Item 4.01 Changes
in Registrant’s Certifying Accountant.
On August 26, 2016, the Audit Committee
(the “
Audit Committee
”) of the Board of Directors of Green Brick Partners, Inc., a Delaware corporation
(the “
Company
”), in consultation with the Company’s Board of Directors, approved the engagement
of RSM US LLP (“
RSM
”) as the Company’s new independent registered public accounting firm, effective
immediately.
The Company’s current independent
registered public accounting firm, Grant Thornton LLP (“
Grant Thornton
”), was notified on August 26,
2016 of its immediate dismissal.
The reports of Grant Thornton on
the Company’s consolidated financial statements for the fiscal years ended December 31, 2015 and 2014 did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended December
31, 2015 and 2014 and the subsequent interim period through August 26, 2016, there have been no “disagreements” (as
defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions) with Grant Thornton on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction
of Grant Thornton, would have caused Grant Thornton to make reference thereto in their reports on the consolidated financial statements
for such fiscal years. During the fiscal years ended December 31, 2014 and 2015 and any subsequent interim period through August
26, 2016, there have been no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K), except that the
Company’s internal control over financial reporting was not effective due to the existence of material weaknesses in the
Company’s internal control over financial reporting. As disclosed in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2015, and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016 and June 30, 2016,
the following material weaknesses were identified:
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The Company utilizes an integrated Enterprise Resource Planning (ERP) software system by a third-party service organization
in the Company’s production and accounting for homebuilding and land development business. The Company was unable to obtain
a Service Organization Control (“
SOC
”) 1 Type 2 report prepared in accordance with the AICPA Attestation
Standards, Section 801, Reporting on Controls at a Service Organization, addressing the suitability of the design and operating
effectiveness of controls relating to the application and business processing activities performed by the service organization
on the Company’s behalf for the year ended December 31, 2015. As a result, the Company was unable to conclude that its service
organization maintained effective controls over its information technology environment to (a) prevent unauthorized database and
application access, and (b) maintain effective security administration and appropriate change management for the application maintained
by the third-party service organization. This resulted in an inability to rely on the accuracy and completeness of data and key
application reports obtained from the application at the third-party service organization used in the performance of important
controls over certain key financial reporting processes, including accrued liabilities, vendor master file changes, reserves for
housing completion, and budget data.
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The Company did not maintain effective controls over the sufficiency and timeliness of review and approval of manual journal
entries, including consolidating adjustments.
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The Company did not maintain effective controls over the identification, evaluation, and disclosure of related party transactions.
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The Company did not maintain effective controls over period-end accruals (cutoff), recording of inventory costs, costs of goods
sold, and operating expenses to verify that all costs and expenses are captured completely and accurately for financial reporting.
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The Company did not maintain effective controls to verify that financial statement amounts are appropriately classified and
disclosed in the financial statements.
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Grant Thornton was not required to
provide an attestation report as to the effectiveness of the Company’s internal control over financial reporting for the
fiscal year ended December 31, 2014, due to a transition period established by rules of the Securities and Exchange Commission
(the “
SEC
”) pursuant to Section 215.02 of the SEC’s Compliance and Disclosure Interpretations.
However, as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, Grant Thornton
identified and communicated the following material weaknesses:
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No restrictive access on who has the ability to post journal entries to the Company’s general ledger;
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inappropriate information technology (“
IT
”) environment in place to ensure the appropriate granting
and review of access rights in the Company’s accounting system;
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inappropriate revenue recognition in conjunction with the sale of lots in which the Company has continuing involvement in the
development projects subsequent to the sale of lots;
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intercompany eliminations were identified that should have been eliminated upon consolidation; and
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inconsistent treatment of account classifications in general ledger accounts and financial statement categories.
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Grant Thornton discussed each of
these matters with the Audit Committee. The Company has authorized Grant Thornton to fully respond to the inquiries of RSM, the
successor independent registered public accounting firm, concerning these matters.
The Company provided Grant Thornton
with a copy of the disclosure it is making herein in response to Item 304(a) of Regulation S-K and requested that Grant Thornton
furnish the Company with a copy of its letter addressed to the SEC, pursuant to Item 304(a)(3) of Regulation S-K, stating whether
or not Grant Thornton agrees with the statements related to them made by the Company in this report. A copy of Grant Thornton’s
letter to the SEC dated September 1, 2016, is attached as Exhibit 16.1 to this report.
During the fiscal years ended December
31, 2015 and 2014 and any subsequent interim period through August 26, 2016, neither the Company, nor anyone on its behalf, consulted
RSM regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or
the type of audit opinion that might be rendered on the financial statements of the Company, and no written report or oral advice
was provided to the Company by RSM that RSM concluded was an important factor considered by the Company in reaching a decision
as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a “disagreement”
(as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event” (as that
term is defined in Item 304(a)(1)(v) of Regulation S-K).