What was the specific concern KPMG had regarding the structural arrangement by which John T. Hewitt controls Liberty Tax, Inc. (Ledgers' parent company), and how did this lead to their resignation affecting Ledgers?
Ledgers Franchise · 2025 FDDAnswer from 2025 FDD Document
bility to control the Board as the sole holder of the Class B common stock, KPMG informed the Audit Committee and management that it has concerns regarding the Company's internal control over financial reporting as related to integrity and tone at the top and such matters should be evaluated as potential material weaknesses.
Specifically, KPMG informed the Audit Committee and management that Mr. Hewitt's past and continued involvement in the Company's business and operations, including his continued interactions with franchisees and area developers of the Company, has led it to no longer be able to rely on management's representations, and therefore has caused KPMG to be unwilling to be associated with the Company's consolidated financial statements. In notifying the Company of its resignation, KPMG advised the Audit Committee and management that it is not aware of any information that cause it to question the integrity of current management, but rather that the structural arrangement by which Mr. Hewitt controls the Company is the cause of KPMG's concerns. KPMG also noted that because certain information known to the Board regarding the reasons that the Board terminated Mr. Hewitt as Chief Executive Officer had not been disclosed to the current Chief Executive Officer and Chief Financial Officer, KPMG was uncertain as to whether it could continue to rely on management's representations.
The Company has provided KPMG with a copy of the disclosures required by Item 304(a) of Regulation S-K contained in this Current Report on Form 8-K, and has requested that KPMG furnish the Company with a letter addressed to the Securities and Exchange Commission (the "SEC") stating whether it agrees with the statements made by the Company in this Current Report on Form 8-K and, if not, stating the respects in which it does not agree. A copy of KPMG's letter, dated December 11, 2017, confirming KPMG's agreement with these statements is filed as Exhibit 16.1 to this Current Report on Form 8-K.
Item 8.01. Other Events.
On December 11, 2017, the Company issued a press release announcing the resignation of KPMG as the Company's independent registered public accounting firm and that the Company will delay the filing of its Quarterly Report on Form 10-Q for the quarter ended October 31, 2017. A copy of the press release is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Forward Looking Statements
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which provides a "safe harbor" for such statements in certain circumstances. The forwardlooking statements include statements or expectations regarding potential impacts of KPMG's resignation, ability and timing to complete the accounting review and audits, comprehensiveness of the Company's accounting review and ability to engage an independent accounting firm and related matters. These statements are based upon current expectations, estimates, projections, beliefs and assumptions of Company management, and there can be no assurance that such expectations will prove to be correct.
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to Ledgers' 2025 Franchise Disclosure Document, KPMG's resignation as the independent registered public accounting firm for Ledgers' parent company, Liberty Tax, Inc., stemmed from concerns regarding John T. Hewitt's continued influence and control over the company. Even after his termination as CEO on September 5, 2017, Hewitt remained Chairman of the Board and controlling stockholder due to his sole ownership of Class B common stock. KPMG viewed this structural arrangement as creating an 'inappropriate tone at the top' which led to ineffective entity-level controls within the organization.
KPMG's concerns were amplified by Hewitt's actions, such as replacing two independent members of the Board around the time allegations of misconduct surfaced in media reports. Following these replacements, the chair of the Audit Committee retired, the Chief Financial Officer announced her resignation, and another independent board member decided not to stand for reelection. Furthermore, KPMG was aware that Hewitt may have continued to interact with franchisees and area developers after his termination as CEO. Despite Hewitt's assurances that he would not reinsert himself into the company's management, KPMG remained concerned about the company's internal control over financial reporting, particularly regarding integrity and tone at the top, identifying these as potential material weaknesses.
Ultimately, KPMG informed the Audit Committee and management that Hewitt's past and continued involvement in the Company's business and operations, including his continued interactions with franchisees and area developers of the Company, led it to no longer be able to rely on management's representations, and therefore caused KPMG to be unwilling to be associated with the Company's consolidated financial statements. The company publicly disclosed KPMG's resignation on December 11, 2017, in a Form 8-K filed with the SEC. This disclosure also announced a delay in filing the Quarterly Report on Form 10-Q for the quarter ended October 31, 2017, highlighting the immediate impact of KPMG's resignation on the company's financial reporting obligations.