Schuh Jr., William of San Antonio, TX 


As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Texas Society of CPAs, Mr. Schuh, with the firm of Sagebiel, Ravenburg & Schuh P.C., entered into a settlement agreement under the Joint Ethics Enforcement Program effective March 17, 2017.

 

Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee and the Texas Society of CPAs Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Schuh’s performance of professional services on the audit of the financial statements of an employee benefit plan as of and for the year ended December 31, 2011.

 

The ECA reviewed the auditor’s report, financial statements and working papers for the engagement as well as Mr. Schuh’s responses and other relevant documents he submitted to support his response.  Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA’s Code of Professional Conduct and Texas Society of CPAs’ Code of Professional Conduct (this code consists of both the Texas State Board of Public Accountancy (TSBPA) Rules of Professional Conduct and the AICPA’s Code of Professional Conduct) as follows:

 

Rule 201 - General Standards A. – Professional Competence (TSBPA 501.74)

The auditor undertook an engagement he could not complete in accordance with professional standards.

Rule 201 - General Standards C. – Planning and Supervision (TSBPA 501.60)

The engagement was not properly supervised at the partner level.

 

Rule 202 - Compliance with Standards (TSBPA 501.61)

1.   The auditor failed to adequately plan the audit and obtain a sufficient understanding of the Plan and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing and extent of further audit procedures (AU 314).  The documentation of planning procedures was also insufficient (AU 339).  Insufficient audit evidence and documentation were noted in the following areas:

a.    Gain an understanding of the Plan and its environment, including internal controls.

b.    Assess risk, identify significant audit areas, and determine the audit approach.

c.    Maintain documentation specific to planning the engagement in the Plan audit file.

d.    Perform and document preliminary analytics.

2.   The auditor failed to adequately assess the SSAE 16 and document reliance thereon.  (AU 324 and 2011 Audit and Accounting Guide for Employee Benefit Plans (AAG EBP) 6.16)

3.   The auditor failed to obtain sufficient appropriate audit evidence to express an opinion on the financial statements in the following areas (AU 326):

a.    Rollovers; (AAG EBP 8.08)

b.    Participant data; (AAG EBP Chapter 10)

c.    Investments; (AAG EBP Chapter 7)

d.    Benefit payments; (AAG EBP 9.02 and 10.15-.16)

e.    Parties-in-interest; (AAG EBP 11.08, FASB ASC 850)

f.     Commitments and contingencies; (AAG EBP Chapter 12)

g.    Subsequent events; (AU 560, AAG EBP 12.19, FASB ASC 850)

h.    Administrative expenses. (AAG EBP 12.17)

4.   The auditor failed to obtain sufficient appropriate audit evidence for income allocation testing and the added work is not sufficiently documented to allow for re-performance.   (AU 326 and 339)

 

Rule 203 – Accounting Principles (TSBPA 501.60)

1.   The original and revised financial statements failed to disclose the accounting policy for notes receivable from participants. (FASB ASC 235)

2.   The accounting policy disclosure for “Investment Valuation and Income Recognition” in the original and revised financial statements does not define fair value and does not disclose the income recognition policy for interest and dividends.  (FASB ASC 962-325-50-1, 235-10-50)

3.   The original and revised financial statements failed to make all required disclosures for assets measured at fair value on a recurring basis.  (FASB ASC 820)

4.   The forfeiture footnote does not conform to U.S. GAAP and the A&A Guide for EBPs.  (FASB ASC 962-205-50-1; AAG EBP 3.50(n))

5.   The original and revised financial statements failed to disclose that 2010 investment income is covered by the limited-scope certification.  (FASB ASC 205-10-45-4)

6.   The original financial statements did not disclose the plan description of notes receivable from participants. (FASB ASC 962)

 

Rule 501, Interpretation 501-5 – Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies (TSBPA 501.90)

The original and revised supplemental schedule of assets held (at end of year) did not identify all parties-in-interest to the plan and did not disclose the term of participant loans.  (29 CFR 2520-103.10)

 

Agreement:

In consideration of the ECA forgoing further investigation of Mr. Schuh’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Schuh 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 and the Texas Society of CPAs bylaws Article III.

c.   To neither admit nor deny the above specified charges.

d.   To his admonishment by the AICPA and the Texas Society of CPAs.

e.   To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.

f.    To complete 41 hours of continuing professional education (CPE) courses (Auditing Defined Contribution Plans; Internal Control and COSO Essentials for Financial Managers, Accountants and Auditors; Auditing Update: A Review of Recent Activities; Audit Workpapers: Documenting Field Work; Audits of 401(k) Plans) within six months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

g.   To comply with directive e. above, he agrees 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 employee benefit plan 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. In addition, he must undergo a pre-issuance review on one non-employee benefit plan audit performed by him that year.  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.  Also, no later than 30 days after the effective date of this agreement, he must submit a list to the ECA of the non-employee benefit plan audits on which he expects to issue reports in the upcoming 12 months from which the non-employee benefit plan audit will be selected.  The following information should be included regarding the engagements listed: anticipated number of hours to be spent on the engagement, level of professional services rendered, his role and anticipated hours on each engagement, type of organization, and whether it was an initial engagement.

 

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, 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 completion of pre-issuance reviews a list of the highest level (audit, review, compilation 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, his role and total hours on each 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, 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, or 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 AICPA joint trial board for a hearing or take such other action as it deems appropriate.

i.    To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the Texas Society of CPAs 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 or the Texas Society of CPAs 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. 

j.    To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA societies in the areas of 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 and the Texas Society of CPAs. 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 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.

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.  That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.

n.   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.




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