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Auditor Changes at Daily Journal

Corporation

Charlie Munger is vice chairman of Berkshire Hathaway Inc. and is informally known as War$-$

ren Buffett's "right arm." Munger also serves as chairman of Daily Journal Corporation, which

publishes $10$ newspapers and offers specialized information services and technology$-$based prod$-$

ucts. While often mentioned in the media because of his association with Buffett and long tenure

and leadership at Berkshire Hathaway, Munger was recently in the news for another reason: his

penchant to change auditors at Daily Journal.

REPORTING DELAYS

On December $16,2013,$ Daily Journal informed the Securities and Exchange Commission $($SEC$)$

that it would not meet the filing deadline for its $2013$ Form $10-$K$.($Daily Journal has a September $30$

fiscal year$-$end.$)$ The reason stated in its Form $12$b$-25$ filing was that Daily Journal's auditor

$($EY$)$ had not completed its audit of the financial statements or internal control over financial

reporting. Subsequently, Daily Journal informed the SEC that it would also miss the filing dead$-$

line for its December $31,2013$ and March $31,2014$ Forms $10-$Q$.$ 'Once again, the reason stipu$-$

lated in the filings was additional time required by EY to complete its audit and assessment of

internal control over financial reporting. $($While EY had audited Daily Journal's financial state$-$

ments since $2000,2013$ was the first year EY reported on Daily Journal's internal control over

financial reporting.$)$

DISMISSAL OF EY

On June $24,2014,$ Daily Journal file its $2013$ Form $10-$K $($almost seven months after the filing

deadline$),$ in which EY issued an unqualified opinion on the financial statements but an adverse

opinion on Daily Journal's internal control over financial reporting. Two days later, Daily Jour$-$

nal reported that its audit committee approved the dismissal of EY$,$ effective June $24,2014.$ An

excerpt from Daily Journal's Form $8-K$ filing is shown here: ${?}^2$

The Audit Committee of the Board of Directors of Daily Journal Corporation $($the "Company"$)$

approved the dismissal of Emst & Young LLP $("$EY$")$ as the Company's independent reg$-$

istered public accounting firm, effective June $24,2014$dots

The reports of EY on the Company's financial statements for the past two fiscal years con$-$

tained no adverse opinion or disclaimer of opinion and were not qualified or modified as to

uncertainty, audit scope or accounting principles.

During the Company's two most recent fiscal years and the subsequent interim period,

there have been no disagreements with EY on any matter of accounting principles or prac$-$

tices, financial statement disclosure, or auditing scope or procedure, which disagreement$($s$)$

if not resolved to the satisfaction of EY would have caused EY to make reference to the

subject matter of such disagreement$($s$)$ in its report on the Company's financial statements.

During the Company's two most recent fiscal years and the subsequent interim period,

there have been no reportable events of the kinds described in Item $304($a$)(1)($v$)$ of Regula$-$

tion S$-$K under the Securities Exchange Act of $1934,$ except that EY expressed an adverse

opinion in is report on the Company's internal control over financial reporting as of

September $30,2013($emphasis added$)...$ The Audit Committee of the Company's Board

of Directors has discussed this matter with EY and has authorized EY to respond fully to the

inquiries of the Company's successor independent registered public accounting firm.

The Company requested and has received a letter from EY addressed to the Securities and

Exchange Commission stating whether or not EY agrees with the statements in this Item

$4\mathrm{.}01.$ A copy of the letter, dated June $26,2014,$ is filed as Exhibit $16\mathrm{.}1$ to this Form $8.K$

APPOINTMENT OF BDO USA, LLP

On July $3,2014,$ Daily Journal announced the appointment of BDO USA, LLP as auditor to

replace EY$.$ Shortly following BDO's appointment, Daily Journal filed its Forms $10-Q$ for the first

$($filed on August $13,2014),$ second $($filed on August $15,2014),$ and third $($filed on August $18,2014)$

quarters of $2014,$ bringing Daily Journal current with respect to its SEC filings.

SEC COMMENT LETTER

Almost on cue, the Division of Finance at the SEC sent a letter of comment to Gerald Salzman

$($CEO of Daily Journal$)$ that raised concerns with the $2013$ Form $10-$K$.$ This letter $($dated September $25,$

referenced Daily Journal's disclosure of intangible assets from an acquisition, the effective$-$

ness of Daily Joumal's internal controls, and discrepancies between preliminary financial filings

on Form $8-$K and subsequent filings on Form $10-$Q$.$ With respect to the intangible assets, Salz$-$

man's response to the SEC noted the following:

At the time of the New Dawn acquisition, the Company discussed the purchase price

allocation with EY$.$ Accordingly, the Company was surprised when EY first raised the

$[$accounting$]$ iss

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