8-K: Ginkgo Bioworks Changes Auditors as EY Declines Re-appointment

Ginkgo Bioworks has appointed Deloitte as its new independent auditor after Ernst & Young declined to stand for re-appointment.

Summary

• Ginkgo Bioworks initiated a request-for-proposal process for audit services on February 1, 2024.
• Ernst & Young (EY), the previous auditor, declined to be re-appointed on March 8, 2024.
• This decision by EY was not due to any disagreements with the company.
• Deloitte & Touche LLP was appointed as the new independent auditor on March 13, 2024.
• EY's audits for 2022 and 2023 did not contain any adverse opinions or disclaimers.
• There were no disagreements between Ginkgo and EY on accounting principles or auditing scope.
• EY did report material weaknesses in internal control over financial reporting for both 2022 and 2023 related to management review controls and data accuracy.
• Ginkgo has authorized EY to fully respond to inquiries from Deloitte regarding these matters.

Sentiment

Score: 5

Explanation: The change in auditors is not inherently negative, but the material weaknesses in internal controls are a concern. The fact that EY declined to stand for re-appointment after a request for proposal process is also a slight negative.

Positives

• The change in auditors was not due to any disagreements on accounting or auditing matters.
• EY's audit reports for the past two years did not contain any adverse opinions or disclaimers.
• Ginkgo is cooperating fully with the transition of auditors.

Negatives

• EY identified material weaknesses in internal control over financial reporting for both 2022 and 2023.
• These weaknesses relate to ineffective management review controls and data accuracy.

Risks

• The material weaknesses in internal control over financial reporting could indicate potential issues with the company's financial reporting processes.
• The transition to a new auditor could present challenges in the short term.

Industry Context

Changes in auditors are not uncommon, but the circumstances surrounding EY's decision not to stand for re-appointment, particularly after a request for proposal, may raise some questions in the market. The identification of material weaknesses in internal controls is also a concern that will need to be addressed by the company and the new auditor.

Comparison to Industry Standards

• It is common for companies to periodically review their audit firms, but a change after a request for proposal process is less typical.
• The identification of material weaknesses in internal controls is not uncommon, but it is a concern that needs to be addressed promptly.
• Other companies in the biotechnology sector, such as Amyris and Zymergen, have also faced challenges with internal controls and financial reporting, highlighting the importance of robust financial oversight in this industry.

Stakeholder Impact

• Shareholders may be concerned about the material weaknesses in internal control over financial reporting.
• The change in auditors could lead to increased scrutiny of the company's financial statements.

Next Steps

• Deloitte will begin its audit of Ginkgo's financial statements for the fiscal year ending December 31, 2024.
• Ginkgo will need to address the material weaknesses in internal control over financial reporting.

Key Dates

Keywords

auditor, Ernst & Young, Deloitte, accounting, audit, internal controls, financial reporting, material weakness