Shares in Super Micro Computer (SMCI) experienced a significant decline, falling over 4% in premarket trading, following the announcement of a delay in filing its quarterly 10-Q report for the period ending September 30, 2024. This delay is not the first for the company; it marks a continuing trend of late filings that have resulted from what the company describes as lingering issues within its internal review processes. These reviews were initiated by the board after concerns were raised by its former accounting firm, suggesting that internal controls and reporting mechanisms may not be reliable.
The situation has been exacerbated by a sequence of unsettling events. In August, SMCI delayed filing its annual 10-K report for 2024, citing the need to carefully assess the effectiveness of its internal controls over financial reporting. Investor anxiety heightened towards the end of October when Ernst & Young, the company’s accounting firm, resigned. Ernst & Young’s departure was coupled with an alarming statement indicating that they could no longer rely on the representations made by SMCI’s management and the Audit Committee. This situation cast a shadow over the credibility of the company’s financial practices and reporting integrity.
In an attempt to address these issues, a special committee was formed by SMCI’s board. This committee has wrapped up its initial probe but admitted that further work is necessary, including the critical task of appointing a new accounting firm. The company’s plan involves not only completing the assessment of internal controls as of June 30, 2024, but also ensuring that the successor accounting firm can perform a comprehensive audit of both financial statements and internal controls. Until these steps are satisfactorily completed, the timely filing of the pending 10-K and 10-Q reports remains uncertain. Consequently, these developments have heightened investor apprehension about the company’s financial transparency and governance, which in turn has adversely impacted the share price.
