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Milkweed
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I'm a self employed architect and self taught fundamental investor. You can also catch me on TMF CAPS competition player "MKArch". http://caps.fool.com/player/mkarch.aspx
  • Did NQ Mobile Actually Announce PwC Was Fired? 23 comments
    Jul 27, 2014 11:23 AM | about stocks: NQ

    In Professor Gillis recent article he mentioned that 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. 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:

    http://www.nysscpa.org/printversions/cpaj/2005/1105/special_issue/essentials/p12.htm

    When an auditor is informed by a company that it has been terminated, or informs the company that it will no longer serve as the independent auditor, the auditor is required to send a form letter directly to the Office of the Chief Accountant of the SEC. This letter must be sent within four business days, and is matched with the Form 8-K filings.

    Since it's been more than 4 business days since NQ changed auditors, 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. 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 is yet to be filed. The real one will contain the letter from PwC announcing whether they agree with NQ's description of what happened. We can all speculate about why NQ would delay the inevitable assuming I'm right but realist know why. Delusional longs will find out.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: NQ
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Comments (23)
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  • dlongava
    , contributor
    Comments (19) | Send Message
     
    Your link is old, 2005. Changed in 2012-13. 10 days, see below.

     

    Only the 8-K is specific with reporting for the dismissed auditor,
    (h) Item 4.01, Changes in Registrant’s Certifying Accountant;
    In summary, S-K Item 304(a) requires the company to disclose whether:
    The auditor resigned or was dismissed and the date of that event [Item 304(a)(1)(i)];
    The auditor provided an adverse opinion or qualifications within the two most recent fiscal years and any subsequent interim period [Item 304(a)(1)(ii)];
    The company' audit committee recommended or approved the change in accountants [Item 304(a)(1)(iii)]; and
    There was a disagreement between the company and the auditors within the two most recent fiscal years and any subsequent interim period [Item 304(a)(1)(iv)].
    27 Jul 2014, 04:59 PM Reply Like
  • Milkweed
    , contributor
    Comments (1476) | Send Message
     
    Author’s reply » I saw this after I posted. If I'm right that the 8K with just the press release attached as an exhibit does not qualify for the above disclosure then we'll probably see the official 6K with PwC's response tomorrow.

     

    After I did the instablog I decided to clean this up a bit and submit it as a full fledged article. If they publish it this will probably be the second time in a row news trumped my article.
    27 Jul 2014, 07:30 PM Reply Like
  • dlongava
    , contributor
    Comments (19) | Send Message
     
    If you publish see my recent post...

     

    NQ's last 6-F filing clearly indicates no disagreement with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.  As a Foreign Private Issuer (NYSEMKT:FPI) NQ is required to File the 20-F and has chosen to file 6-F quarterly.  Instruction on 20-F are quite clear: "FPI’s certifying accountant, including a letter, which must be filed as an exhibit, from the former accountant stating whether it agrees with the statements furnished by the FPI and, if not, stating the respects in which it does not agree". (Source 20-F).  
    To my knowledge, NQ has not amended or provided an exhibit of a letter from PwC.  Additionally, the instructions for the 6-F indicate:  Reports on Form 6-K generally take the place of Quarterly Reports on Form 10-Q (which include financial reports) and Current reports on Form 8-K (which include disclosure on material events) that U.S. domestic issuers are required to file.  (Source 6-K)  The 6-K is not specific in the reporting the dismissal of an auditor except to state that changes in the registrant’s certifying accountants are required.  Only the 8-K is specific:
    Notice to the Auditor and the Auditor's Response
    8-K Item 4.01 specifically references S-K Item 304(a)(3), which requires the company to:
    Provide to the auditor a copy of the disclosure no later than the date that the registrant files the 8-K;
    Request the auditor's written response in a letter from the auditor addressed to the SEC and indicating whether the auditor agrees with the company's disclosure and, if not, how not; and
    File the auditor's letter as an exhibit to the 8-K, either with the initial filing or as an amendment to the initial filing no later than 10 business days thereafter (but, in any event, within two business days of receipt).

