Ernst & Young (EY) has confirmed its resignation as the public accounting firm for Super Micro Computer (trading as ‘Supermicro’). In an 8-K filing published today by the US Securities and Exchange Commission (SEC), EY said its decision followed a communication Supermicro’s Audit Committee relaying concerns about its governance, communication and transparency. Markets reacted poorly to the announcement, with Supermicro’s share price dropping by 32% after morning trading.
“The Chair of the Audit Committee discussed with EY the reasons for EY’s resignation,” wrote the accounting firm. “The Company [Supermicro] has begun the process of identifying a successor independent registered public accounting firm. The Company will authorize EY to respond fully to the inquiries of the successor independent registered public accounting firm, once selected.”
Supermicro difficulties
Founded in 1993, Supermicro specialises in the production of high-performance and high-efficiency server technology, with customers across the data centre sector, cloud computing, high-performance computing and enterprise IT. It originally engaged EY as an auditor in March of this year, tasking the accounting firm with an audit of the server specialist’s finances for the fiscal year ending 30 June. After the accounting firm expressed its misgivings about Supermicro’s corporate culture, the latter formed a special committee to review these concerns.
Despite this, the server specialist failed to publish any relevant financial statements. In its statement, EY said it would be “unwilling to be associated with the financial statements prepared by management” in any case. It also revealed concerns that Supermicro’s Audit Committee and board had proven unable to demonstrate a “commitment to integrity and ethical values consistent with Principle 1 of the COSO Framework, about the ability and willingness of the Audit Committee and overall Board to demonstrate and act as an oversight body that is independent of the CEO and other members of management in accordance with Principle 2 of the COSO Framework, and whether EY could rely on representations from certain members of management and from the Audit Committee.”
Vocal criticism from Hindenburg Research
EY’s resignation follows Supermicro’s announcement earlier this month that it was shipping over 100,000 GPUs to customers per quarter, news that immediately lifted the firm’s share price by 14% and added $3bn to its notional market value. Such a development appeared to run contrary to harsh criticism of the server firm by Hindenburg Research two months earlier when it accused Supermicro of self-dealing and accounting manipulation.
It is not the first time Supermicro has been accused of financial impropriety. In September, the US Department of Justice reportedly began investigating the company. In 2020, too, the SEC accused the firm of understating its expenses and “prematurely recognising revenue,” pushing its staff to “maximise end-of-quarter revenue, yet [failing[ to devise and maintain sufficient internal accounting controls to accurately record revenue” – allegations that eventually resulted in Supermicro paying a fine of $17.5m.
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