Daily Journal Corp., the California publisher that counts billionaire Charles Munger as chairman, dismissed Ernst & Young LLP after the auditor faulted the company’s accounting.
Daily Journal expects to hire a new accounting firm “within the coming days,” the Los Angeles-based company said today in a regulatory filing.
Ernst & Young determined there were flaws in the publisher’s accounting for acquisitions and deferred tax provisions, Daily Journal said June 24 in its report for the fiscal year ended Sept. 30. The document had been delayed amid a review of internal controls over financial reporting. Daily Journal has also postponed the filing of two quarterly reports.
“The company believes that its internal control over financial reporting was effective,” Daily Journal said in today’s filing.
Ernst & Young doesn’t comment on dealings with clients, said John La Place, a spokesman for the firm. Tu To, who handles media inquiries for Daily Journal, didn’t return a call seeking comment.
Daily Journal publishes California Lawyer magazine and newspapers that cover legal affairs, business and real estate. Munger, 90, is best known as the vice chairman of Warren Buffett’s Berkshire Hathaway Inc. Berkshire’s auditor is Deloitte & Touche LLP, according to the Omaha, Nebraska-based company’s annual report.
Ernst & Young charged Daily Journal $526,000 for the review of financial statements and internal controls in the 2013 fiscal year. The accounting firm billed $169,300 the year before, when it didn’t examine Daily Journal’s internal controls.
A jump in Daily Journal’s market value triggered the requirement for the more rigorous review. The shares have doubled in the past 12 months, giving the company a market capitalization of about $300 million. The publisher benefited from a rally in a stock portfolio that Munger helped assemble in the financial crisis.
Daily Journal Chief Executive Officer Gerald Salzman is also the company’s chief financial officer and principal accounting officer, according to its annual report. The publisher said in that document that “as a small company,” it has an accounting department of six employees.
While Ernst & Young faulted Daily Journal’s internal controls, the auditor did sign off on the company’s financial statements. Ernst & Young sent a letter to the SEC saying that it agreed with the characterization of its dismissal, according to today’s filing.