Shares of SUPER MICRO COMPUTER INC (SMCI) plummeted over 34% in pre-market trading on Tuesday, after the company's auditor Ernst & Young (E&Y) abruptly resigned, citing concerns over governance, transparency, and the ability to rely on representations from management and the audit committee.
According to a filing by SMCI, E&Y sent a resignation letter to the company's audit committee on October 24th, while conducting the audit for fiscal year 2024 - their first audit for the company. E&Y stated that information obtained during the audit process led them to question whether SMCI demonstrates a commitment to integrity and ethical values, and whether the audit committee and board can act as an independent oversight body.
The resignation came after E&Y had previously raised concerns about governance, transparency of communications, and internal controls over financial reporting. In response, SMCI appointed a special committee in late July to review these matters, engaging external legal and forensic accounting advisors. However, before the review could be completed, E&Y decided to resign, stating they could no longer rely on representations from management and the audit committee, and were "unwilling to be associated with the financial statements prepared by management."
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