Munger's Daily Journal Ousts Auditor after Material Weakness Tag
(Bloomberg) Charles Munger just burned through another auditor.
Daily Journal Corp., the publisher where he’s chairman, said Wednesday in a regulatory filing that it named Squar Milner LLP as its new accounting firm. The company replaced BDO USA LLP, which had been hired in mid-2014 after Ernst & Young LLP was dismissed.
Few companies of Daily Journal’s size would draw much attention. (Its market value is only about $260 million.) But its affiliation with Munger—best known as Warren Buffett’s long-time business partner at Berkshire Hathaway Inc. —has made the Los-Angeles-based firm a curiosity among investors.
The publisher’s market value has tripled since the end of 2009, thanks in part to an investment that Munger made in Wells Fargo & Co. during the depths of the financial crisis. As Daily Journal grew, it struggled to meet the accounting standards required of larger firms. Ernst & Young faulted the company’s internal controls in 2014, and BDO determined last year that there were “material weaknesses” tied to financial reporting.
In the face of these findings, Daily Journal has stuck to a management approach that puts most of the responsibility in the hands of one executive. Chief Executive Officer Gerald Salzman also serves as chief financial officer and treasurer.
“We believe our most important internal control is our hiring and retention of honest and capable people, whom we trust to do their jobs well,” Daily Journal said in its annual report in December. “Accordingly, we believe our overall internal control environment is sufficient for a company of our size."
The publisher said in Wednesday’s document that “there have been no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.” Jerry Walsh, an outside spokesman for BDO, said the company doesn’t comment on client matters.
During Daily Journal’s annual meetings in Los Angeles, Munger has used colorful language to take aim at what he sees as the misguided approach of the company’s auditors. In 2014, for instance, he likened Ernst & Young’s effort to that of an over-aggressive physician.
“They were like the doctor who wanted to cure the nosebleed by fishing around in the groin,” Munger said. “We obviously had an audit from hell.”
—With assistance from Lily Katz.