     

    Should we expect a 6-K filing next week from NQ with this letter, amendment, exhibit?  The 10 day requirement for NQ attachment is up Aug 1.  
    27 Jul 2014, 07:42 PM Reply Like
  • Milkweed
    , contributor
    Comments (1476) | Send Message
     
    Author’s reply » dlongava,

     

    I think I agree with you except I'm not sure that the 6K filed actually counts as the required disclosure of the termination of PwC because the information was not contained in the body of the filing but in press release that was attached to the filing as an exhibit. You note above that NQ would have to file PwC's response within two days of receiving it. I find it hard to believe PwC would not have responded to an official disclosure of the termination on their services by now and I suspect the reason why they have not responded is because there has been no official disclosure of the termination of their service yet. IE: set up the already filed 6K with just the press release attached as an exhibit because they knew this would not qualify as the required disclosure so they wouldn't have to include PwC's response. What else explains why we haven't heard PwC's response by now?
    27 Jul 2014, 08:23 PM Reply Like
  • TitanInvestor
    , contributor
    Comments (242) | Send Message
     
    I really don't think the NQ guys are smart enough to know that a press release attached as an exhibit MAY not qualify as restricted disclosure...Even though you may find it hard to believe, perhaps PwC has not responded because they have no disagreement with the press release that NQ sent out. That may just be the truth.
    27 Jul 2014, 08:29 PM Reply Like
  • Milkweed
    , contributor
    Comments (1476) | Send Message
     
    Author’s reply » O.K. dlongava, I updated my pending article. Feel free to take some props if it gets past the editors.
    27 Jul 2014, 09:40 PM Reply Like
  • kevh
    , contributor
    Comments (109) | Send Message
     
    NQ definitely dismissed PWC. Otherwise, do you really think PWC would stay silent through NQ's PR and SEC filing? And as the poster above stated, you used an extremely old link. Maybe it's time to asking Seeking Alpha to retract this piece?
    27 Jul 2014, 07:01 PM Reply Like
  • Milkweed
    , contributor
    Comments (1476) | Send Message
     
    Author’s reply » I'm not arguing that PwC wasn't dismissed just that they may not have made this official with the SEC yet and that we have yet to hear PwC's take on the termination. It looks like NQ is holding back on the disclosure with PwC's response, and I'm sure it's not because there was no disagreement.
    27 Jul 2014, 07:19 PM Reply Like
  • kevh
    , contributor
    Comments (109) | Send Message
     
    They filed a 6K with the SEC, it's official.

     

    Rather than going to some 3rd party source that's 9 years old, why don't you just go straight to the sec and read the 8-k regarding this matter:

     

    http://1.usa.gov/1q6ej11
    27 Jul 2014, 07:29 PM Reply Like
  • TitanInvestor
    , contributor
    Comments (242) | Send Message
     
    I agree. If PwC wasn't fired, hard to see them not make an immediate stink about it given NQ's press releases. I think PwC wanted to be fired. They couldn't find any fraud, so couldn't resign, that's why kept ratcheting up the unreasonable requests until NQ was forced to fire them.
    27 Jul 2014, 07:36 PM Reply Like
  • Milkweed
    , contributor
    Comments (1476) | Send Message
     
    Author’s reply » Again they filed a 6K with the press release attached as an exhibit but no exhibit with PwC's response that I've seen with every other announcement of a change of auditor and that Prof. Gillis stated was required. I'm not sure this filing meets the SEC disclosure requirements and I suspect the real filing is yet to come. Yes my link is outdated and the timing could be off but there should still be a filing with PwC's response that looks like it's going to come out at the last possible minute. I think the 10 days are business days which will put it mid week.
    27 Jul 2014, 07:44 PM Reply Like
  • dlongava
    , contributor
    Comments (19) | Send Message
     
    I posted 6-K information. Seems law is clear but has no code cross reference between 8-K and 6-F.
    27 Jul 2014, 07:45 PM Reply Like
  • Milkweed
    , contributor
    Comments (1476) | Send Message
     
    Author’s reply » BTW I used the source I found because it discussed the requirement for the auditor to respond which is what interested me the most. I don't care what NQ has to say about the end of the relationship, I care what PwC has to say. I also didn't see the SEC page until after I posted but it doesn't discuss the requirement for the auditors response so it's still not what I was looking for.
    27 Jul 2014, 07:48 PM Reply Like
  • Milkweed
    , contributor
    Comments (1476) | Send Message
     
    Author’s reply » I've seen a few filings for changes of auditor and the disclosure is in the body of the 8K filing it's not an exhibit attached to the 8K and there is always an exhibit attached with the auditors response. I don't know for sure but I suspect the 8K that was filed does not qualify for the disclosure noted in your SEC link and the real disclosure will be filed at the last minute with PwC's response attached. I suspect this is how they managed to keep PwC's response undisclosed this long, they haven't made the official SEC mandated change of auditor disclosure yet. I suspect the 6K with the press release attached only counted as a material event filing.
    27 Jul 2014, 08:02 PM Reply Like
  • TitanInvestor
    , contributor
    Comments (242) | Send Message
     
    I noticed a comment Prof. Paul Gillis made on his China Accounting blog (in the comments section of his article, "Parsing NQ Mobile's Firing of PwC"):

     

    "I am not certain that there is a requirement for PwC to tell the SEC whether it agrees with NQ's statement that they had no disagreements. That appears to be required only for domestic filers, not foreign private issuers."

