August 30, 2017

Changing Auditors? The Sooner, the Better

When it comes to changing auditors, it looks like the best advice comes from “Macbeth” – “’twere well it were done quickly.” This Fredrikson & Byron blog flags a new study that says timing matters when it comes to a decision to change auditors – and sooner is a lot better than later:

Companies thinking about changing their auditors should do so before the end of their second fiscal quarter, according to a recent study by researchers at the University of Notre Dame and Ohio University. Although there are legitimate reasons to change auditors having nothing to do with company malfeasance or auditor malpractice, turnover is rare so it can raise questions. In an interview with CFO Magazine, the study’s lead author says that a company announcing the dismissal of its auditor after the second fiscal quarter risks being “lumped in with the bad apples” that want to end the auditor’s engagement to cover up “nefarious” doings.

The study found that companies that dismiss auditors after the 2nd fiscal quarter have “markedly higher rates of future restatements, material weaknesses and delistings” compared to firms that make the change shortly after filing the prior year’s 10-K.

Pre-IPO Companies: Private Liquidity Programs

One reason that some promising companies are electing to defer IPOs may be the growth in private liquidity alternatives for their shareholders. This MoFo blog discusses the Nasdaq Private Market’s recent report on private liquidity programs conducted through its trading platform during the first half of 2017. Here’s an excerpt:

Nasdaq Private Market reports increased activity in private company liquidity programs. Companies that are choosing to stay private longer are using structured and controlled liquidity as a recruitment and retention tool, according to the Nasdaq report. In the first half of 2017, the Nasdaq Private Market Platform had 19 liquidity programs, with a total program volume of $733 million and 1,765 program participants.

62% of the programs were share buybacks and the remaining 38% of the programs were structured as third-party tender offers. These programs had an average size of $40 million. The report notes that most of the 19 programs were employee-focused, where 84% of eligible sellers were current and former employees.

While Nasdaq says that private liquidity programs are appealing to a broader range of companies, most of the companies that have implemented them this year are “unicorns” – with a median valuation of $1.4 billion.

Dividends: NYSE Delays New Timing Requirements

Following up on something we blogged about a few weeks ago, here’s news from Ning Chiu’s blog:

The NYSE has asked the SEC to delay the effectiveness of its recently approved rule requiring listed companies to provide notice to the Exchange at least 10 minutes before making a public announcement about a dividend or stock distribution.

On August 14, when the rule change was approved by the SEC that would require listed companies to provide the Exchange with advance notice, including outside of the hours in which the Exchange’s immediate release policy operates, many assumed that the rule was immediately effective since nothing in the rule filing indicated otherwise.

In its proposal to the SEC, NYSE states that it is asking for the delay to provide listed companies with additional time to prepare and for the Exchange’s new technology systems to provide the necessary support to Exchange staff in reviewing notifications. The Exchange indicates that it will provide reasonable advance notice of the new implementation date to listed companies by emailing a notice to them that will also be posted on, and that the new implementation date will be no later than February 1, 2018.

Until then, the text of Rule 204.12 continues to state that notice should be given as soon as possible after declaration of the dividend or stock distribution and in any event, no later than simultaneously with the announcement to the news media.

John Jenkins