8-K: Skillz Changes Auditor to Deloitte Amid Internal Control Weaknesses

Skillz Inc. has dismissed Grant Thornton LLP and appointed Deloitte & Touche LLP as its new independent auditor, citing material weaknesses in internal control over financial reporting.

Summary

• Skillz Inc. (the Company) dismissed Grant Thornton LLP (GT) as its independent registered public accounting firm on December 11, 2025.
• The Audit Committee approved the selection of Deloitte & Touche LLP (D&T) as the new independent auditor, effective immediately, for the fiscal year ending December 31, 2025.
• GT's audit reports for fiscal years 2024 and 2023 did not contain adverse opinions or disclaimers, except for an explanatory note in 2024 related to the adoption of ASU 2023-07, Segment Reporting.
• There were no disagreements between the Company and GT on accounting principles or practices.
• However, material weaknesses in internal control over financial reporting were identified for fiscal years 2024, 2023, and the subsequent interim period through December 11, 2025.
• These weaknesses included issues with risk assessment, information technology general controls, and overall internal control over financial reporting, including a lack of qualified accounting personnel.
• GT has concurred with the Company's statements in the 8-K filing.

Sentiment

Score: 3

Explanation: The dismissal of an auditor and appointment of a new one, while not inherently negative, is overshadowed by the explicit disclosure of multiple material weaknesses in internal control over financial reporting. These weaknesses indicate significant deficiencies in the company's financial processes and personnel, which is a strong negative signal for financial reliability and operational efficiency. The lack of disagreements with the previous auditor on accounting principles is a minor positive, but the control deficiencies are a major concern.

Positives

• Grant Thornton's audit reports on the Company's consolidated financial statements for the fiscal years ended December 31, 2024, and December 31, 2023, did not contain an adverse opinion or disclaimer of opinion.
• Audit reports were not qualified or modified as to uncertainty, audit scope, or accounting principles, with the exception of an explanatory note in 2024 related to the adoption of Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280).
• There were no disagreements between the Company and Grant Thornton on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures.

Negatives

• Material weaknesses in internal control over financial reporting were identified for fiscal years ended December 31, 2024, and December 31, 2023, and the subsequent interim period through December 11, 2025.
• Specific weaknesses include an ineffective risk assessment process, inadequate design and implementation of controls over financial reporting, and insufficient evidence of review for reconciliations, budgets, and key financial close processes.
• Insufficient information technology general controls, including user access controls, program change management controls, and program operations controls, were noted.
• Controls related to properly evaluating certain accounting processes were not adequately designed, implemented, or operating effectively, including a lack of sufficient documentation or evidence retained to demonstrate management's review over several financial statement areas.
• There was an inadequate review of complex accounting assumptions and a lack of qualified accounting personnel employed during the year.

Risks

• Material weaknesses in internal control over financial reporting, which could lead to misstatements in financial reporting and impact the reliability of financial statements.
• Ineffective risk assessment processes, potentially exposing the company to unidentified or unmitigated financial and operational risks.
• Insufficient information technology general controls, increasing the risk of unauthorized access, data manipulation, or system failures impacting financial data integrity and security.
• Lack of adequately designed, implemented, or operating controls over accounting processes, potentially leading to errors, omissions, or delays in financial reporting.
• Inadequate review of complex accounting assumptions, which could result in incorrect financial valuations, disclosures, or non-compliance with accounting standards.
• Lack of qualified accounting personnel, posing a risk to the accuracy, completeness, and timeliness of financial reporting and compliance efforts.

Future Outlook

The filing does not provide specific forward-looking statements or guidance beyond the change in auditor for the fiscal year ending December 31, 2025. However, the appointment of a new auditor, Deloitte & Touche LLP, suggests an intent to address and remediate the identified material weaknesses in internal control over financial reporting.

Management Comments

• The Audit Committee, based on management's recommendation, approved the selection of D&T, effective immediately, as the Company's new independent registered public accounting firm for the Company's fiscal year ending December 31, 2025.

Industry Context

Changes in independent auditors are not uncommon, but when accompanied by disclosures of material weaknesses in internal control over financial reporting, it signals significant internal challenges. Companies in the technology and gaming sectors, like Skillz, often face complex accounting issues related to revenue recognition, platform development costs, and user acquisition, making robust internal controls crucial. The move to a 'Big Four' firm like Deloitte & Touche may indicate an effort to strengthen financial oversight and compliance, aligning with increasing regulatory scrutiny and investor expectations for robust governance in the industry.

Comparison to Industry Standards

• The identification of material weaknesses in internal control over financial reporting is generally below industry best practices, which emphasize strong internal controls to ensure reliable financial reporting.
• Specifically, issues with risk assessment, IT general controls, and the lack of qualified accounting personnel suggest a deviation from the robust control environments typically expected of publicly traded companies, especially those with complex digital business models.
• While the change to a 'Big Four' firm like Deloitte & Touche is a common practice for companies seeking enhanced audit quality and expertise, the underlying reasons (material weaknesses) indicate a need for significant remediation efforts to meet the standards of peers in the gaming and tech sectors.

Corporate Governance

Stakeholder Impact

• Shareholders: Potential negative impact due to concerns over financial reporting reliability and internal control deficiencies, which could affect investor confidence and share price.
• Management: Increased pressure to remediate material weaknesses and strengthen internal controls, requiring significant operational focus and resource allocation.
• Employees: Potential for increased workload or restructuring within the accounting and finance departments to address control deficiencies and improve processes.
• New Auditor (Deloitte & Touche): Will undertake the audit for the fiscal year ending December 31, 2025, with a clear mandate to assess and report on the company's internal controls.
• Former Auditor (Grant Thornton): Will provide concurrence with the company's statements and may be subject to inquiries from the successor auditor.

Next Steps

• Skillz Inc. will work with Deloitte & Touche LLP as its new independent registered public accounting firm for the fiscal year ending December 31, 2025.
• The Company is expected to address and remediate the identified material weaknesses in internal control over financial reporting.
• Grant Thornton LLP is authorized to respond fully to inquiries from Deloitte & Touche LLP concerning the reportable events.

Key Dates

Recommendation

The disclosure of material weaknesses in internal control over financial reporting for multiple periods is a significant red flag for investors. These weaknesses, spanning risk assessment, IT general controls, and overall accounting processes, including a lack of qualified personnel, indicate fundamental issues with the company's financial integrity and operational reliability. While the change to a 'Big Four' auditor like Deloitte & Touche might be seen as a step towards remediation, the underlying problems suggest a high degree of financial risk and potential for future restatements or reporting delays. Until these material weaknesses are demonstrably remediated and sustained, the stock carries elevated risk, warranting a 'sell' recommendation for risk-averse investors.

Keywords

Skillz Inc., SKLZ, Auditor Change, Grant Thornton, Deloitte & Touche, 8-K Filing, Internal Control Weaknesses, Financial Reporting, Corporate Governance, SEC Filing, Accounting Standards Update, ASU 2023-07, Risk Assessment, IT General Controls