As a result of an investigation of alleged violations of the code of professional conduct of the AICPA, Mr. Mortenson, with the firm of Swen A. Mortenson, C.P.A., Inc., entered into a settlement agreement under the Joint Ethics Enforcement Program, effective March 2, 2016.
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. Mortenson’s failure to ensure his firm obtained an appropriate peer review.
The ECA reviewed the allegations in the referral and information publicly available on the United States Department of Labor’s EFAST website and Mr. Mortenson’s responses to such findings. The ECA charged Mr. Mortenson with violations of the AICPA code of professional conduct as follows:
Rule 201 – General Standards, A. Professional Competence
The auditor lacked competence to complete the engagement in accordance with professional standards.
Rule 202 – Compliance with Standards
1. The financial statements failed to disclose the investment assets and activity that were excluded from auditing procedures under the limited scope exemption permitted by 29 CFR 2520.103-8. (AICPA’s Audit and Accounting Guide – Employee Benefit Plans (“AAG-EBP”) par. 13.37-.38)
2. The first paragraph of the auditor’s report inappropriately states that the auditor audited the financial statements though the scope of the audit was limited as permitted by the Department of Labor’s Rules and Regulations and a disclaimer of opinion was issued. (AU §508.63)
3. The auditor failed to audit and opine upon the Schedule of Assets Held for Investment Purposes included with the financial statements. (AAG-EBP 13.13-.14, AU §550.04, .07, AU §551.06, SAS 106, AU §326)
Rule 203 – Accounting Principles
1. The Statement of Net Assets Available for Benefits was not comparative. (FASB ASC 205-10-45-4)
2. The financial statements omitted fair value measurement disclosures required under FASB ASC 820.
3. The financial statements failed to disclose the date through which management evaluated subsequent events. (FASB ASC 855-10-50)
Rule 501, Interpretation 501-5 – Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies
As the partner responsible for his firm’s peer review compliance, Mr. Mortenson failed to ensure it complied with AICPA, Utah Association of CPAs and Utah State Board of Accountancy requirements to undergo a peer review.
In consideration of the ECA forgoing further investigation of Mr. Mortenson’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Mortenson agreed as follows:
a. To waive his right to a hearing under AICPA bylaws section 7.4.
b. To neither admit nor deny the above specified charges.
c. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
d. To his suspension from membership in the AICPA for a period of two years from the effective date of this agreement.
e. That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.
f. To provide an attestation immediately, then every 6 months for a period of three years that he is no longer performing audits or reviews. If he returns to performing such work, he agrees to complete the following:
· 40.5 hours of continuing professional education (CPE) courses (Upcoming Peer Review: Is Your Firm Ready?; Auditing Employee Benefit Plans; Accounting and Auditing Update for Small Businesses; Audit Workpapers: Documenting and Reviewing Field Work) prior to returning to such work and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
· To hire an outside party, acceptable to the ECA to perform a pre-issuance review of the reports, financial statements, and working papers on all audits and reviews performed by him for one year from the date he returns to performing such work and the ECA approves a pre-issuance reviewer. He must submit the names of the chosen reviewers to the ECA for approval no later than 30 days after he returns to performing audits and reviews.
He agrees to permit the outside party to report quarterly to the ECA on his progress in complying with this agreement as stated herein to comply with professional standards. The report should provide the reviewer’s comments in detail for each engagement and should include a description of the nature of the entity reviewed, the entity’s year end and the date of the review. The first report is due 120 days after the reviewer has been approved by the ECA with subsequent reports due every 90 days thereafter. He agrees to have this pre-issuance review performed at his expense. The ECA has the right to extend the period of time and number of engagements subject to pre-issuance review if there are deficiencies.
He agrees to inform the ECA of any changes in the composition of his practice or changes in his role during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with audits and reviews, no longer acts in a supervisory capacity on such engagements, or if he has not performed any audits and reviews during that year, he must inform the ECA of this change and the ECA may require that he attest every six months for three years as to the nature of his practice. If, during the three-year attestation period he returns to performing such engagements he must inform the ECA and undergo the pre-issuance reviews.
· To submit six months after completion of the pre-issuance reviews above, a list of the highest level (audits, reviews and compilations with note disclosures) of engagements that he performed in the period between the date of completion of those pre-issuance reviews and the end of the six-month period following completion of the pre-issuance reviews. The following information should be included regarding the engagements listed: number of hours spent on the engagement, level of professional services rendered, type of report issued, type of organization, and whether it was an initial engagement. The ECA will select one of these engagements for review. He will be informed of this selection and will be asked to submit information to include a copy of his report, the financial statements, and working papers related to that engagement for review by the ECA. The ECA may extend the period to select an engagement to ensure a suitable selection is available. A peer review undergone by his firm would not exempt him from this requirement.
He agrees to inform the ECA of any changes in the composition of his practice, changes in his role, or if he has not performed any audits or reviews during that year until a suitable work product is selected for review. If his practice changes and he is no longer involved with audit, review, and compilation engagements, or no longer acts in a supervisory capacity on such engagements, or if he has not performed any audits or reviews during that year, he must inform the ECA of this change and the ECA may require that he attest every six months for three years as to the nature of his practice. If, during the three-year attestation period he returns to performing such engagements he must inform the ECA of this change and the ECA will select a suitable work product for review.
After an initial review of such report, financial statements, and working papers, the ECA may decide he has substantially complied with professional standards and close this matter. Or, the ECA may decide that an ethics investigation of the engagement he submitted is warranted. If, at the conclusion of the investigation, the ECA finds that professional standards have in fact been violated, the ECA may refer the matter to the trial board for a hearing or take such other action as it deems appropriate.
· To submit within 30-days after he has commenced performing audits or employee benefit plans, evidence that his firm has submitted an application to join the Employee Benefit Plan Audit Quality Center. Upon membership in that Center, he agrees that his firm will comply with the directives of that Center.
· To schedule a peer review of his firm’s system of quality control through his firm’s administering entity within 60 days of returning to audits, reviews or compilations and he must submit evidence of the scheduled review by submitting a copy of the review team approval letter issued by his firm’s administering entity. In addition, his firm’s peer review will be due to the ECA within 10 months of his return to performing such work.
g. That the ECA shall provide a copy of this settlement agreement to the AICPA’s Peer Review Division staff, his peer review administering entities and his firm’s peer reviewer.
h. To be prohibited from performing peer reviews in any capacity until the directives in this letter have been completed. This prohibition will remain in effect until the ECA determines that the work product he submitted to comply with directive f. above, if applicable, substantially complies with professional standards. This restriction will be communicated to his peer review oversight agency.
i. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA until he has completed all directives in this letter. This restriction will be communicated to those responsible for appointments to such committees. In addition, if he applies to join any other committee of the AICPA, he must inform those responsible for such appointments of the results of this ethics investigation. This requirement shall remain in effect until the ECA determines that the work product he submitted to comply with directive f. above, if applicable, substantially complies with professional standards.
j. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in auditing and accounting and employee benefit plans until he has completed all of the directives included in this letter. This restriction will be communicated to those responsible for engaging CPE instructors at the AICPA. This requirement shall remain in effect until the ECA determines that the work product he submitted to comply with directive f. above, if applicable, substantially complies with professional standards.
k. That the ECA shall monitor his compliance with the terms of this settlement agreement and initiate an investigation where the ECA finds there has been noncompliance.