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Having the investigation specifically address other instances of potential management override of controls, such
as the impairment assessment of the Companys KP connector internal use software, which were not identified in the initial Audit Committee investigation but have subsequently been raised in the performance of the 2016
re-audit
and completion of the 2017 audit;
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Replacing the current Chairman of the Audit Committee; and
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Removing Joseph L. Jackson as Executive Chairman of the Company.
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As previously reported, in response to the concerns raised by KPMG, the Board formed a Special Committee of directors independent from the
Audit Committee, comprised of Messrs. Bevilacqua, Gramaglia and Harvey, with the assistance of independent counsel Sidley Austin LLP, to carry out an independent investigation and review the procedures, scope and findings of the Audit
Committees investigation as well as the additional allegations noted herein with full authority to take
whatever follow-up
measures it deems appropriate. The Special Committee investigation is
ongoing and there may be other actions taken based, at least in part, on information from the investigation and may ultimately result in the identification of additional issues. Also as previously reported, the Companys former Executive
Chairman resigned on September 6, 2018 and the Company appointed Stuart C. Harvey, Jr. to serve as Executive Chairman as of the same date.
Additionally, as previously reported, the Company expects to report material weaknesses in its internal control over financial reporting as of
December 31, 2017 related to managing change and assessing risk in the areas
of non-routine and
complex transactions, tone at the top, and commitment to competencies in the areas
of non-routine and
complex transactions. As a result of the material weaknesses, the Board, upon recommendation of the Audit Committee, concluded that the Companys internal control over financial
reporting and disclosure controls and procedures were ineffective as of December 31, 2017. Additional material weaknesses may be identified and the scope of financial items or periods required to be restated may be broadened.
Other than the disagreements and reportable events disclosed above, during the Companys two most recent fiscal years ended
December 31, 2017 and 2016, respectively, and the subsequent interim period through October 31, 2018, there were no disagreements or reportable events within the meaning of Item 304(a)(1)(iv) of Regulation
S-K
and the related instructions thereto, with KPMG 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 KPMG, would have caused KPMG to make reference to the subject matter of the disagreements or reportable events in connection with its reports on the financial statements for such years. The Company has authorized KPMG to respond
fully to the inquiries of its new independent auditors concerning the subject matter of these issues.
KPMG has advised the Company that,
other than with respect to the accounting for the government contract referenced above and the resignation of Mr. Jackson as the Companys Executive Chairman, the disagreements and reportable events disclosed above have not been resolved
to their satisfaction as of the time the Audit Committee determined not to continue to engage KPMG.
The Company provided KPMG with a copy
of the disclosure it is making herein in response to Item 304(a) of Regulation
S-K
and requested that KPMG furnish the Company with a copy of its letter addressed to the Securities and Exchange Commission (the
SEC
), pursuant to Item 304(a)(3) of Regulation
S-K,
stating whether KPMG agrees with the statements made by the Company in response to Item 304(a) of Regulation
S-K.
A copy of KPMGs letter to the SEC dated November 6, 2018 is filed as Exhibit 16.1 to this Current Report on Form
8-K.
(b)
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Appointment of New Independent Registered Public Accounting Firm
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On October 31, 2018, the Audit Committee approved the engagement of BDO USA, LLP (
BDO
) as the Companys new
independent registered public accounting firm, effective immediately.
BDO will serve as the Companys auditor with respect to the
preparation of the Form
10-K
for the year ended December 31, 2017, including the restatement of the Companys financial statements for the quarterly and
year-to-date
periods ended March 31, June 30 and September 30, 2017. BDO will also serve as the Companys independent registered public accounting firm for the fiscal year ending
December 31, 2018. Due to prior services provided to the Company by BDO in relation to the fiscal year ended December 31, 2016, BDO will not serve as the Companys auditor with respect to the restatement of the Companys
financial statements for the quarterly and
year-to-date
periods ended June 30 and September 30, 2016 and the year ended December 31, 2016. The Audit
Committee further approved the engagement of Macias, Gini & OConnell LLP (
MGO
) on October 31, 2018 to serve as the Companys auditor with respect to the restatement of the Companys financial
statements for these quarterly and
year-to-date
periods for the fiscal year ended December 31, 2016.