As a result of an investigation of alleged violations of the Code of Professional Conduct of the AICPA, Mr. Mullen entered into a settlement agreement under the Joint Ethics Enforcement Program, effective January 9, 2018.
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. Mullen’s performance of professional services on the audit of the financial statements of a construction company as of and for the year ended December 31, 2015.
The ECA reviewed certain work papers and financial statements as well as relevant emails and other correspondence Mr. Mullen submitted to support his responses. 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:
1.310.001 Compliance with Standards (Prior to December 15, 2014 - Rule 202)
- The auditor failed to gain an adequate understanding of the entity in order to properly plan the audit and to complete the risk assessment. (AU-C 315)
- The auditor failed to obtain sufficient and appropriate audit evidence to express an opinion on the financial statements in the following areas (AU-C 500):
- Accounts receivable;
- Journal entry testing;
- Subsequent events;
- Accounting estimates;
- Commitments and contingencies;
- Related parties; and
- Final analytics.
- The auditor failed to make communications with those charged with governance at the completion of the audit. (AU-C 260)
- The auditor’s report was dated prior to the date on which the auditor obtained sufficient and appropriate audit evidence on which to base the auditor’s opinion on the financial statements as responses to the legal letters were received after the auditor’s report date. (AU-C 700)
In consideration of the ECA forgoing further investigation of Mr. Mullen’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Mullen agreed as follows:
a. To waive his rights to further investigation of this matter in accordance with the Joint Ethics Enforcement Program (JEEP) Manual of Procedures.
b. To waive his rights to a hearing under AICPA bylaws section 7.4.
c. To neither admit nor deny the above specified charges.
d. To his suspension from membership in the AICPA for a period of two years from the effective date of this agreement. During the period of suspension, he is prohibited from representing himself as a member of the AICPA and from using any AICPA credentials.
e. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
f. To complete the 26 hours of continuing professional education (CPE) courses (Construction Contractors Advanced Issues; Applying the Risk Assessment Standards; to Ensure a Quality Audit; GAAS: A Comprehensive Review for Auditors) within 6 months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
g. 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 performed by him for one year from the date the reviewer has been approved by the ECA or until completion of the CPE specified in directive f. above, if later. He must submit the names of the chosen reviewers to the ECA for approval no later than 30 days after the effective date of this agreement.
He agrees to permit the outside party to report 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 the number and composition 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, changes in his role during the period he is subject to the pre-issuance reviews or if he has not performed any audits. If his practice changes and he is no longer involved with audits, no longer acts in a supervisory capacity on such engagements, or has not performed such engagements during the above specified period, he must inform the ECA of this 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.
h. To further comply with directive e. above, submit six months after the due date for completion of the pre-issuance reviews, 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 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, reviews, or compilations with note disclosures until a suitable work product is selected for review. If his practice changes and he is no longer involved with audits, reviews, and compilations with note disclosures, no longer acts in a supervisory capacity on such engagements, or has not performed such engagements during the above specified period, he must inform the ECA of this 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 Joint Trial Board for a hearing or take such other action as it deems appropriate.
i. 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 h. above substantially complies with professional standards. This restriction will be communicated to his peer review oversight agency.
j. 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 submitted to comply with directive h. above substantially complies with professional standards.
k. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in auditing and accounting 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 submitted to comply with directive h. above substantially complies with professional standards.
l. 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.
m. Submit written evidence from the partner at his firm responsible for coordinating his firm’s peer review and the firm’s managing partner that he has provided this settlement agreement to them within 30 days of accepting this agreement.
n. That the ECA shall publish his name, the charges, and the terms of this settlement agreement.
o. 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.