Business Context and Reporting Period
This Form 8-K Current Report is filed by Citizens, Inc. on June 30, 2017. The filing addresses a significant corporate governance event: the resignation of the company's independent registered public accounting firm, Ernst & Young, LP (EY).
Financial Metrics
The filing text does not provide specific values for revenue, profit, cash flow, margins, debt, or liquidity. This report focuses exclusively on the change in the certifying accountant and related internal control disclosures.
Material Changes and Auditor Resignation
- Resignation: On June 30, 2017, EY notified Citizens, Inc. of its decision to resign as the independent auditor.
- Transition: EY agreed to continue serving as auditor only for the duration of its review of the interim financial statements for the quarter ended June 30, 2017.
- Disagreements: The company reported no disagreements with EY regarding accounting principles, financial statement disclosures, or auditing scope/procedures for the fiscal years ended December 31, 2015 and 2016, or through June 30, 2017.
- Audit Opinions: EY's reports for the fiscal years 2015 and 2016 did not contain adverse opinions, disclaimers, or qualifications regarding uncertainty, scope, or accounting principles.
Internal Control Weaknesses and Outlook
While there were no disagreements with EY, the company disclosed specific "reportable events" related to material weaknesses in internal controls over financial reporting:
- Fiscal Year 2015: Ineffective management review control regarding the tax review of external tax experts' complex documentation.
- Fiscal Year 2016: Ineffective data validation and management review controls, ineffective supervision of third-party service organizations, and ineffective staff competency.
Outlook and Next Steps:
- The Audit Committee initiated discussions with other accounting firms in May 2017 following the late filing of the company's 10-K.
- The company anticipates completing the auditor selection process before the end of the third quarter of 2017.
- EY has agreed to respond fully to inquiries from the successor auditor regarding the identified material weaknesses.
Key Facts for Investor Verification
- Verify the identity and qualifications of the successor independent registered public accounting firm once selected.
- Review the upcoming Form 10-Q for the quarter ended June 30, 2017, to assess the impact of the auditor change on financial statement reviews.
- Monitor the company's remediation plans for the material weaknesses in internal controls identified for fiscal years 2015 and 2016.
- Investigate the reasons behind the late filing of the previous 10-K, which triggered the search for a new auditor.