Auditing

Cognex Ousts E&Y; Names Grant Thornton

No auditing disagreement led to the change by the vision-sensor maker, which recently found reporting problems at its Japanese unit during an inter...
Stephen TaubSeptember 11, 2007

Cognex Corp. said Ernst & Young LLP was “dismissed” as the company’s auditor, and replaced by Grant Thornton LLP. Ernst & Young LLP had been the Cognex auditing firm for the past four years.

The maker of vision sensors that are used in automated manufacturing said the decision to change auditors did not result from any disagreement with Ernst & Young, and was not the result of on any matter of accounting principles or practice, financial statement disclosure, or auditing scope or auditing procedure. It said the change was unanimously approved by the Cognex audit committee, and directors.

While the company’s 8-K filing with the Securities and Exchange Commission did not say why it dismissed Ernst & Young, Richard A. Morin, Cognex’ senior vice president of finance and administration and CFO, said in an email response to CFO.com that Grant Thornton’s specialty in the middle market — and its lower cost — were behind the decision. “The amount of attention that a company the size of Cognex can command from a big four accounting firm in the era of Sarbanes-Oxley, with its heavy auditing demands, is somewhat limited,” Morin said. “The audit committee decided that Cognex would be better served by an accounting firm that specializes in middle market companies like Cognex, where we could get more attention.” Grant Thornton, Morin added, “is committed to providing Cognex with a superior level of service, and also offered a very attractive price.”

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On July 25, Cognex said it would delay the filing of its second quarter report because of a voluntary internal review of irregularities that it discovered in certain transactions originating at its Japanese subsidiary.

The company said that as soon as it discovered the irregularities Cognex had reported the matter to its audit committee, which instructed the company to hold an internal review and to report its findings to the committee. The committee also appointed outside counsel, which engaged forensic accounting professionals to conduct “a full, thorough and independent investigation.”

Cognex said at the time that its internal review discovered improper orders in the 2006 fourth quarter, which generated about $757,000 in revenue, $644,000 in operating income, and $483,000 in net income. It also reported finding that in the first quarter of 2007 improper orders had generated about $303,000 in revenue, $262,000 in operating income, and $194,000 in net income.

Cognex also reversed the $400,000 order for DataMan handheld ID readers that the company announced on June 14, just six weeks earlier.