COGENT COMMUNICATIONS HOLDINGS INC
For the period ended Dec 31, 2023. Filed Feb 29, 2024.
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FY2023 · Filed Feb 29, 2024
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Item 8. Report of Independent Registered Public Accounting Firm
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Cogent Communications Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cogent Communications Holdings, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive income (loss), stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 29, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
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| | Determining the purchase price for the acquisition of Sprint | |
| Description of the Matter | | As discussed in Note 1 to the consolidated financial statements, on May 1, 2023, the Company acquired Sprint Communications and Subsidiaries (“Sprint Wireline”), for a purchase price of $1, subject to working capital adjustments, from T-Mobile US, Inc. (the “Seller”). Contemporaneously with the completion of the acquisition of Sprint Wireline, the Company entered into an agreement to provide IP Transit services to the Seller (the “Agreement”).Determining the purchase price for the transaction was complex due to the fact that the accounting for the Agreement required judgment to determine if the stated contract price represented consideration for services to be delivered and did not represent revenue from a contract with a customer, because the Agreement was entered into contemporaneously with the acquisition of Sprint Wireline. |
| How We Addressed the Matter in Our Audit | | We tested the Company's controls over its accounting for the Agreement, including the evaluation of key terms and determination regarding the commercial substance of the Agreement.To test the Company’s accounting for the Agreement we evaluated the applicable guidance, which included evaluating the commercial substance of the Agreement. We involved subject matter resources to assist in the evaluation of the Agreement. |
| | | Valuation of certain property & equipment assets for the acquisition of Sprint |
| Description of the Matter | | As discussed in Note 1 to the consolidated financial statements, on May 1, 2023, the Company acquired the Sprint Communications Subsidiaries (“Sprint Wireline”), for a purchase price of $1, subject to working capital adjustments, from T-Mobile US, Inc. (the “Seller”). The transaction was accounted for as a business combination. Auditing the Company's accounting for its acquisition of Sprint Wireline was complex due to the estimation uncertainty in determining the $369.2 million fair value of the acquired optical fiber assets. The estimation uncertainty was primarily due to the lack of active market data and the wide range of possible values that could be used by market participants. The significant assumptions used to estimate the value of these assets included the replacement cost per mile of fiber and a factor to reflect the orderly liquidation value. These assumptions are inherently subjective and market participants could have differing views on these assumptions, which could result in a materially different fair value of the optical fiber. |
| How We Addressed the Matter in Our Audit | | We tested the Company's controls over its accounting for acquisitions, including controls over management’s review of the significant assumptions described above.To test the estimated fair value of the optical fiber assets, we performed audit procedures that included, among others, testing the significant assumptions used in the model. For example, we compared the replacement cost per mile estimated by management to data obtained from third party sources. We involved our internal valuation specialists to assist with the evaluation of these assumptions. |
/s/Ernst & Young LLP
We have served as the Company’s auditor since 2002
Tysons, VA
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