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It’s hard to overstate the mess that the BF Borgers scandal creates for its public company clients. In an effort to provide some guidance to those clients, Corp Fin’s Office of the Chief Accountant issued a statement highlighting their disclosure and reporting obligations.  In addition to flagging the Item 4.01 8-K report required in connection with a change in accountants, the statement highlights the impact on companies with respect to their future SEC filings:

– Form 10-K filings on or after the date of the Order may not include audit reports from BF Borgers. Each fiscal year presented must be audited by a qualified, independent, PCAOB-registered public accountant that is permitted to appear or practice before the Commission.

– Form 10-Q filings on or after the date of the Order may not present financial information that has been reviewed by BF Borgers. Each quarterly period presented must be reviewed by a qualified, independent, PCAOB-registered public accountant that is permitted to appear or practice before the Commission.

– Form 20-F filings on or after the date of the Order may not include audit reports from BF Borgers. Each fiscal year presented must be audited by a qualified, independent, PCAOB-registered public accountant that is permitted to appear or practice before the Commission.

That means that companies are going to need to re-audit all of the years covered by a BF Borgers audit report for their next 10-K and re-do prior interim reviews for periods presented in upcoming 10-Qs. Unfortunately, for some of those companies, that may be the least of their problems.

For instance, the timing of the SEC’s action means that former Borgers clients face a looming 10-Q deadline, and even with a Rule 12b-25 extension, it may be practically impossible to retain a new accountant and complete the required review by the extended 10-Q deadline. Under the circumstances, I expect that any new accounting firm will need to do a lot of additional work before it will issue a review report and that audit committees will want to have those numbers scrubbed very hard before signing off on a 10-Q filing containing them. The bottom line is that many of these companies are going to be late filers.

What’s more, given all the work that Borgers apparently didn’t do on hundreds of audits, once new auditors start poking around, my guess is we’re likely to see a fair share of these companies conclude that restatements of prior audits are necessary – which will open up a “whole ‘nother bag of snakes.”

– John Jenkins