**B. Riley Financial Faces Audit Challenges Amid Control Weaknesses**
B. Riley Financial Inc. is grappling with significant challenges as it awaits the release of its audited financial results from the previous year. The company has disclosed that its upcoming report will highlight ten weaknesses in its internal controls, which encompass areas such as technology and investment valuation. This information was revealed in a recent filing with the U.S. Securities and Exchange Commission (SEC), where B. Riley noted that some of these weaknesses were recurring from the previous year, identified during consultations with auditors from Marcum LLP.
Following the completion of the long-overdue 2024 annual report, B. Riley has announced its decision to part ways with Marcum. Earlier this week, the firm indicated that the report would be finalized “soon,” although no specific timeline was provided. The delay in reporting has hindered Chairman Bryant Riley’s efforts to revitalize the brokerage firm, which has faced a tumultuous year marked by poor investment performance, a declining stock price, and a regulatory investigation. The Nasdaq has warned B. Riley that it will face delisting on September 29 if the audited results are not submitted by that date.
Marcum has reiterated concerns regarding B. Riley’s imprecise investment valuations and inadequate procedures to detect potential misstatements. The auditor emphasized the need for B. Riley to enhance its processes for identifying and disclosing material related-party transactions, which can involve dealings with individuals closely associated with the company and may present conflicts of interest.
The quality of B. Riley’s disclosures came under scrutiny last year when one of its major holdings, Franchise Group Inc., filed for bankruptcy. Investors alleged that B. Riley failed to adequately disclose critical details regarding the transaction and its financial dealings with Franchise Group’s leader, Brian Kahn. This prompted an SEC investigation involving both B. Riley and Bryant Riley, with the firm asserting its cooperation and denying any wrongdoing.
In response to these challenges, B. Riley has been working to strengthen its balance sheet and improve cash flow by divesting assets and refinancing debt to extend payment deadlines. For the second quarter, the company reported positive net income from its operating businesses for the first time since late 2023.
As Marcum continues to work on the 2024 audit, it is preparing to transition its responsibilities to BDO USA, which will manage the 2025 filings. B. Riley has indicated that it is in the final stages of preparing its 2024 annual filing and has made “substantial progress” on the filings for the first two quarters of this year, which are also overdue. However, BDO has informed the company that it will not be independent for auditing purposes for the year ending December 31, citing prior non-audit services provided, including payroll and corporate secretarial tasks, which were terminated in April.
**FAQ**
**What are the main issues B. Riley Financial is facing with its audits?**
B. Riley Financial is dealing with multiple weaknesses in its internal controls, particularly in technology and investment valuation, which have been highlighted by its auditors. The company is also facing potential delisting from Nasdaq if it fails to submit its audited results by the specified deadline.
