Auditor’s Opinion – What Did It Say about Solyndra

Solyndra was a manufacturer of cylindrical panels of CIGS thin-film solar cells based in Fremont, California. The company suspended all of its operations as of August 2011 leaving behind the United States government as its largest creditor.

In May 2010, the company was personally promoted by President Obama in his visit as a model for government investment in green technology.  A $535 million loan guarantee was applied for under the Bush administration but the loan was denied. The $535 million loan guarantee was later granted by the Obama administration. Private investors also invested more than $1 billion into the company.

Today, Solyndra Inc. is wrestling with on-going criminal and congressional investigations over the $535 million Federal loan it received.

But at least its auditor, PricewaterhouseCoopers, seemed to do the right thing and raised questions about Solyndra’s ability to continue in business. But these opinions are hard for the public to understand.

PricewaterhouseCoopers issued an unqualified modified opinion. Now what does that mean??

On the one hand, they believe the financial statements are presented fairly; on the other hand there is substantial doubt about Solyndra’s ability to continue as an on-going business. They attribute this conclusion to recurring losses from operations, negative cash flows since Solyndra began business and a net stockholders’ deficit.

But should PricewaterhouseCoopers have told the public more in their pro-forma audit report? Should they be responsible for more information?

For example, in the Prospectus Summary, Solyndra management said, “We have pioneered a photovoltaic system, featuring proprietary cylindrical modules, that achieves the lowest system installation costs on a per watt basis for the commercial rooftop market. We are able to significantly reduce the cost of installation by eliminating expensive mounting hardware and significantly reducing the amount of labor required when mounting conventional flat plate photovoltaic systems.”

I’m not sure what “lowest system installation costs on a per watt basis” means. Does it mean our systems are the cheapest to install on your roof or does it mean on a per watt basis we have the lowest cost?

The Wall Street Journal  reported on September 16, 2011, “As subsidies in Europe fueled demand and oil prices soared during 2008, the solar industry seemed poised to take off. But by 2009, the industry was undergoing severe growing pains, and Solyndra was hit hard. Polysilicon prices were in the midst of an 80% dive. That made Solyndra's product less competitive with rivals that used polysilicon.

Solyndra's costs stayed relatively high because of the tricky manufacturing process. In late 2009, Solyndra's tubes cost $4 for every watt of power output to produce, according to company securities filings. The problem was the company could sell them for only $3.24 per watt. One reason for the losses: the company often had to throw out defective or test panels, according to one former production executive.

As it was losing money, competition was getting worse. China's solar panels were dropping in price. U.S. rival First Solar Inc., was making panels at less than a quarter of Solyndra's cost then and today produces panels at about 75 cents per watt.”

AICPA New Reporting Standards

The AICPA has issued three new standards on audit opinions that will be effective December 15, 2012. These are:

·         Forming an Opinion and Reporting on Financial Statements

·         Modifications to the Opinion in the Independent Auditor’s Report

·         Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report

The last one may be the most significant if, in fact, auditors begin to use it to provide the reader with a better understanding of the financial condition of the company.
This Statement on Auditing Standards (SAS) addresses additional communications in the auditor’s report when the auditor considers it necessary to:

a. draw users’ attention to a matter or matters presented or disclosed in the financial statements that are of such importance that they are fundamental to users’ understanding of the financial statements (emphasis-of-matter paragraph) or

b. draw users’ attention to any matter or matters other than those presented or disclosed in the financial statements that are relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report (other-matter paragraph).

It’s too bad the taxpayers lost $535 million. Maybe if we can get auditors to provide more than just pro forma information, we might have an audit report that provides significant, relevant information to help shareholders and creditors make informed decisions.