Back in June, Warren Buffett's BFF Charlie Munger canned EY, who were happily auditing his Daily Journal Corp, in favor of BDO. Now, we're sure this had absolutely nothing to do with the fact that EY expressed an adverse opinion on DJCO's internal controls when last these two ships passed in the night. And it probably had nothing to do with EY's opinion of the way Daily Journal accounted for certain acquisitions and deferred tax provisions. It probably also had nothing to do with the fact that EY's fees for audit services went from $169,000 in 2012 to $526,000 in 2013 and all DJCO got was the above-mentioned adverse opinion on ICFR.
From DJCO's 10-K filed June 24 of this year:
Ernst & Young LLP billed aggregate fees of approximately $526,000 for professional services rendered for the audits of the Company’s fiscal 2013 financial statements and its internal control over financial reporting, and for the reviews of the financial statements included in the Company’s Forms 10-Q for fiscal 2013. Ernst & Young LLP billed aggregate fees of approximately $169,300 for the same services in fiscal 2012, which did not include an audit of the Company’s internal control over financial reporting.
Munger seemed displeased with EY to say the least, according to Bloomberg:
“They were like the doctor who wanted to cure the nosebleed by fishing around in the groin,” Munger, 90, said today at the annual meeting of the publishing company in Los Angeles. Munger, who is best known as Warren Buffett’s partner at Berkshire Hathaway Inc., is also chairman of Daily Journal.
Daily Journal claimed their internal controls were just fine, thankyouverymuch, and promptly ditched EY. I mean, who pays good money for a crappy opinion? NOT CHARLIE MUNGER. The problem was clearly EY's, not Daily Journal's. “Part of our trouble is that our business situation was complicated, and I’m sure we didn’t draw the top talent,” Munger said.
That must be it.