     

    If there is no requirement and PwC does not file anything, logic suggests that PwC agrees with NQ's press release.
    27 Jul 2014, 08:38 PM Reply Like
  • Milkweed
    , contributor
    Comments (1476) | Send Message
     
    Author’s reply » I've seen plenty of ChiScam auditor resignation letters however I can't remember if there were any for ADR's or not. I would find it hard to believe they're not required to get the auditors response and if by some wild chance they were not, a non filing does not suggest PwC agreed with NQ's press release it would only mean NQ didn't disclose PwC's disagreement. I seriously doubt they're not required to file a response from PwC.
    27 Jul 2014, 08:52 PM Reply Like
  • TitanInvestor
    , contributor
    Comments (242) | Send Message
     
    I simply don't know if they are required or not. At least we should know by August 1st, one way or the other.

     

    You may have seen plenty of "ChiScam auditor resignation letters", however, PwC did not resign--they were fired. I know you would like to believe they resigned, but so far, the facts are not on your side.

     

    Given how newsworthy PwC's firing is, I doubt PwC would allow the market and media to accept it if it was not true. They care so much about their reputation that they refuse to sign off on NQ's 20-F, but then don't care enough about their reputation to bother correcting false statements by NQ?

     

    Obviously if PwC makes statements to the contrary, then the above statements are no longer valid.
    27 Jul 2014, 09:31 PM Reply Like
  • Milkweed
    , contributor
    Comments (1476) | Send Message
     
    Author’s reply » The requirement for the auditor to respond is triggered by a change in auditor, it doesn't matter whether the auditor resigned or was fired.

     

    "IF" by some remote chance an ADR is not required to get their auditors response there would be nothing for PwC worry about as far as their reputation if their side of the story never came out. Right after NQ said there were no disagreements they noted PwC had wanted to expand the scope of the audit. It doesn't take a rocket scientist to know one of those two statements is wrong and given NQ disclosed a couple weeks earlier that they were "considering" PwC's request to expand the audit we know which one is incorrect. The stocks probably still going to crater when PwC finally points it out though.
    27 Jul 2014, 09:49 PM Reply Like
  • dlongava
    , contributor
    Comments (19) | Send Message
     
    Agreed! Under US filing requirement PwC MUST send a Letter indicating agreement/disagreement. 8-K clearly states this, but the 6-F does not and NQ is required to file the 6-F. I find filing rules and requirements confusing. Again, if an 8-K were filed we would see a letter! Maybe taht is why Paul Gillis said “I am not certain that there is a requirement for PwC to tell the SEC whether it agrees with NQ's statement that they had no disagreements.”
    27 Jul 2014, 10:05 PM Reply Like
  • dlongava
    , contributor
    Comments (19) | Send Message
     
    Good discussion Titan and Milkweed. Ain't life grand! Lets see what Aug 1 will bring.
    27 Jul 2014, 10:08 PM Reply Like
  • Milkweed
    , contributor
    Comments (1476) | Send Message
     
    Author’s reply » I just verified the 10 days are business days (end of the week) so maybe my article makes it through tomorrow and it doesn't get trumped by the actual filing (assuming my suspicions are correct) and we can get more people involved tomorrow. It is interesting though.
    27 Jul 2014, 10:23 PM Reply Like
  • Paul Gillis
    , contributor
    Comments (46) | Send Message
     
    That is for domestic companies that file Form 10K and 8K. Foreign private issuers like NQ are not subject to same rules and can report auditor changes in the 20F.
    29 Jul 2014, 08:00 PM Reply Like
  • Milkweed
    , contributor
    Comments (1476) | Send Message
     
    Author’s reply » Thanks Professor Gillis, however if you are responding to my request in my article I was referring to my second instablog completed an hour or so ago. This instablog was the precursor to my article and is a few days old.
    29 Jul 2014, 09:16 PM Reply Like
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