B. Riley Financial Inc.: A Financial Conundrum

Introduction

B. Riley Financial Inc. has found itself amidst a rather perplexing situation. Investors, still on tenterhooks for last year’s audited results, have learned that these forthcoming figures will unveil ten control weaknesses. These range from technological inefficiencies to challenges in valuing investments.

Change in Auditors

In a recent US Securities and Exchange Commission filing, B. Riley announced that insights from consultations with Marcum LLP auditors highlighted these issues. Some weaknesses echo concerns from the previous year. Consequently, B. Riley has decided to part ways with Marcum once the long-overdue 2024 annual report sees completion. The firm claims this report will be ready “soon,” yet refrains from pinning down a specific date.

The Marcum Assessment

Marcum assessed B. Riley’s methodologies once more, particularly its imprecision in investment valuation and inadequate procedures to detect potential misstatements. Furthermore, they stressed the necessity for stricter processes to identify and disclose material related-party transactions. Such transactions, involving closely connected individuals or entities, may present conflicts of interest.

Challenges Facing B. Riley

The delay in presenting audited results has hindered Bryant Riley’s ambitious turnaround plans for his brokerage firm. The past year proved challenging, with significant investments turning sour, a plummeting stock price, and a regulatory investigation. Moreover, Nasdaq warned of delisting B. Riley by 29th September if the audited results remain unpublished.

Trouble with Franchise Group Inc.

The quality of reporting came under scrutiny when one of B. Riley’s major holdings, Franchise Group Inc., went bankrupt. Investors argued that B. Riley was remiss in disclosing vital transaction details and its financial arrangements with Franchise Group’s leader, Brian Kahn. Although the SEC’s investigation includes both the firm and Bryant Riley, B. Riley insists on cooperation and claims no misconduct.

Financial Strategies

Meanwhile, B. Riley has been endeavouring to shore up its balance sheet. Asset sales and debt refinancing have aimed to delay due dates. On an optimistic note, the company reported a positive net income from operating businesses for the second quarter—the first such achievement since late 2023.

Transition to BDO USA

While Marcum finalises the 2024 audit, BDO USA is preparing to take over auditing responsibilities for the 2025 filings. B. Riley has declared it’s nearing the final stages of documenting its 2024 filing and has made significant headway on the overdue filings for the first two quarters of the current year.

Independence Concerns

BDO, however, clarified its position regarding the audit for the year ending December 31. Before its official appointment as auditor, BDO had provided non-audit services, such as payroll and corporate secretarial tasks. These were halted in April to maintain auditing independence.

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