Why SunEdison’s Audit Report May Be Too Late

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Renewable energy company SunEdison Inc. (NYSE: SUNE) saw its shares momentarily double Thursday morning following the company’s announcement that an investigation into the accuracy of the company’s accounting practices had turned up no evidence of fraud or willful misconduct on the part of SunEdison’s management. At least there were no crooks at SunEdison.

The investigation was conducted by the company’s audit committee and its independent directors, along with independent counsel and accounting and financial advisers. The probe, begun late last year, focused on “the accuracy of the Company’s anticipated financial position previously disclosed to the Board based on allegations made by former executives and current and former employees.”

The effect on SunEdison’s market value has been dramatic. Since last July shares have fallen from a high of around $33.50 to less than a dollar. Whether the internal investigation will give the company a chance to recover remains to be seen, but it is difficult to see how the inquiry offers a brighter future.

In its announcement SunEdison said:

The Independent Directors have determined that as of the date of the independent counsel report, there were no identified material misstatements in the Company’s historical financial statements as well as no substantial evidence to support a finding of fraud or willful misconduct of management … However, the independent counsel materials identified issues with the Company’s overly optimistic culture and its tone at the top.


The investigation did identify “wrongdoing by a former non-executive employee … in connection with negotiations over the termination of the Vivint Solar Inc. acquisition.” SunEdison had made an offer of around $2 billion for the solar installer, and Vivint is now seeking damages from SunEdison for willful breach of the deal.

The directors’ inquiry also said the company’s “cash forecasting efforts lack sufficient controls and processes” and that “certain assumptions underlying the cash forecasts … were overly optimistic and a more fulsome discussion of risks and adjustments with the Board was warranted.”

Lack of management response when forecast targets were missed and lack of cash flow controls and processes were not disclosed to the board either comprehensively or in a timely manner.

To repair the damage the independent directors have adopted the following plan:

With respect to the Company’s cash forecasting and liquidity management, the Independent Directors will require the implementation of improved cash forecasting systems with the requisite controls to manage, monitor and fully communicate changes in outlook directly to the Board. The Independent Directors will also require management to provide the Board with more transparency regarding cash management practices, including corporate and project-level covenant compliance and handling and tracking of accounts payable, and to ensure assumptions and estimates are made with a reasonable basis and include a detailed discussion of risks and top-down adjustments.

It’s too late now. The proverbial horse is out of the equally proverbial barn.

There was no word on when the company might file its annual report for 2015, a major sticking point with lenders. SunEdison went on a buying spree in 2014 and 2015 and carries debt exceeding $12 billion. A bankruptcy filing remains all but assured.

Shares traded up more than 63% at $0.60 in mid-morning action. More than 77 million shares had changed hands already, compared with a daily average of around 48 million. The stock’s 52-week range is $0.20 to $33.45.