Friday, June 19, 2015

No. 105: Phoenix Changes Its Independent Auditor

On June 11, 2015, Phoenix Companies, Inc. filed an 8-K (material event) report disclosing that it changed its independent registered public accounting firm. Phoenix dismissed PricewaterhouseCoopers LLP (PwC) and appointed KPMG LLP, effective June 11. Normally an auditor change at a large public company is major news, but in this case the change appears to have slipped under the media radar.

10-K Report for 2014
On March 31, 2015, Phoenix filed its 10-K report for 2014. Included was PwC's independent auditor report dated March 30. PwC expressed the opinion that the financial statements present fairly the financial position of the company in conformity with generally accepted accounting principles. PwC also expressed the opinion that the company did not maintain effective control over financial reporting in several areas.

Proxy Statement
On April 2, 2015, Phoenix filed its proxy statement announcing the annual shareholder meeting scheduled for May 14. The board recommended that the shareholders ratify the appointment of PwC as the independent registered public accounting firm for fiscal year 2015.

Audit Committee Report
The proxy statement included the report of the audit committee of the Phoenix board of directors. The audit committee report said:
Notwithstanding the Audit Committee's appointment of PwC for fiscal 2015 and the outcome of the shareholder vote on this proposal, the Audit Committee has authorized and directed management to engage in a request for proposal process to identify an independent registered public accounting firm for potential appointment to audit and report on our consolidated financial statements for fiscal year 2015... PwC has indicated to management its intention to participate in this request for proposal process. As a result of the request for proposal process, PwC may remain our independent registered public accounting firm for 2015 or another independent registered public accounting firm may be selected. The determination by the Audit Committee to retain PwC or appoint another independent registered public accounting firm is expected to be made subsequent to the 2015 Annual Meeting.
The audit committee said audit costs in 2014 and 2013 were $52.3 million and $58.3 million, respectively. Those amounts included audit fees of $33.8 million and $24.7 million, respectively, and additional fees associated with the restatement of financial statements for the periods included in the 10-K report for 2012.

Shareholder Meeting
On May 15, Phoenix filed an 8-K report about the shareholder meeting. The company said 3,408,701 shareholders voted for ratification of the appointment of PwC, 793,015 voted against, and 8,673 abstained.

8-K Report Filed June 11
Phoenix said in the 8-K report filed June 11 that there were no "disagreements" or "reportable events," as those terms are defined in the regulations. In a news release attached to the 8-K as an exhibit, the company said: "The change was not the result of any disagreement between the company and PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure." Also. as indicated in the audit committee report, PwC participated in the request for proposal process.

General Observations
It seems clear that PwC did not resign and was not fired. I believe that the audit committee's request for proposal process and subsequent auditor change grew out of cost concerns.

Available Material
I am offering a complimentary 15-page PDF consisting of three items: the 3-page independent auditor's report by PwC dated March 30; the 4-page audit committee report included in the April 2 proxy statement; and the 8-page 8-K report dated June 11, including its two exhibits. E-mail and ask for the Phoenix auditor change package.