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Is Anyone Crazy Enough To Audit Super Micro Computer? (msn.com) 41

Posted by msmash from the closer-look dept.
Server maker Super Micro Computer is facing mounting challenges after EY resigned as its auditor on October 24, citing concerns about management's integrity and ethical values. EY's departure came just months after replacing Deloitte & Touche, which had audited Super Micro for two decades through June 2023.

The resignation raises questions about potential issues Deloitte may have missed. Super Micro has appointed a special committee and hired legal and forensic accounting firms to investigate, though details remain undisclosed. The company faces a November 16 deadline to submit a compliance plan to Nasdaq regarding delayed financial reports. A former employee's lawsuit alleges improper revenue recognition between 2020-2022 under Deloitte's watch, prompting a Justice Department investigation. WSJ adds: Persuading another major audit firm to sign on under the current circumstances would be an impressive feat. EY in its resignation letter said it was "unwilling to be associated with the financial statements prepared by management."

Why would any other auditor feel differently?

Is Anyone Crazy Enough To Audit Super Micro Computer? More | Reply

Is Anyone Crazy Enough To Audit Super Micro Computer?

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  • I wouldn't be surprised... (Score:3)

    by cloud.pt ( 3412475 ) on Friday November 15, 2024 @11:57AM (#64948065)

    ...Deloitte comes back. For a very particular reason: they probably didn't end their decades-long contract for the same ethical reasons as EY. Likely it was a price issue (some may argue EY's could also have been under the hood of course...).

    If Deloitte was willing to take SuperMicro's shenanigans over the past 2 decades, they are probably willing to come back. For the right price. Now that EY made this exit that price may not only be more acceptable to SuperMicro, it may also have become higher. Which is funny to say the least.

    • Somehow, I doubt it. The potential liabilities would probably be much larger than the profit. I suspect that both companies left for the same reason, they could not make the numbers add up. People have a much higher expectations of these companies than is reality. They do not really audit the company's books in detail. They simply do spot checks. If the management was involved in true fraud, they could easily hide it from the auditors. Enron is a classic example. The truth is that these outside audi

      • Auditors work on information provided by the audited. Unless there is a court order involved and records seized without warning, an auditor's report is worth your estimate of the company's integrity divided by your guess as to how good they might be at running two sets of books.

        And that's before you consider whether the auditor themselves might be corrupt.

    • Deloitte might come back but any report they issue will always be viewed as suspect. The layers of approval within EY that statement must have gone through and combined with the associated revenue loss for EY by bailing means it's likely the financial statements were SO bad that Ey felt it would have exposed them to massive liability. That's kinda wild.
    • Its not a question of performing an audit, but whether or not they will issue an unqualified opinion. I rather doubt that SuperMicro wants to pay Big4 dollars for an Adverse Opinion.

    • Re: (Score:2)

      by gweihir ( 88907 )

      EY did not get out for "ethical reasons". EY did get out because they remembered Arthur Andersen and how there used to be 5 (!) big accounting firms until Enron happened. And EY already had to rename themselves to obscure their past screw-ups.

      Hence they got out because they found the risk to their continued existence to be unacceptable.

  • You don't have to be crazy... (Score:5, Insightful)

    by eepok ( 545733 ) on Friday November 15, 2024 @12:06PM (#64948099) Homepage

    You don't have to be crazy to audit a company with broken financial controls. You just have to have access and protection.

    To have access, you tend to need to be trusted by management. If management is as screwed as E&Y implies, then anyone they trust will likely be as screwy as them. Access will need to be gained in other ways: such as a shake from in the board of directors forcing out some of management and with the board bringing in another auditor.

    But it doesn't stop there. The board will need to accept that they're going to be digging up a LOT of BS and thus they're going to have to offer abnormal levels of protection to the auditors (i.e. Not libeling them or firing them for digging up the bad stuff.). Basically, they need to treat this like a bankruptcy where you dump the crap C-suite and bring in a bunch of people who are experts at cleaning up the books. They wouldn't be selling off parts of the company or doing layoffs, but that may be the end result once the true state of financial health is discovered.

