Cybersecurity company Darktrace hires EY to review finances after short-seller attack

• On Monday, Darktrace, a cybersecurity company, announced that it has enlisted the services of auditing firm EY to conduct a review of its crucial financial procedures and controls.

• The announcement from Darktrace to enlist EY's services to review its financial processes and controls follows a report by Quintessential Capital Management, a short seller, which expressed doubts about the accuracy of Darktrace's financial statements. The report claimed that Darktrace may have overstated its sales and growth rates, leading to skepticism about the validity of the company's financial performance.

• According to Gordon Hurst, the chairman of Darktrace's board, the decision to engage EY to conduct a review of the company's financial processes is an indication of Darktrace's confidence in the strength and effectiveness of its financial practices.

     Cybersecurity firm Darktrace has announced that it has appointed EY, an auditing firm, to review its key financial processes and controls. The move comes after Darktrace was accused by a short seller of manipulating its accounts, leading to investor fears. The board of Darktrace has expressed confidence in the robustness of its financial processes and controls, stating that it has commissioned an independent review by EY to demonstrate this. However, no timeline for the review or release of findings has been provided, and the company doesn't expect to update markets on the review by the time of its first-half earnings report on March 8th.

EY will report to the chair of Darktrace’s audit and risk committee, Paul Harrison, according to the company. Despite the allegations made by the short seller, Darktrace's shares rose by more than 2% on the day of the announcement. The cybersecurity firm's tools, which leverage artificial intelligence to combat cyber threats, have gained significant traction in recent years, leading to an increase in the company's stock price.

Darktrace had been targeted by Quintessential Capital Management, a New York-based asset manager, in a report that highlighted alleged flaws in Darktrace’s accounting, including “round-tripping” and “channel stuffing” practices that aim to inflate revenue. However, Darktrace's CEO Poppy Gustafsson pushed back on the claims, stating that the company had robust processes and that the allegations were unfounded inferences.