Compliance

Internal controls matter

One company’s misstatements serve as a warning.
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· 3 min read

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Recent charges brought by the SEC against the former CFO of smart windows company View underscore the risks of improper financial reporting.

View is a manufacturer of smart windows that automatically change tint as light levels shift, helping lower heating and cooling costs. It went public in March 2021 after a $1.6 billion merger with a SPAC backed by Cantor Fitzgerald. Google, Amazon, and other boldface names used its windows in their buildings.

But in November 2021, View’s audit committee reported that the company had made material misstatements in its financial statements for fiscal years 2019, 2020, and 2021. Over the period of 2019–2021, the company disclosed warranty liabilities of $22–25 million, but the SEC later determined those numbers should be between $48 million and $53 million.

View appears to have reported the cost of manufacturing replacement windows, the SEC said, but not the cost of installing and delivering them.

After the audit committee’s findings came out, shareholders filed lawsuits and CFO Vidul Prakash resigned. The company’s fortunes tumbled, and in 2022, it announced that it had “substantial doubt about the company’s ability to continue as a going concern.” Its share price stood at 12.8 cents in July 2023, Reuters reported.

In July 2023, Prakash was charged with negligence-based fraud and violations of disclosure and books and records. The SEC recommended permanent injunctions, and that Prakash pay civil penalties and be barred from serving as an officer or director. But it did not levy any civil penalties on View itself, which made restatements for the years 2019, 2020, and 2021.

This is a “somewhat unusual” ruling, Brandon Szerwo, assistant professor of accounting and law at the University at Buffalo, told CFO Brew. “You don’t usually see that.”

View avoided penalties because it cooperated with the SEC, reporting the misstatement and taking steps to correct it. “They did the right things,” Szerwo said.

The SEC claimed, in its complaint, that Prakash knew the company was covering the costs of the window installation and delivery and that those costs were “probable and could be reasonably estimated,” meaning that they should have been reported under US GAAP. View had appointed a Warranty Liability Team to discuss the warranty, the ruling said, and both View’s controller and the SEC had expressed concerns to Prakash that the financial statements might not be adequate.

Some best practices for companies, Szerwo said, include having audit committees regularly review significant accounting estimates and implementing whistleblower hotlines.

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.