a regional accounting firm headquartered in Denver
Colorado. Hein expressed unqualified (i.e.
âcleanâ) opinions on the companyâs financial statements and its internal control over financial reporting (ICFR) for each of those years. After the audit of the 2011 financial statements
Hein declined to continue as MHRCâs auditor. In July 2012
MHRC announced that it had engaged PricewaterhouseCoopers (PwC) to audit the 2012 financial statements. A few months after hiring PwC as its auditor
MHRC restated its 10-Q for the period ended June 30
2012. PwC never completed the audit of MHRCâs 2012 financial statements because the company terminated PwC on April 10
2013. Prior to its termination
PwC communicated that material weaknesses in the companyâs ICFR prevented the company from developing reliable financial statements. Management disagreed with PwCâs conclusion and replaced them with another auditor
BDO. They acknowledged that accounting resources were stretched thin
but felt the conditions were justified
arguing that the rapid growth of the company would ultimately enhance shareholder value. The Enforcement Division of the Securities and Exchange Commission (SEC) launched an investigation that culminated in an enforcement action announced on March 10
2016. The investigation revealed that some of the ICFR deficiencies identified by PwC had previously been identified by MHRCâs Chief Financial Officer (CFO) Ronald Ormand
Chief Accounting Officer (âCAOâ) David Krueger
and the Hein audit firm partner
Wayne Gray as early as 2010. However
they had classified these ICFR deficiencies as significant deficiencies
rather than material weaknesses. As a result
the deficiencies were not communicated to investors or other users of MHRCâs financial statements for more than two years
long after the information should have been available for decision-making.
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