8-K: Simulations Plus Dismisses Auditor Amid Disputed Financial Reporting and Internal Control Issues

Simulations Plus, Inc. has dismissed Grant Thornton LLP as its independent auditor, citing challenges in finalizing segment reporting and internal controls, a move Grant Thornton disputes, stating these matters were unresolved to their satisfaction.

Summary

• Simulations Plus, Inc. (the "Company") dismissed Grant Thornton LLP as its independent public accounting firm on July 9, 2025.
• The dismissal was approved by the Audit Committee of the Board of Directors to ensure the timely completion of the Company's Quarterly Report on Form 10-Q for the period ended May 31, 2025.
• The Company stated that certain matters regarding segment reporting and reporting unit determinations could not be finalized in time for the 10-Q.
• The Company also stated that internal controls over financial reporting related to Sarbanes-Oxley Act Section 404(a) compliance could not be finalized timely for the same Quarterly Report.
• The Company asserted there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K during Grant Thornton's engagement.
• Grant Thornton LLP, in its letter dated July 14, 2025, disagreed with the Company's statements regarding the unresolved matters.
• Grant Thornton confirmed they identified and communicated matters related to segment reporting, reporting unit determinations, and internal controls over financial reporting to management and the Audit Committee.
• Grant Thornton explicitly stated that these matters were not resolved to their satisfaction as of the date of their termination.
• Rose, Snyder & Jacobs LLC (RSJ) was selected and appointed on July 9, 2025, to audit the Company's consolidated financial statements for the fiscal year ending August 31, 2025, including interim periods.
• RSJ previously served as the Company's independent registered public accounting firm for fiscal years ended August 31, 2023, and August 31, 2024, and subsequent interim periods through April 15, 2025.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the public disagreement with the former auditor over unresolved critical financial reporting and internal control issues. While the company aims for timely filing, the underlying problems and the auditor's strong statement of disagreement introduce significant uncertainty and raise concerns about financial integrity and governance.

Positives

• The Company's stated intent to ensure timely completion of its Quarterly Report on Form 10-Q for the period ended May 31, 2025, by changing auditors.
• The appointment of Rose, Snyder & Jacobs LLC (RSJ), a firm with prior experience as the Company's auditor, potentially offering some continuity.

Negatives

• Grant Thornton LLP explicitly disagreed with the Company's statements regarding the unresolved nature of certain matters.
• Grant Thornton stated that issues related to segment reporting, reporting unit determinations, and internal controls over financial reporting were not resolved to their satisfaction at the time of their termination.
• The Company's inability to timely finalize segment reporting, reporting unit determinations, and internal controls over financial reporting for the May 31, 2025, Quarterly Report.

Risks

• Potential for delays in the filing of the Quarterly Report on Form 10-Q for the period ended May 31, 2025, despite the Company's stated intent to ensure timely completion.
• Significant issues with internal controls over financial reporting (Sarbanes-Oxley Act Section 404(a) compliance) that were not finalized timely.
• Unresolved matters related to segment reporting and reporting unit determinations, which could impact the accuracy and comparability of financial statements.
• Increased scrutiny from regulatory bodies (SEC) due to the auditor dismissal and the public disagreement regarding unresolved issues.
• Potential for restatement of prior financial periods if the underlying issues with segment reporting or internal controls are found to have broader implications.

Future Outlook

The Company's immediate future outlook is focused on ensuring the timely completion and filing of its Quarterly Report on Form 10-Q for the period ended May 31, 2025, with the newly appointed auditor, Rose, Snyder & Jacobs LLC.

Management Comments

• The Audit Committee determined that a change in auditors would be in the best interest of the Company in order to ensure the timely completion of the Company's Quarterly Report on Form 10-Q for the period ended May 31, 2025.
• The Company reviewed certain matters regarding segment reporting and reporting unit determinations, that it determined could not be finalized in time for the Quarterly Report on Form 10-Q for the period ended May 31, 2025.
• The Company evaluated internal controls over financial reporting related to Sarbanes-Oxley Act Section 404(a) compliance, concluding they could not be finalized timely for the same Quarterly Report.

Industry Context

Auditor changes are not uncommon, but a dismissal accompanied by a public disagreement from the outgoing auditor regarding unresolved financial reporting and internal control issues is a significant red flag. Such events often lead to increased scrutiny from investors and regulators, as they can indicate underlying problems with a company's financial integrity or governance.

Comparison to Industry Standards

• NA. This document primarily concerns an auditor change and related disagreements, rather than financial performance or operational results that would typically be compared to industry benchmarks or specific comparable companies/projects.

Corporate Governance

Stakeholder Impact

• Shareholders: Potential for increased uncertainty regarding the accuracy and reliability of financial statements, potential for delayed filings, and possible negative impact on share price due to governance concerns.
• Regulatory Authorities (SEC): Increased likelihood of scrutiny and potential inquiries into the Company's financial reporting and internal control practices given the auditor's disagreement.
• Management: Increased pressure to resolve the identified issues with segment reporting and internal controls and to ensure timely and accurate financial reporting with the new auditor.

Next Steps

• Filing of the Quarterly Report on Form 10-Q for the period ended May 31, 2025, with the new auditor, Rose, Snyder & Jacobs LLC, completing the review.

Key Dates

Recommendation

Keywords

Simulations Plus, SLP, Auditor Change, SEC Filing, 8-K, Grant Thornton, Rose Snyder & Jacobs, Financial Reporting, Internal Controls, Sarbanes-Oxley, SOX 404(a), Segment Reporting, Reporting Unit Determinations, Corporate Governance