CHEROKEE INC. (NASDAQ:CHKE) Files An 8-K Changes in Registrant’s Certifying AccountantItem 4.01Changes in Registrant’s Certifying Accountant.
On August 21, 2017, the Audit Committee of the Board of Directors of Cherokee Inc. (the“Company”), dismissed Ernst& Young LLP (“E&Y”) as the Company’s independent registered public accounting firm.Additionally, on August 21, 2017, the Audit Committee of the Company’s Board of Directors approved the engagement of Deloitte& Touche LLP (“Deloitte”) as the Company’s independent registered public accounting firm, which engagement became effective on August24, 2017.
During the fiscal years ended January 28, 2017 and January 30, 2016, and in the subsequent interim period through August 21, 2017, there were no disagreements (as defined in Item304(a)(1)(iv) of Regulation S-K and the related instructions to Item304 of Regulation S-K) with E&Y on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to E&Y’s satisfaction, would have caused E&Y to make reference to the subject matter of the disagreement in connection with its report.
During the fiscal years ended January 28, 2017 and January 30, 2016, and in the subsequent interim period through August 21, 2017, there was one reportable event (as defined in Item304(a)(1)(v) of Regulation S-K and the related instructions to Item304 of RegulationS-K) related to material weaknesses in the Company’s internal control over financial reporting, as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2017 (the “2017 Form 10-K”). The Company’s management concluded that as of January 28, 2017 the Company’s internal control over financial reporting was not effective because of the existence of material weaknesses related to the Company’s controls over itsclosing processes in connection with the consolidation of the newly acquiredoperationsof Hi-Tec International Holdings B.V. (“Hi-Tec Holdings”) and over its application of purchase accounting principles in connection with its acquisition of Hi-Tec Holdings. These material weaknesses were described in Item9A of the 2017 Form 10-K, which description is incorporated herein by reference. E&Y’s audit report dated May 18, 2017 with respect to the Company’s internal control over financial reporting as of January 28, 2017 (the“E&Y Internal Control Report”) opined that the Company did not maintain effective internal control over financial reporting as of January 28, 2017 because of these material weaknesses, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the“COSO Criteria”). The Audit Committee of the Company’s Board of Directors has discussed the subject matter of these material weaknesses with E&Y and has authorized E&Y to respond fully to the inquiries of any successor accountant concerning these material weaknesses.
As of the date of this Current Report on Form8-K, these material weaknesses have not been fully remediated and the Company’s remediation efforts continue.
The audit report of E&Y on the consolidated financial statements of the Company and its subsidiaries for the fiscal years ended January 28, 2017 and January 30, 2016 (the“E&Y Audit Report”) did not contain an adverse opinion or a disclaimer of opinion, and the E&Y Audit Report was not qualified or modified as to uncertainty, audit scope or accounting principles. The E&Y Audit Report references the E&Y Internal Control Report’s adverse opinion on the Company’s internal control over financial reporting, based on the COSO Criteria.
The Company provided E&Y with a copy of this Current Report on Form 8-K and requested that E&Y furnish a letter addressed to the Securities and Exchange Commission stating whether it agrees with the foregoing statements. A copy of the letter furnished by E&Y in response to this request is filed as Exhibit 16.1 to this Current Report on Form 8-K.
During the fiscal years ended January 28, 2017 and January 30, 2016, and in the subsequent interim period through August 21, 2017, neither the Company nor anyone on its behalf consulted with Deloitte regarding either (i)the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and no written report nor oral advice was provided to the Company that Deloitte concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue, or (ii)any matter that was either the subject of a disagreement (as defined in Item304(a)(1)(iv) of RegulationS-K and the related instructions to Item304 of RegulationS-K) or a reportable event (as defined in Item304(a)(1)(v) of Regulation S-K and the related instructions to Item304 of RegulationS-K).