    This kind of super transparency is not required of a business normally, but if board wants to survive (themselves) and wants the company to survive instead independently, then this is the only way they'll retain the faith of investors and the reputation of stability for future customers.

    • You don't have to be crazy to audit a company with broken financial controls.

      But it may help.

    • How does this jive with modern Sorbannes-Oxley reporting? I thought corporations were required to required to open up and accounting and auditing firms were required to do proper diligence or be held accountable? (ie, no more Arthur Anderson style of helping a company cheat)

  • Enron auditors (Score:5, Informative)

    by sinij ( 911942 ) on Friday November 15, 2024 @12:18PM (#64948131)
    Enron passed all their accounting audits.

    • Re: (Score:3)

      by eepok ( 545733 )

      Arthur Anderson (one of the "Big Five" accounting firms) was Enron's auditor and they were DISSOLVED when the BS that was Enron was brought to light. Moreover, the Enron failure directly let to the Sarbanes-Oxley (SOX) Act which massively increased the pressures to comply with reasonable audits. We are MUCH LESS likely to see another Enron because of Enron.

      Yes, people defraud and they may have accomplices, but eventually the other shoe drops.

      • Re: (Score:3)

        by tlhIngan ( 30335 )

        Arthur Anderson (one of the "Big Five" accounting firms) was Enron's auditor and they were DISSOLVED when the BS that was Enron was brought to light. Moreover, the Enron failure directly let to the Sarbanes-Oxley (SOX) Act which massively increased the pressures to comply with reasonable audits. We are MUCH LESS likely to see another Enron because of Enron.

        Yes, people defraud and they may have accomplices, but eventually the other shoe drops.

        Until January 20, 2025, at which point the SEC would be gutted to

  • The auditor "may have missed" issues... Haha! (Score:4, Interesting)

    by Rosco P. Coltrane ( 209368 ) on Friday November 15, 2024 @12:20PM (#64948137)

    Anybody who's ever worked in QA knows audits are a massive joke, for one simple reason: the auditee pays the auditor.

    If the auditor puts his nose where he shouldn't and finds nonconformities, they don't get invited back at the next re-certification or full audit. Or worse - it's happened in my previous company: the company calls the audit company complains about the auditor, and the audit company cancels the audit and sends a new guys that plays ball and looks the other way.

    Audits only work in one case: when the company that's audited honestly takes the audit as a tool to improve itself. When all it wants is the paper that says it's ISO9001 or whatever, audits are a fucking joke and everybody knows it.

    • The company I work for sells to the nuclear and power industry. We're audited by other companies and the government plenty of times. No money ever changes hands and the findings are taken seriously.

      • That's great when the government takes QA seriously. Case in point, Boeing: "Let them self-regulate" worked out exactly as you'd expect.

        Indeed I don't think the nuclear industry will ever get sloppy because the stakes are simply too high. However sad a few hundred deads in a Boeing aircraft, it's peanuts compared to a nuclear accident.

        And yeah, supplier audits work pretty good most of the time because it's in the buyer's interest.

        • I wish I had your confidence about the nuclear industry. As long as operational managers aren't living right next to the reactors, there will be opportunities for safety shortcuts to be taken.

          Major shareholders should probably be required to be strapped to the reactors, too. At least some of the time.

    • Depends upon what's being audited. If it's the company's financials, then I was led to believe that auditors can be held accountable for helping to hide criminal wrongdoing. ISO9xxxx stuff is different since there aren't legal issues involved, it's just to get the seal of approval that customers want to see.

    • If the auditor puts his nose where he shouldn't and finds nonconformities, they don't get invited back at the next re-certification or full audit.

      You're right but not for the reason you think. There's a legal duty to audit accurately. Just ask Arthur Andersen, remember them? One of the world's largest auditing firms who went under after doing what your post says auditors do to Enron?

      Not all audits are companies wanting to better themselves, quite a few of them (as in this case) are required by regulators, and no, they aren't a joke, if the loss of one of the world's largest auditing firms wasn't enough there are now considerably stronger laws regardi

  • They're hiring... (Score:3)

    by whitroth ( 9367 ) <whitroth@[ ]ent.us ['5-c' in gap]> on Friday November 15, 2024 @12:21PM (#64948141) Homepage

    ... forensic accountants? That suggests that there's been massive, senior exec lying for years. This is *not* a good sign for their actual financial health... and then there's the question of how much was embezzled by senior management.

