Business Context and Reporting Period
This Form 8-K Current Report was filed by FutureFuel Corp. on February 20, 2008. The filing primarily addresses a change in the company's principal independent accountant and the remediation of previously identified material weaknesses in internal controls.
Key Financial Metrics
The filing does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures. The document focuses exclusively on accounting governance and auditor transitions rather than operational financial performance.
Material Changes and Auditor Transition
- New Auditor Engagement: On February 13, 2008, the Audit Committee engaged RubinBrown LLP to serve as the independent auditor for the fiscal year ended December 31, 2007, and all subsequent interim periods. RubinBrown will also perform the quarterly review for the period ended September 30, 2007.
- Dismissal of Previous Auditor: KPMG LLP, the auditor for fiscal years 2005 and 2006, was notified on February 13, 2008, that it would be dismissed upon the completion of the filing of the 2nd Amendment to the Form 10 and the Form 10-Q for the period ended June 30, 2007.
- Reason for Change: The change follows the discovery of material errors in the application of purchase accounting in the consolidated financial statements for the year ended December 31, 2006, and the three-month period ended March 31, 2007. FutureFuel is currently amending its registration statement to correct these errors.
Management Commentary, Risks, and Remediation
KPMG previously identified a material weakness in internal controls related to:
- The lack of effective controls in monitoring the accrual of certain liabilities.
- The application, monitoring, and review of complex accounting standards, specifically regarding purchase accounting.
Remediation Actions: FutureFuel has implemented new procedures to address these weaknesses, including:
- Comprehensive reviews of open work projects and inventory receipts at the plant site during the end-of-period close.
- Adjustments to the ERP system to apply purchase accounting directly, aiming to complete this by the end of the second quarter of 2008.
- Enhanced review processes by individuals independent of the initial accounting entry preparation.
- More rigorous internal controls surrounding the preparation and calculation of income taxes.
There were no disagreements between FutureFuel and KPMG regarding accounting principles or audit scope, aside from the noted material weakness.
Investor Verification Checklist
- Verify the status of the 2nd Amendment to the Form 10 and the Form 10-Q for the period ended June 30, 2007, to confirm the correction of purchase accounting errors.
- Review the letter from KPMG LLP (Exhibit 16.1) to ensure the auditor agrees with the company's disclosures regarding the dismissal and the nature of the material weaknesses.
- Monitor the completion of the ERP system adjustments for purchase accounting, targeted for the end of the second quarter of 2008.
- Assess the impact of the restated financial statements for 2005 and 2006 on the company's historical financial position.