8-K: Workhorse Group's Auditor, Grant Thornton, Declines Reappointment Amid Internal Control Weaknesses

Grant Thornton LLP has declined to stand for reappointment as Workhorse Group's independent auditor, citing material weaknesses in the company's internal controls.

Summary

• Workhorse Group Inc. has announced that its independent auditor, Grant Thornton LLP, has declined to be reappointed for the fiscal year ending December 31, 2024.
• Grant Thornton has served as Workhorse's auditor since 2018.
• The auditor's reports for 2022 and 2023 did not contain any adverse opinions or qualifications, except for an explanatory paragraph in 2023 indicating substantial doubt about the company's ability to continue as a going concern.
• There were no disagreements between Workhorse and Grant Thornton on accounting principles or practices.
• However, Workhorse management identified material weaknesses in internal controls related to the review of fair value calculations for convertible notes and warrant liabilities.
• Additionally, a material weakness was found in the operation of internal controls due to turnover in key accounting positions and insufficient resources.
• Workhorse has not yet engaged a new independent accounting firm and will disclose this appointment in a future filing.

Sentiment

Score: 2

Explanation: The document highlights significant negative issues including the auditor declining reappointment and material weaknesses in internal controls, indicating a high level of risk and uncertainty.

Positives

• There were no disagreements between Workhorse and Grant Thornton on accounting principles or practices.
• The auditor's reports for 2022 and 2023 did not contain any adverse opinions or qualifications, except for a going concern warning in 2023.

Negatives

• Grant Thornton declined to be reappointed as Workhorse's independent auditor.
• Workhorse identified material weaknesses in internal controls related to the review of fair value calculations for convertible notes and warrant liabilities.
• A material weakness was found in the operation of internal controls due to turnover in key accounting positions and insufficient resources.
• The company has not yet engaged a new independent accounting firm.

Risks

• The declination of Grant Thornton to stand for reappointment could raise concerns about the company's financial reporting and internal controls.
• The identified material weaknesses in internal controls could lead to further scrutiny from regulators and investors.
• The lack of a new independent accounting firm could delay the completion of the company's financial statements for the fiscal year ending December 31, 2024.
• The going concern warning from the 2023 audit remains a significant risk.

Future Outlook

The company will file a Form 8-K disclosing the appointment of a new independent accounting firm.

Management Comments

• Management identified a material weakness in the design of one of the Company's internal controls related to the review of the fair value calculation of the convertible note and warrant liability.
• Management identified a material weakness in the operation of the Company's internal controls over financial reporting related to the turnover of key accounting positions.

Industry Context

The change in auditors and the identified internal control weaknesses could raise concerns among investors and may impact the company's ability to raise capital or secure favorable financing terms. This is particularly relevant in the current economic climate where investors are increasingly focused on financial stability and governance.

Comparison to Industry Standards

• The declination of an auditor to stand for reappointment is not a common occurrence and can be a red flag for investors.
• Companies with strong internal controls and stable accounting teams typically do not experience such issues.
• The identified material weaknesses in internal controls are below industry standards for public companies, particularly those listed on the Nasdaq Capital Market.
• Comparably, companies like Lordstown Motors and Nikola have faced similar scrutiny regarding their financial controls and accounting practices, which led to significant market volatility.

Stakeholder Impact

• Shareholders may be concerned about the company's financial reporting and internal controls.
• Employees in the finance department may face additional pressure to address the identified weaknesses.
• Creditors may be more cautious about extending credit to the company.

Next Steps

• Workhorse needs to engage a new independent accounting firm.
• The company needs to address the identified material weaknesses in internal controls.
• Workhorse will file a Form 8-K disclosing the appointment of a new independent accounting firm.

Key Dates

Keywords

auditor, Grant Thornton, internal controls, material weakness, accounting, financial reporting, Workhorse Group, going concern