In Professor Gillis's recent article he mentioned that NQ Mobile (NYSE:NQ) would have to file a 6K announcing that they fired PwC and that PwC would have to respond to NQ's disclosure about the termination. When I've seen changes in auditors in the past, a letter from the auditor leaving is attached to the 8K or 6K filing that announced the change. The change in auditor took place on 7/18/14 and since we have yet to see PwC respond over a week after NQ put out a press release announcing they were changing auditors, I decided to look into the requirements to announce a change in auditor, and more importantly the timing on a response by the auditor leaving. Here's what I found:
(3) The registrant shall provide the former accountant with a copy of the disclosures it is making in response to this Item 304(a) that the former accountant shall receive no later than the day that the disclosures are filed with the Commission. The registrant shall request the former accountant to furnish the registrant with a letter addressed to the Commission stating whether it agrees with the statements made by the registrant in response to this Item 304(a) and, if not, stating the respects in which it does not agree. The registrant shall file the former accountant's letter as an exhibit to the report on registration statement containing this disclosure. If the former accountant's letter is unavailable at the time of filing such report or registration statement, then the registrant shall request the former accountant to provide the letter as promptly as possible so that the registrant can file the letter with the Commission within ten business days after the filing of the report or registration statement. Notwithstanding the ten business day period, the registrant shall file the letter by amendment within two business days of receipt; if the letter is received on a Saturday, Sunday or holiday on which the Commission is not open for business, then the two business day period shall begin to run on and shall include the first business day thereafter. The former accountant may provide the registrant with an interim letter highlighting specific areas of concern and indicating that a more detailed letter will be forthcoming within the ten business day period noted above. If not filed with the report or registration statement containing the registrant's disclosure under this Item 304(a), then the interim letter, if any, shall be filed by the registrant by amendment within two business days of receipt
Given that it's been over a week since NQ announced in a press release they were changing auditors and never having seen a letter from the auditor more than a paragraph or two long (PwC doesn't need 10 days), I think I might have an explanation about why we haven't seen a filing with PwC's response. The one 6K filing to date about the change didn't actually announce the change in the filing, it just attached the press release announcing the change as an exhibit to the filing. I don't pretend to understand all of the SEC reporting requirements, however I suspect that this did not count as an official SEC disclosure of the change, and that the real one has yet to be filed. Assuming I am right, the real one will contain the letter from PwC announcing whether they agree with NQ's description of what happened.
It appears that NQ is delaying the official SEC announcement and PwC's response. I think all but diehard longs would agree it's not likely they are holding back good news. In the press release they announced:
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
However in the same press release they note:
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.
This is in addition to their statement a few weeks earlier when they announced that PwC wanted to expand the scope of the audit however they were only willing to "consider" this request. Clearly there are differences on matters of the scope of the audit at a minimum. In my opinion when PwC's response is finally disclosed there will be significant disagreements and there is a good chance NQ's stock does yet another 180.
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.