Funko Inc
For the period ended Dec 31, 2023. Filed Mar 7, 2024.
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FY2023 · Filed Mar 7, 2024
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Funko, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Funko, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity 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 March 7, 2024 expressed an adverse 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 Matter
The critical audit matter communicated below is a matter 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) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the 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 matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| Estimate of Reserve for Sales Allowances | |
| Description of the Matter | As discussed in Note 2 of the consolidated financial statements, the Company estimates costs of various incentives, including sales incentives, customer promotions, allowances for returns and defective merchandise (i.e., “sales allowances"). As of December 31, 2023, the estimated reserve for sales allowances the Company was $44.1 million which reduces gross sales in the period the related sale was recognized. In accounting for the reserve for sales allowances, significant judgement is required in determining the timing of when claims will be received from customers and the percentage of sales with expected future claims based on historical trends and information from customers, such as agreed upon customer contract terms as well as historical experience from customers. |
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| Auditing the Company’s estimate of the reserve for sales allowances is complex and highly judgmental due to the significant judgements required for timing of when claims, contractual and non-contractual, will be made by the customer, magnitude of claims that will be received, and assumptions about which claims the Company will grant. The reserve for sales allowances reflects management’s assumptions about future claim activity and changes in those assumptions could have a material effect on revenue recognized. | |
| How We Addressed the Matter in Our Audit | As a result of the material weaknesses, we tested the reserve for sales allowances as of December 31, 2023, and increased the extent of our procedures to test the completeness and accuracy of the data used in the calculation of the reserve. Additional procedures included obtaining and assessing the terms of contractual arrangements with customers, confirming directly with sales representatives whether there were any additional agreements entered into with customers from those included in the calculation, agreeing historical claims data used in the calculation to supporting evidence, and independently determining the time period between the receipt of historical claims from the customer and the period in which the related sales were recognized. |
/s/Ernst & Young LLP
We have served as the Company’s auditor since 2015.
Seattle, Washington
March 7, 2024
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