Summary: Many people think that the end of audit firm – company is like the breakup in a romantic relationship. However, it is not as simple as they thought, because of the nature difference, the type of company and the procedures that both parties have to comply with. The impact of an audit firm – company “breakup” might be huge, so more considerations should be given in that situation.

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Many people think that the end of the relationship between audit firm and company is no different to the breakup of a romantic relationship. Breakup happens when both people feel that they no longer have a feeling for others, no desire to stay close, more frequent disputes or fights, etc. It sounds simple, doesn’t it? So, to audit firm and company, if either party does not want to work with the other, then they can terminate and walk away. Is it true? Unfortunately, it is not as simple as that.

Firstly, there is a nature difference in each kind of relation. In a romantic relationship, what does connect both parties? Strong feeling and bonding with others, desire to stay close, soul connection, etc. In the audit firm – customer relations, what does connect them? Is it strong feeling and bonding? No. Is it desire to stay close? Obviously not. Instead, it is a business matter, when one party is a customer, and another party is a service provider. The responsibilities, rights and other clauses are determined clearly in the contract. In other words, it is about business, money, interest, finance, etc. The concerns and concentration areas are different.

Secondly, it depends on the customer’s type. If the customer is a FDI or limited company, then normally there will be no problem. The customer can change and appoint a new auditor every year without risks. The story will be more complicated if the customers are public interest entities (PIE), especially listed entities. In this case, they have to comply with a lot of requirements regarding transparency and public information. Any change in audit firm has to be informed and made a public announcement. Why? Because it is a sensitive topic, when audit firms work with financial statements and numbers, such as the assets, liabilities, revenue, profits, cashflows, etc. High quality work done by auditors, high quality of financial statement, then high confidence level of investment decisions made by investors. Therefore, that change may trigger potential reactions from the market, regulators, or any other stakeholder. If the audit firm still does a good job, all other aspects are still good, why need to change?

Thirdly, it depends on the procedures which both parties have to comply with. To private companies, they have more freedom in changing the auditors. Good for them on that aspect. However, to PIE, the requirements and regulations are more demanding. No matter if it is resignation, removal or cessation of auditors, both parties have to follow the defined procedures stated in law. Usually, they have to send letters to express their willingness and reasons for termination, ask the approval from AGM, send the notice or announcement to various regulators, etc. Once the company makes a public announcement, it can attract the attention from another parties – shareholders, investors, especially the media. Media can publish a lot of articles regarding that topic, especially if the company is a large enterprise attracting a lot of public attention.

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The impact of ending the audit firm – customer relationship can be huge sometimes. Take a recent event – the resignation of EY as the auditor of Super Micro – as an example. For your information. Super Micro is a promising company, a component of Nasdaq 100 and S&P 500, thanks to its business partnership with Nvidia. At the end of October 2024, the company made an announcement on the resignation of its auditor – EY, stating clearly and detailed the reasons (which is required by law), including the confirmation letter from EY. The market impact is extraordinary – its share price plunges 33% within a day. The media impact – a lot of articles were published in various newspapers. Even more interestingly, after Super Micro announced the appointment of new auditor, BDO, the share soars 31%. However, in general, its share price decreases 27% in less than 1 month, as updated on 26 Nov 2024. To shareholders and investors, the fluctuation in share price means the flow of money. Obviously, when talking about money, no one loves the huge loss, which is common sense.

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In conclusion, the ending of the audit firm – customer can be more complicated than you think. It’s not as simple as a love breakup. Even in the breakup, sometimes it is so lengthy and difficult, because of blames, complaints, crying nights, etc. So, to the audit firm – customer, it is understandable that more consideration has been given to. Smooth transition or not, it depends on different aspects.