Accounting, Financial Reporting, and Internal Controls

Companies rely on financial statements and financial reporting to provide accurate and timely financial information to relevant stakeholders.  When accounting, financial reporting, or internal control issues arise, a company may not be able to issue financial statements, or its previously issued financial statements may not be reliable.  In addition to the potential risk of liability from the prior publication of the financial statements, crisis often follows as delays in issuing corrected financial statements make it difficult to comply with legal requirements or contractual obligations.  A company may also face an existential crisis if the accounting problems limit access to capital or result in contractual defaults.  Lawyers at Fridman Fels & Soto, PLLC have experience in proactively managing accounting and financial reporting concerns to mitigate their risk, impact, and exposure, and navigating any crisis that results from the uncertainties that arise when financial statements come under scrutiny.

Our experience is rooted in having dealt with the most significant accounting issues and schemes that commonly arise.  We have assisted clients in dealing with errors relating to revenue recognition (over time revenue recognition under Accounting Standards Codification 606 and its predecessors, including SOP 97-2 and SOP 81-1), purchase accounting, inventory and related reserves, bad debt provisions, insurance claims reserves, capitalized costs, deferred assets, and expense accruals.  Our lawyers have handled matters involving allegations of earnings management, channel stuffing, bill and hold sales, revenue acceleration, cookie jar reserves, and round-tripping transactions.

Fridman Fels & Soto, PLLC lawyers have helped clients navigate the challenges that arise while trying to correct errors in the financial statements:

Complying with applicable duties and obligations.   We have assisted boards, audit committees, special committees, and management in complying with statutory duties, fiduciary duties, and internal governance requirements, including duties imposed under the Sarbanes-Oxley Act and Dodd-Frank Act.   We have provided guidance in evaluating whistleblower complaints, assessing materiality, reviewing the need to to restate previously issued financial statements (including “Big R” and “little r” restatements), establishing the scope of a review/investigation, assessing employee conduct, pursuing clawbacks, liaising with outside auditors, evaluating management representation letters, and making public disclosures.

Evaluating whether errors were intentional.  We have conducted investigations on behalf of boards, audit committees, special committees, and management relating to accounting, financial reporting, and internal control concerns.  We have worked with forensic accountants and other professionals to develop and implement investigative plans that adequately address the alleged concerns in an efficient, thorough, and timely manner.  Importantly, our investigative scoping and approach has been successful in matters in which our client has authorized the disclosure of our investigation to the SEC and/or DOJ.

Making public disclosure.  We have advised companies on the timing and content of their public disclosure relating to accounting, financial reporting, and internal control issues.

Considering other required notifications.  In some instances, a company may be legally required to notify the government of an accounting error.  We have worked with clients to assess their obligations and make required notifications, including reviewing contractual arrangements to identify notice obligations.

Completing the audit.  Public companies cannot publish annual financial statements without the completion of an independent audit that satisfies PCAOB standards.  Lenders also may require audited financial statements.  Obtaining an audit opinion following a material accounting problem is a significant step, and we work proactively to guide our clients through the audit process.  Our approach is rooted in understanding that, in addition to having an interest in getting the numbers correct, auditors will express interest in other issues that may impact the timing of the audit.  We have worked with and alongside the Big 4 and other major accounting firms to ensure that the audit is completed to the satisfaction of the company’s auditors, including working with predecessor auditors when there has been a change in auditor.

Understanding the root cause and implementing remediation and discipline.  Many factors may contribute to an accounting error, including inexperienced or insufficient personnel, insufficient information, lack of documentary support, inadequate systems, poor oversight, and deficient or lacking internal controls.  Through our investigation, we develop a wholistic view of the circumstances that resulted in an accounting error and help clients develop actionable solutions to prevent reoccurrence.  And to the extent employee conduct failed to meet the client’s standards, we advise our clients in implementing appropriate disciplinary actions.

Managing interested enforcement authorities.  Enforcement authorities, including the SEC and DOJ, may investigate concerns relating to the accuracy of the financial statements, related disclosures, and internal controls. We have represented audit committees, boards, companies, officers, and accountants in investigations by the SEC and DOJ. In responding to an investigation, whether it is through an aggressive defense, offering cooperation, or seeking an expeditious resolution, our client’s business and strategic goals become our priority.  We understand that not all accounting errors result from fraud or misconduct, and we have successfully represented clients that had multi-year restatements in resolving matters without any enforcement action.