Plug Power said earlier this month that it was becoming an accelerated filer with the Securities and Exchange Commission. The company also said it missed the accelerated filer deadline because of the complexities of transitioning into it and promptly replaced its chief accounting officer.

Shares of Plug Power fell as much as 4% to $2.55 per share after today’s announcement.

Plug Power Inc Dips After CAO Announcement

Plug Power under greater scrutiny

In a post on Seeking Alpha, Matthew G. Lamoreaux said Plug Power’s transition to accelerated filer status has also triggered fraud controls under the Sarbanes-Oxley Act. Those controls are meant to protect investors, and the company is also under increased scrutiny due to the auditor’s report.

Additionally, with the most recent earnings report, Plug Power announced changes in the way it recognizes revenue. This increases the likelihood that the auditors will discover some serious errors that could result in the company having to issue an earnings restatement.

Why Plug Power became an accelerated filer

Plug Power has become an accelerated filer because its public float surpassed $75 million last year. What that means is that the company must submit its 10-K and 10-Q filings earlier than other companies do. However, as Lamoreaux explains, there is more to the story.

Under the Sarbanes-Oxley Act, accelerated filers must issue an auditor’s report covering their internal control over financial reporting. That term just describes the controls companies enact to prevent fraud and mistakes in their GAAP financial statements. Previously, Plug Power had to put out a report about the effectiveness of their controls, but now, the company’s auditors must sign that report, which means the pressure has been turned up on the auditors’ scrutiny of the company’s accounting practices.

Ensuring Plug Power’s reports are accurate

The reason the auditor must sign off on the report about the company’s controls is to make doubly sure the financial statements are accurate. Management must also examine their internal processes more closely to ensure there are mistakes or fraud.

Lamoreaux notes that Plug Power’s business model is unusual and even unique as it makes it difficult for the company to become profitable. Now the Financial Accounting Standards Board has set forth new standards for recognizing revenue, which has resulted in Plug Power and all other companies that report GAAP results in the U.S. to reexamine their revenue recognition practices.

Is this good or bad for Plug Power?

The new standards are scheduled to go into effect in 2017, but companies are required to look back two years, which means that they must start looking at their practices and controls now. With the replacement of the chief accounting officer coming less than two weeks after Plug Power missed its accelerated filing deadline, Lamoreaux suggests that it seems likely that management found some places where improvement is needed in their internal controls. That’s even though the hydrogen fuel cell system manufacturer‘s external auditor did not report any “material weaknesses.”

He further says that it seems likely that Plug Power will have to restate some of its financial reports. But the good news is that in the long term, he thinks these changes should be good for investors because they can be more confident in the results reported by the company.