8-K: SkyWater Technology Appoints KPMG as New Independent Auditor, Replacing Deloitte

SkyWater Technology has replaced Deloitte with KPMG as its independent registered public accounting firm, effective June 21, 2024.

Summary

• SkyWater Technology has appointed KPMG as its new independent registered public accounting firm, effective June 21, 2024, replacing Deloitte & Touche LLP.
• The decision followed a competitive selection process by the audit committee.
• Deloitte's reports for the fiscal years ended December 31, 2023, and January 1, 2023, did not contain any adverse opinions or disclaimers, nor were they qualified or modified.
• There were no disagreements between SkyWater and Deloitte on accounting principles, financial statement disclosure, or auditing scope.
• SkyWater identified material weaknesses in its internal control over financial reporting in previous years, specifically in the Control Environment, Risk Assessment, and Control Activities components of the COSO framework.
• While the company remediated weaknesses in the Control Environment and Risk Assessment, the material weakness in the Control Activities component, including the revenue accounting process, was not fully remediated as of the date of Deloitte's dismissal.
• KPMG has not been consulted on any accounting principles, audit opinions, or reportable events prior to their engagement.

Sentiment

Score: 4

Explanation: The change of auditors itself is neutral, but the disclosure of an unresolved material weakness in internal controls is a significant negative, leading to a lower sentiment score.

Positives

• Deloitte's audit reports for the past two fiscal years were clean, with no adverse opinions or qualifications.
• SkyWater successfully remediated material weaknesses in the Control Environment and Risk Assessment components of its internal controls.

Negatives

• A material weakness in the Control Activities component of internal control over financial reporting, including the revenue accounting process, was not fully remediated as of the date of the auditor change.
• The company was not able to demonstrate sustained operation of the controls implemented to address the material weakness in the Control Activities component.

Risks

• The unresolved material weakness in internal control over financial reporting, specifically in the Control Activities component, could pose a risk to the accuracy of future financial statements.
• The transition to a new auditor, KPMG, may present challenges in the short term as they familiarize themselves with the company's operations and financial reporting processes.

Future Outlook

The company will need to demonstrate sustained operation of the controls implemented to address the material weakness in the Control Activities component of the COSO framework, including the revenue accounting process, over a sustained period of time.

Industry Context

Changes in auditors are not uncommon, but the presence of an unresolved material weakness in internal controls is a concern that will likely be closely monitored by investors and regulators.

Comparison to Industry Standards

• The change of auditors is not unusual, but the presence of a material weakness in internal controls is a concern.
• Companies in the technology sector, particularly those with complex revenue recognition models, often face challenges in maintaining robust internal controls.
• Comparable companies such as GlobalFoundries and Tower Semiconductor have also faced scrutiny regarding their internal controls and financial reporting practices.
• The remediation of material weaknesses is a key focus for companies to maintain investor confidence and regulatory compliance.

Stakeholder Impact

• Shareholders may be concerned about the unresolved material weakness in internal controls.
• The change in auditors may lead to increased scrutiny from investors and regulators.
• Employees in the finance and accounting departments may experience changes in processes and procedures as a result of the auditor change.

Next Steps

• KPMG will begin its audit of the company's financial statements for the fiscal year ending December 29, 2024.
• The company will need to continue its efforts to remediate the material weakness in the Control Activities component of the COSO framework.
• The company will need to demonstrate sustained operation of the controls implemented to address the material weakness in the Control Activities component of the COSO framework.

Key Dates

Keywords

auditor, KPMG, Deloitte, internal control, financial reporting, material weakness, accounting, audit committee, COSO framework, revenue accounting