Fortunately, we don’t have any clients who are currently reporting companies that are relying on the audit reports of Moore & Associates Chartered. As you may have read, on August 27, 2009, the SEC charged the auditing firm with issuing audit reports that failed to comply with Public Company Accounting Oversight Board (PCAOB) standards. You can read the SEC’s release here. In summary, Moore & Associates was using high school graduates, untrained in accounting, to do work that should have been done by highly trained CPA’s.
But what if your company was audited by Moore & Associates, and you are a reporting issuer under the ’34 Act? Presumably, the audit reports issued by Moore are not valid, and thus you have not filed the appropriate financial statements, and are thus immediately out of compliance with the ’34 Act. Without proper financial statements on file with the SEC, there can be no Rule 144 sales by your shareholders, there can be no S-8 issuances to your employees and consultants, and any S-1 registration statements are immediately ineffective (potentially triggering a breach of covenants in one or more financing agreements). You may be receiving an “e” on your trading symbol because, now that you are out of compliance, you are at risk for being delisted to the Pink Sheets (where you will get a Limited Information tag). Finally, once you are determined to be out of compliance, you will only be able to get back into compliance by re-auditing all time periods that are now invalid, and then after filing those financials you can go through the 15c2-11 process again to move your common stock quotation back to the OTCBB.
Moore & Associates was known as a low-cost alternative for audit work. The SEC release says they audited over 300 companies, most of them shells. I am not saying that paying more means you get more. But every issuer should be aware of the PCAOB’s most recent review of their auditing firm, and any deficiencies found by the PCAOB should be discussed with the auditing firm. And finally, if the price sounds too good to be true…..well, you know.
