Daily Journal Corp., the California publisher that counts billionaire Charles Munger as chairman, appointed BDO USA LLP as its auditor to replace Ernst & Young LLP, which was dismissed amid an accounting dispute.
BDO was hired today, Los Angeles-based Daily Journal said in a regulatory filing.
The publisher hasn’t filed quarterly reports to the Securities and Exchange Commission for the periods ended Dec. 31 and March 31. Ernst & Young had cited inadequate internal accounting controls, Daily Journal said June 24 in its annual report.
The new firm will “know from the get-go that they must issue an opinion that does not say there’s a problem with internal controls,” Erik Gordon, a professor at the University of Michigan’s Ross School of Business, said in a phone interview before the hiring was disclosed. “That’s what got E&Y fired.”
The review of controls became necessary because of the growth last year in Daily Journal’s market value. Previously, the publisher wasn’t required to have such a rigorous examination. In announcing the dismissal of Ernst & Young on June 26, Daily Journal said its internal controls over financial reporting were effective.
BDO serves clients through more than 50 offices in the U.S., according to the firm’s website. BDO doesn’t comment on client matters, said Jerry Walsh, an outside spokesman for the company.
Daily Journal hasn’t consulted BDO in the past two years about the opinion it would give on the publisher’s financial statements, according to today’s filing. Ernst & Young spokesman John La Place declined to comment.
Daily Journal paid Ernst & Young $526,000 for the review of financial statements and internal controls in the 2013 fiscal year. The firm billed $169,300 the year before.
Munger, 90, helped propel the publisher’s growth by investing its cash in stocks during the depths of the financial crisis. He is the vice chairman of Warren Buffett’s Berkshire Hathaway Inc.
Daily Journal has pushed back in the past when its approach has been challenged. The company told regulators last year that selling Treasuries and jumping into stocks was the safe move after equity markets plunged in 2008.
“The board recognized that this decision would be contrary to the conventional (but questionable) notion that the least risky way to preserve corporate capital for the long-term benefit of stockholders is to invest it in government bonds at interest rates approximating zero,” an attorney for the company wrote in a 2013 letter.
The letter was written in response to an SEC inquiry into why Daily Journal shouldn’t be considered an investment company, given the percentage of its assets in marketable securities. Such a designation could have subjected the publisher of California Lawyer magazine to some of the regulations imposed on mutual funds.