    • Re: (Score:2)

      by cpurdy ( 4838085 )

      and then there's the question of how much was embezzled by senior management.

      That is not a question. That is a given. That's how companies work there.

      • You get jail time even without embezzlement. There are rules about financial audits (in the US and EU at least) that must be taken very very seriously.

        I found one of my past companies appearing by surprise as part of the collective winning of an Ig Nobel Prize in economics for the innovative use of imaginary numbers in the business world. It was all the big shakeup over the Enron fiasco, and several companies ended up in deep trouble over common accounting procedures. My CEO ended up with federal jail ti

    • Maybe it will turn out like The Accountant [wikipedia.org]. That would be...dramatic.

  • and who will fill the gap with server boards that fit into common cases? Others in the past had no where near the level of choice that super micro had.

    Not dell as they have lots of dell only parts.

    Not HP the same (they even try to block / error non HP HDD's in how swap bays)

    • I doubt if the company is in any real financial danger. This sounds more like the management manipulating sales figures to affect the stock price and maximize their bonuses than any real underlying financial issue. The basic production will go on, maybe under a different management and name, but the products will still be there.

      • Recall that they hold 200k BTC worth about $20 billion. So not only are they fine financially they are doing super well as a crypto scheme with a store front that sells motherboards.

        Likely that their BTC holdings, how they paid for it, how they accounted for it, etc are the issue for the auditors and their upcoming legal problems

  • Where's... (Score:3)

    by Brooklynoid ( 656617 ) on Friday November 15, 2024 @12:53PM (#64948239)
    ...Arthur Andersen when you need them?

  • The U.S. GOA has the actual job of auditing the government financial statements. For a very long time every year's annual report has included this disclaimer, or something similar.

    Certain material weaknesses, limitations, and uncertainties prevented the Government Accountability Office from expressing an opinion on the U.S. Government's consolidated financial statements included in the Financial Report and, therefore, GAO disclaimed an opinion on such statements.

    https://fiscal.treasury.gov/fi... [treasury.gov]

    "We know it

    • Or take the Department of Defense. they've never had a 'clean' audit. Clean not meaning that they couldn't even come up with the numbers let alone if there was any fraud, waste, abuse of those numbers. That's $5 trillion of ...shoulder shrug

      So when various politicos and their paid-media mouthpieces spout off about Ukraine...$40 billion dollars, clutch pearls. Where's the accounting...clutch pearls. RT reported that someone sold night vision goggles on the black market...clutch pearls. How about we sta

    • Re: (Score:2)

      by PPH ( 736903 )

      Certain material weaknesses, limitations, and uncertainties prevented the Government Accountability Office from expressing an opinion on the U.S. Government's consolidated financial statements

      14th Amendment, Section 4: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

      So the question is; Is anyone crazy enough to audit the US Government?

  • Delisting is going to trigger immediate repayment of $1.725B in convertible notes that were due March 2029 ... so bankruptcy. NASDAQ has always been slow to delist companies that should be delisted, so I doubt tomorrow is the day, but if it happens they are screwed.

    • Except that they hold something like 214,400 BTC worth like $20 billion dollars. So I think they are ok.

      I don't support that whole BTC crap, but somehow they came out ahead on it. My guess is that similar to FTC even though they have the cash (now) the manner in which they used corporate funds in purchasing said crypto was illegal. Also possibly they weren't reporting fully the steep losses when BTC was much lower.

      • I think you are confusing Microstrategy for Super Micro Computer. Microstrategy is holding $20B worth of Bitcoin, Super Micro Computer is not.
  • If you read the Hindenburg Research piece on smci, it's pretty bad. Combine it with their auditor resigning, you can explain the share price crashing. It sounds like smci will receive their extension for filing their late financials. As a speculator, you need to decide how bad it is and how much you're willing to gamble and lose. IMO it sounds like leadership and the board need to be replaced if any of the Hindenburg accusations are true. (at the very least). Supermicro seems to be a legit company selling l

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