The hits for NQ Mobile (NYSE:NQ) just keep on coming.
This morning, the stock is trading off over 10% in pre-market trading on early morning Friday news that NQ has dismissed PricewaterhouseCoopers Zhong Tian LLP as its independent auditors. The company has engaged Marcum Bernstein Pinchuk, LLP as its new independent auditor.
In a small press release put out by the company early Friday morning, NQ states that:
The Company's Audit Committee has dismissed PricewaterhouseCoopers Zhong Tian LLP (PwC (OTC:PWESF)) as its Independent Auditor. Effective immediately, the Company's Audit Committee has engaged MBP as its new Independent Auditor with respect to the fiscal year 2013 and subsequent periods.
Following consultation with PwC, the Company's Audit Committee confirms that there is no disagreement between the Company and PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
Hmm. If there was no disagreement, why change auditors?
It clearly looks as though the auditor change comes as a direct result of the company's own press release from June 4th, where NQ went into details about data that was missing. That seemed to perk up PwC's interest, and they obviously asked for more information regarding this from the company:
PwC advised the Company and the Audit Committee that the observations referred to in the Company's press release reporting on the Special Committee's Independent Investigation dated June 4, 2014 regarding questions related to electronic data collected by the Investigation Team would require it to expand the scope of its work and, if investigated further, may cause it to be unwilling to rely on management representations in connection with its audit work.
The Audit Committee has carefully considered the additional procedures proposed by PwC. The Audit Committee notes that PwC informed the Company and Audit Committee that as part of those procedures it would seek among other things information that is not in the possession, custody or control of the Company. For example, PwC has requested that the Company provide PwC with access to multiple third parties' original bank statements and financial records.
It appears that PwC may be doing a little bit of due diligence that a normal auditor would have turned a blind eye to. While a lot of auditors simply look for cosmetic mistakes on the balance sheets and cash flow, it appears that this case saw PwC asking questions about the origin of some of the funds that NQ has come up with. While certainly on the outer edges of the scope of an audit, it's definitely reasonable in the case of NQ - and looks good that PwC was striving to make sure they blessed only a clean audit. NQ, rather than provide an answer to these questions, found it easier to simply switch to someone who will likely not ask the tough questions. Finally, a bit of the smoking gun:
Furthermore, PwC has advised the Company and the Audit Committee that, depending upon what PwC learns from the procedures performed pursuant to its expanded audit scope, there may be other or additional information that it would need. The Audit Committee has concluded that PwC's proposed procedures may create risk for the Company with respect to the Company's obligation to file its Form 20-F for the year 2013.
This is nothing like a press release you'd ever see coming out of a major corporation. NQ simply just doesn't want to cooperate, it would appear. While the company claims:
The Company remains fully confident in all of its previously reported financials and filings as to their accuracy and does not expect any material changes.
At this point, nothing is off the table.
This is just another red flag in a series of red flags that have resulted in NQ still be unable to file its 2013 annual report. There are more questions than answers at this point, and NQ Mobile continues to remain an "avoid at all costs" with the potential risk of total loss.
Best of luck to all investors.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.