating to governance, transparency and completeness of communications to EY, and other matters pertaining to the Company’s internal control over financial reporting, and that the timely filing of the Company’s annual report was at significant risk. In response, the Board appointed an independent special committee of the Board to review the matters and certain of the Company’s internal controls and certain governance procedures. The Special Committee engaged Cooley LLP, and forensic accounting firm Secretariat Advisors, LLC to perform an investigation on behalf of and at the direction of the Special Committee. EY and the Board received updates with preliminary information relating to the Review. As of the date of this Current Report on Form 8-K, the Review remains ongoing and final findings and recommendations have not yet been communicated to EY or the Board. After receiving additional information through the Review process, EY informed the Special Committee that the additional information EY received raised questions, including about whether the Company demonstrates a commitment to integrity and ethical values consistent with Principle 1 of the COSO Framework, about the ability and willingness of the Audit Committee and overall Board to demonstrate and act as an oversight body that is independent of the CEO and other members of management in accordance with Principle 2 of the COSO Framework, and whether EY could rely on representations from certain members of management and from the Audit Committee. In the Resignation Letter, EY stated, in part: ‘we are resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management’s and the Audit Committee’s representations and to be unwilling to be associated with the financial statements prepared by management, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations.’ Although the Company recognizes EY’s decision is final, it disagrees with EY’s decision to resign as the Company’s independent registered public accounting firm – the Special Committee has not yet obtained all information relevant for the Review and has not concluded the Review. Nevertheless, the Company has taken the concerns expressed by EY seriously, and will carefully consider the findings of the Special Committee and any remedial or other actions recommended by the Special Committee following conclusion of the Review,” the filing stated. In pre-market trading, shares of Supermicro have fallen $14.75, or 30%, to $34.37.