Analysis of Mentor Capital's Auditor Change: Impact on Investor Confidence and Financial Reporting Quality

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According to the enforcement actions of the U.S. Securities and Exchange Commission (SEC) and public filings of Mentor Capital, the auditor change involves the following key milestones [1][2]:

Time Milestone	Key Event
May 8, 2024	Mentor Capital terminates engagement with former auditor BF Borgers CPA PC
May 3, 2024	SEC accuses BF Borgers of operating a “sham audit mill”
May 15, 2024	Mentor Capital appoints Spicer Jeffries LLP as its new auditor
2025	Cherry Bekaert acquires Spicer Jeffries LLP

In May 2024, the SEC filed a civil fraud lawsuit against BF Borgers, alleging systemic failures [1][2]:

• Falsification of audit documents
  : “Rolling forward” previous work papers and passing them off as current audit documents
• False compliance statements
  : Falsely claiming audits complied with PCAOB standards in over 500 SEC filings
• Wide-ranging impact
  : Involving over 1,500 SEC filings, spanning from January 2021 to June 2023

Gurbir Grewal, Director of the SEC’s Division of Enforcement, stated that BF Borgers’ conduct was “one of the most systemic failures of a gatekeeper we have ever seen” [2].

1. Timely Response Demonstrates Governance Capability
   • Mentor Capital promptly terminated its engagement with the problematic auditor following the SEC’s enforcement action, demonstrating the company’s management’s emphasis on governance standards
   • This rapid response actually
     strengthened
     , rather than weakened, investors’ confidence in the company’s management

2. Avoiding ‘Collateral Damage’
   • The company proactively cut ties with the problematic auditor, reducing the risk of SEC scrutiny due to its engagement with the firm
   • Prevented potential market doubts about the authenticity of the company’s financial data

1. Auditor Upgrade
   • The transition from Spicer Jeffries to Cherry Bekaert is essentially an
     audit quality upgrade
   • Cherry Bekaert, a more reputable audit firm, ranks among the top 5 in hedge fund auditing [3]
   • According to Hedge Fund Alert’s 2025 rankings, after acquiring Spicer Jeffries, Cherry Bekaert has become the top-ranked hedge fund auditor among mid-market accounting firms

2. Enhanced Credibility
   • Engaging a more well-known, compliant auditor helps enhance institutional investors’ trust in the company
   • Reduces concerns about audit risk during institutional investment due diligence

According to the disclosure in Mentor Capital’s Form 10-K [1]:

“Our access to the capital markets and our ability to make timely filings with the Securities and Exchange Commission will depend on having financial statements re-audited and re-reviewed by independent registered public accountants who are PCAOB-registered…”

The company acknowledges the need for

by the new auditor, which may bring:

• Additional audit fees and delay costs
• More rigorous review of historical financial data
• Potential identification and correction of prior issues

Factor	Expected Change
Audit Standard Compliance	↑ Significant improvement (BF Borgers did not comply with PCAOB standards at all)
Financial Information Disclosure Quality	↑ Higher quality disclosures due to more stringent audit reviews
Compliance Risk	↓ Reduced risk of engaging non-compliant auditors
Investor Protection	↑ Enhanced reliability of financial statements

Studies show that M&A transactions involving PCAOB-inspected auditors have better subsequent performance [4]:

• Acquirers have greater confidence in the target company’s financial reporting quality
• Lower likelihood of transaction termination
• Fewer asset impairments and goodwill impairments post-transaction

1. Transition Period Risks
   • Re-audits may result in delayed filing of Form 8-K or other regulatory documents
   • The company has clearly disclosed that “significant costs or delays” may occur [1]

2. Investor Communication
   • The company should clearly communicate the reasons and impacts of the auditor change
   • Avoid market misinterpretation as a signal of financial problems

3. Subsequent Regulatory Scrutiny
   • The SEC may conduct post-hoc reviews of documents from the period audited by BF Borgers
   • Investors should monitor for subsequent regulatory actions

Evaluation Dimension	Impact Assessment	Rationale
Corporate Governance	Positive	Timely termination of the problematic auditor demonstrates strong governance
Investor Confidence	Neutral to Positive	Short-term doubts may arise, but long-term audit quality is improved
Financial Reporting Quality	Significantly Positive	Shift from non-compliant auditing to high-quality auditing
Compliance Risk	Reduced	Eliminates systemic risk of engaging a problematic auditor
Operational Risk	Short-term Increase	Re-audits may result in temporary costs and delays

Mentor Capital’s auditor change following the acquisition (from BF Borgers to Spicer Jeffries, and then to Cherry Bekaert)

. While some uncertainty may arise in the short term due to the audit transition, this change is an appropriate response by the company to the 2024 SEC enforcement action, which essentially enhances the reliability of financial reporting.

From an investment analysis perspective, the auditor change itself should not be viewed as a negative signal. On the contrary, the company’s prompt decision to cut ties with the auditor deemed a “sham audit mill” by the SEC and transition to a more reputable firm demonstrates the management’s emphasis on shareholder interests and compliance standards.

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[1] Mentor Capital, Inc. Form 10-K (March 31, 2025). https://ir.mentorcapital.com/all-sec-filings/content/0001641172-25-001620/0001641172-25-001620.pdf

[2] SEC Charges Auditor BF Borgers with Massive Fraud. CNBC (May 3, 2024). https://www.cnbc.com/2024/05/03/trump-media-auditor-charged-by-sec-with-massive-fraud.html

[3] Cherry Bekaert Achieves Top 5 Hedge Fund Auditor Ranking. Cherry Bekaert (June 13, 2025). https://www.cbh.com/newsroom/cherry-bekaert-achieves-top-5-hedge-fund-auditor-ranking/

[4] PCAOB International Inspections and M&A Outcomes. ScienceDirect. https://www.sciencedirect.com/science/article/abs/pii/S0165410120300203