Your average audit opinion is a pretty ho-hum affair. Boilerplate language and standard, precise wording doesn’t make for an enthralling read generally. But when you go through many thousands of audit opinions each year, there are bound to be some eye-opening outliers. In one recent case, for example, we discussed a rare disclaimer of opinion.
Yet, in some cases, we see financial statements that do not have an auditor report at all. Take a look at the recent annual report of Bulova Technologies Group, filed January 13, 2017:
The annual audit of the Company’s financial statements is in process, but has not been completed as of the date of filing this Form 10K for the year ended September 30, 2016.
The Company understands that the staff of the Securities and Exchange Commission (the “staff”) has taken the position that this report is deficient because the annual financial statements contained in this report for the year ended September 30, 2016 have not yet been audited by an independent registered public accountant as required by Rule 10-01(d) of Regulation S-X.
The Company understands that completion of the audit of its annual financial statements and the filing of an amendment will make this report current, although it will not be deemed timely for purposes of the rules governing eligibility to use registration statements on Forms S-2 and S-3. When the audit is complete, the Company will file an amendment to this report which will include the independent auditors’ report and the required certifications of the Company’s Principal Executive Officer and Principal Financial and Accounting Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act.
On February 6, the company filed an amended report to announce that the audit was complete.
Let’s take a look at another example. On September 2, 2016, Earth Life Sciences filed an 8-K with an Item 4.02. For the most part, these filings are associated with major errors in a company’s financial statements that, once discovered, undermine reliance on previously issued financial statements. In this case, however, there was another reason – namely, the lack of audit opinion.
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
The Company is still working with its independent auditor on completing its audit for the year ended December 31, 2015. The Company anticipates filing an amended December 31, 2015 audit on or before September 30, 2016. Until such time the Company files its amended filing, the Company advises non-reliance on its previously issued 10-K filing for the year ended December 31, 2015, as well as its subsequent filings for the quarters ended March 31, 2016, and June 30, 2016. These filings were made without the review of our independent auditor and should not be relied upon. These filings were management-prepared and filed by management and should not have been filed.
The non-reliance filing was preceded by back and forth comment letters between the SEC and the company. At least two of the letters (see here and here) included an explicit request to file an audit report and audited financial statements.The first letter in the conversation was dated September 2015, and a year later the SEC decided to terminate the review because Earth Life Sciences failed to fully address all the comments.
We are not sure why a publicly traded company would file an annual report before the audit was complete. What is the advantage to doing so instead of just waiting until the audit was done? (One cannabis company gave an entertaining take on that question, which we’ve discussed before: “Ultimately, from an investor’s prospective [sic], the important issue is whether the information in the report is correct, not whether it has been reviewed by an issuer’s independent accountant.”)