8-K: Li-Cycle Holdings Corp. Announces KPMG Will Not Seek Re-Appointment as Auditor

Li-Cycle Holdings Corp. disclosed that its current auditor, KPMG, will not seek re-appointment, prompting a search for a new independent accounting firm.

Summary

• Li-Cycle Holdings Corp. has announced that KPMG LLP, its independent registered public accounting firm, will not seek re-appointment as the company's auditor.
• KPMG will continue to serve as the auditor until the completion of the review of the interim financial statements for the three months ended March 31, 2024, and potentially for the three and six months ended June 30, 2024, if requested by the company.
• The decision by KPMG is not due to any disagreements with the company on accounting principles, financial statement disclosure, or auditing scope.
• The Audit Committee has initiated a process to identify and recommend a new independent registered public accounting firm to replace KPMG.
• KPMG's audit reports for the years ended December 31, 2023, December 31, 2022, and October 31, 2022, did not contain any adverse opinions or disclaimers, but included a going concern paragraph due to recurring losses and the paused Rochester Hub project.
• KPMG identified material weaknesses in the company's internal control over financial reporting (ICFR) for both 2023 and 2022, related to insufficient personnel, risk assessment, information and communication processes, and control activities.

Sentiment

Score: 3

Explanation: The document reveals significant financial concerns due to the going concern paragraph and material weaknesses in internal controls, leading to a negative sentiment.

Positives

• KPMG has confirmed that its decision not to seek re-appointment is not due to any disagreements with the company.
• KPMG will remain as the auditor until the completion of the review of the interim financial statements for the three months ended March 31, 2024, ensuring continuity.
• The company has already initiated the process to find a new auditor.

Negatives

• KPMG's audit reports included a going concern paragraph, highlighting financial uncertainties.
• Material weaknesses in internal control over financial reporting were identified by KPMG for both 2023 and 2022.
• The company needs to find a new auditor, which could be disruptive.

Risks

• The going concern paragraph in KPMG's audit reports indicates significant financial risks for the company.
• The identified material weaknesses in internal control over financial reporting could lead to future financial reporting issues.
• The process of finding and appointing a new auditor could be time-consuming and may introduce additional risks.

Future Outlook

The company is in the process of finding a new independent registered public accounting firm, and KPMG will continue to serve as the auditor until the completion of the review of the interim financial statements for the three months ended March 31, 2024, and potentially for the three and six months ended June 30, 2024, if requested.

Management Comments

• The Audit Committee has commenced a process to identify, and recommend the appointment by the shareholders of, a new independent registered public accounting firm to replace KPMG.

Industry Context

The change in auditors is not uncommon, but the circumstances surrounding it, including the going concern paragraph and material weaknesses in internal controls, may raise concerns among investors and stakeholders in the battery recycling industry.

Comparison to Industry Standards

• The going concern paragraph in the audit report is a significant concern, as it indicates a higher level of financial risk than is typically seen in established companies in the battery recycling sector.
• The identified material weaknesses in internal control over financial reporting are also concerning, as they suggest a lack of robust financial controls, which is not ideal compared to industry best practices.
• Companies like Redwood Materials and Ascend Elements, while not directly comparable in terms of public reporting, generally aim for more robust financial controls and stability, making Li-Cycle's situation stand out.

Stakeholder Impact

• Shareholders may be concerned about the financial stability of the company due to the going concern paragraph.
• Employees may be concerned about the company's future prospects.
• Creditors may be more cautious about extending credit to the company.
• Customers and suppliers may be concerned about the company's ability to fulfill its obligations.

Next Steps

• The Audit Committee will identify and recommend a new independent registered public accounting firm.
• KPMG will complete its review of the interim financial statements for the three months ended March 31, 2024.
• KPMG may complete a review of the interim financial statements for the three and six months ended June 30, 2024, if requested by the company.

Key Dates

Keywords

auditor, KPMG, internal control, financial reporting, going concern, accounting, audit committee, material weakness