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Ernst & Young withdraws as auditor of Super Micro – shares fall by 33%

The withdrawal of Ernst & Young as auditors raises serious questions about the financial integrity of Super Micro and has led to a dramatic decline in the stock.

Eulerpool News Nov 4, 2024, 5:02 PM

Ernst & Young (EY) withdrew as auditor of Super Micro last week after significant concerns about internal controls, board independence, and accounting practices were raised. This move leads to a dramatic devaluation of Super Micro's shares, which plummeted 33% on Wednesday after the company announced the auditor's resignation.

In its resignation letter, EY stated it was "unwilling to be associated with the financial statements prepared by management." The accounting firm also raised concerns about the board’s independence from CEO Charles Liang and "other members of management." EY was first engaged as Super Micro's auditor for the fiscal year 2024, but the financial statements for this year have not yet been published. Rumor has it that the company is also under federal investigation.

Super Micro, a manufacturer of computers that companies use as servers for websites, data storage, and various applications, including AI algorithms, has faced issues with regulators in the past due to its accounting practices. In 2020, the company paid a fine of $17.5 million to the Securities and Exchange Commission after the regulator claimed that the company had prematurely and improperly recorded revenues.

Only in July did EY first point out problems with Super Micro's internal financial controls and governance, prompting the company to appoint a special committee to review the internal controls. "We are resigning due to information that recently came to our attention, which makes us unable to rely on the representations of the management and the audit committee," states the resignation letter.

To clarify the situation, Super Micro has engaged the law firm Cooley and a forensic accounting firm to review the internal controls. This investigation is still ongoing, as the company stated in a regulatory filing.

The announcement of EY's resignation and the associated concerns cast a shadow over the future of Super Micro, which was included in the S&P 500 in March and saw a 246% increase in stock prices in 2023. Despite past successes, the company now faces significant challenges.

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