Business Context and Reporting Period
This Form 8-K Current Report was filed by Kartoon Studios, Inc. (TOON) on October 23, 2023. The filing addresses a change in the Company's independent registered public accounting firm, effective for the fiscal year ending December 31, 2023.
Key Financial Metrics
This filing does not contain revenue, profit, cash flow, margin, debt, or liquidity metrics. It is a disclosure regarding corporate governance and audit oversight rather than a financial performance report.
Material Changes
- Dismissal of Auditor: On October 23, 2023, the Audit Committee dismissed Baker Tilly US, LLP as the independent registered public accounting firm.
- Reason for Dismissal: The dismissal was executed as a cost-saving measure.
- Appointment of New Auditor: On October 25, 2023, the Audit Committee appointed Mazars USA LLP as the new independent registered public accounting firm, effective immediately.
- Audit History: Reports by Baker Tilly for the years ended December 31, 2022, and 2021, did not contain adverse opinions, disclaimers, or qualifications regarding uncertainty, scope, or accounting principles.
Management Commentary, Risks, and Contingencies
While there were no disagreements between the Company and Baker Tilly on accounting principles or practices, the filing discloses the existence of material weaknesses in internal control over financial reporting previously reported in the Company's 2021 and 2022 Annual Reports and 2023 Quarterly Reports. These weaknesses include:
- Insufficient segregation of duties on certain controls or processes.
- Limited resources to design and implement internal control procedures.
- Failure to appropriately evaluate revenue recognition under ASC 606 for advertisement-supported and subscription video on demand revenue streams.
- Lack of risk assessment procedures to detect financial reporting risks timely.
- Insufficient procedures and documentation for review-type controls and information technology controls, including complex transactions like business combinations.
Management stated that these material weaknesses did not result in the restatement of previously reported financial statements and did not affect the accuracy of the financial statements for the covered periods. Baker Tilly has been authorized to respond fully to inquiries from Mazars regarding these reportable events.
Investor Verification Checklist
- Verify the specific cost savings projected from switching from Baker Tilly to Mazars.
- Review the Company's most recent Form 10-K and 10-Q filings to assess the current status of remediation efforts for the disclosed material weaknesses in internal controls.
- Confirm whether the new auditor, Mazars USA LLP, has issued any preliminary observations regarding the Company's internal controls or revenue recognition practices.
- Monitor future filings for any restatements of financial statements related to the previously identified control weaknesses.