Morris, Hoover D. - Houston, TX
As a result of an investigation of alleged violations of the Code of Professional Conduct of the AICPA, Mr. Morris, with the firm H.D. Morris Co., Inc., P.C. entered into a settlement agreement under the Joint Ethics Enforcement Program, effective June 15, 2015.
Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee) alleging a potential disciplinary matter with respect to Mr. Morris’ performance of professional services in connection with the audit of a not-for-profit as of and for the fiscal year ended November 30, 2009.
The ECA reviewed the financial statements and working papers for the year ended November 30, 2009 and certain other documents. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA’s Code of Professional Conduct as follows:
Rule 202 – Compliance with Standards
1. The auditor initially did not accurately identify all major programs in the original financial
statements because of a failure to ensure programs were properly clustered. (AICPA Audit
Guide – Government Auditing Standards and Circular A-133 Audits (AAG-SLA) 5.31 &
13.23; OMB Circular A-133 §_.05 Audit Reporting)
2. The auditor did not obtain adequate audit evidence in that:
· Items selected in testing allowability were not representative of the population. Although the
work papers indicate that a haphazard sample was selected, only the individually significant items
were tested. (AAG-SLA 11.95)
· Items selected for control testing were not representative of the population. The auditor selected
items for control testing based on whether they were monetarily individually significant. (AICPA
Audit Guide – Audit Sampling (AAG-SAM) 2.10)
· The auditor failed to separately consider the sample sizes for internal control testing and
compliance testing. (AAG-SLA 11.58)
Rule 203 – Accounting Principles
1. The financial statements fail to disclose the departures from generally accepted accounting
principles related to fixed assets. (FASB ASC 360-10-45, 360-10-50)
2. The financial statements inappropriately present deferred revenue related to the receipt of
temporarily restricted support. (FAS ASC 958-405-25 & 958-605-25)
3. The Statement of Cash Flows fails to provide a reconciliation of net income to net cash flow
from operating activities. (FAS ASC 230-10-45)
4. The financial statements did not present or disclose information about the nature of the
different types of temporarily and permanently restricted net assets. (FAS ASC 958-210-45
& 958-210-50)
5. The financial statements erroneously allocated all costs to program expenses. (FASB ASC
958-720-45)
6. Cash restricted for the purchase of equipment is improperly presented as a portion of ending
cash on the Statement of Cash Flows. Additionally, this amount should be presented as a
cash outflow from investing activities. (FASB ASC 958-230-55; AICPA Audit Guide –
Not-for-Profit Entities 3.27)
7. The financial statements fail to disclose the date through which subsequent events have been
evaluated. (FASB ASC 855-10-50)
Rule 501 – Acts Discreditable
The auditor misrepresented his practice to the Ethics Division in order to avoid the work product review sanction prescribed in his previous case.
Agreement:
In consideration of the ECA forgoing any further investigation of Mr. Morris’ conduct as
described above and in consideration of any further proceedings in this matter, Mr. Morris
agrees as follows:
a. To waive his rights to a hearing under AICPA bylaws section 7.4;
b. To neither admit nor deny the above specified charges;
c. To his expulsion from membership in the AICPA; and
d. That the ECA shall publish his name, the name of his firm; the charges, and the terms of this
settlement agreement in publications it deems appropriate.
