8-K: Funko Inc. Appoints PricewaterhouseCoopers as New Independent Auditor, Replacing Ernst & Young

Funko Inc. has changed its independent auditor from Ernst & Young to PricewaterhouseCoopers, effective after the filing of the first quarter 10-Q report.

Summary

• Funko Inc. has appointed PricewaterhouseCoopers (PwC) as its new independent registered public accounting firm for the fiscal year ending December 31, 2024.
• This change is effective upon the filing of the company's quarterly report on Form 10-Q for the quarter ended March 31, 2024.
• Ernst & Young LLP (EY) has been dismissed as the company's independent auditor, also effective upon the 10-Q filing.
• EY's reports on Funko's financial statements for 2022 and 2023 did not contain any adverse opinions or disclaimers, nor were they qualified or modified.
• There were no disagreements between Funko and EY on accounting principles or practices, financial statement disclosure, or auditing scope or procedures.
• Funko reported material weaknesses in its internal control over financial reporting for both 2022 and 2023.
• EY issued adverse opinions on the effectiveness of Funko's internal control over financial reporting for both 2022 and 2023.
• The Audit Committee conducted a competitive process to select the new auditor.
• EY encouraged the company to initiate a competitive proposal process.

Sentiment

Score: 5

Explanation: The change in auditors is neutral, but the material weaknesses in internal controls are a concern. The document is factual and does not contain any positive or negative sentiment.

Positives

• The transition to a new auditor was the result of a competitive process, suggesting a thorough evaluation by the Audit Committee.
• EY's audit reports for the past two fiscal years did not contain any adverse opinions or disclaimers on the financial statements themselves.

Negatives

• Funko had material weaknesses in its internal control over financial reporting for both 2022 and 2023.
• EY issued adverse opinions on the effectiveness of Funko's internal control over financial reporting for both 2022 and 2023.

Risks

• The material weaknesses in internal controls could indicate potential issues with the reliability of financial reporting.
• The change in auditors could introduce some uncertainty during the transition period.
• The company needs to address the identified weaknesses in internal controls to avoid future issues.

Future Outlook

The company intends to amend this Form 8-K following the 10-Q Filing to disclose the effective date of the dismissal of EY and the engagement of PwC, and update the interim period disclosures related to Item 304 of Regulation S-K.

Management Comments

• The Audit Committee conducted a competitive process to determine the company's independent registered public accounting firm for the fiscal year ending December 31, 2024.
• EY encouraged the company to initiate a competitive proposal process.

Industry Context

Changes in auditors are not uncommon, but the presence of material weaknesses in internal controls is a concern that needs to be addressed. Companies often change auditors to get a fresh perspective or due to other strategic reasons.

Comparison to Industry Standards

• The change of auditors is a common practice in the industry, with companies like Mattel and Hasbro also periodically reviewing their audit firms.
• The material weaknesses in internal controls are a concern, as companies like Hasbro and Jakks Pacific have also faced similar issues in the past, leading to increased scrutiny from regulators and investors.
• The adverse opinions on internal controls are not unique to Funko, but they do highlight the need for improvement in this area, similar to other companies that have faced similar challenges.

Stakeholder Impact

• Shareholders may be concerned about the material weaknesses in internal controls and the potential impact on financial reporting.
• Employees involved in financial reporting may need to adapt to new procedures and controls.
• Creditors may scrutinize the company's financial statements more closely due to the identified weaknesses.

Next Steps

• Funko will file its 10-Q for the quarter ended March 31, 2024, which will trigger the effective date of the auditor change.
• The company will amend this 8-K filing to disclose the effective date of the auditor change and update interim period disclosures.

Key Dates

Keywords

auditor, PricewaterhouseCoopers, Ernst & Young, internal control, financial reporting, audit, material weakness