As a result of an investigation of alleged violations of the Codes of Professional Conduct of the AICPA, Mr. Szabo, of the Szabo Accountancy Corporation, entered into a settlement agreement under the Joint Ethics Enforcement Program, effective May 2, 2011.
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. Szabo’s performance of professional services in connection with the audit of an employee benefit plan (the “Plan”).
After an investigation, Mr. Szabo was charged with violating the following rules of the AICPA Code of Professional Conduct:
Rule 201 – General Standards, A. Professional Competence
The auditor did not have the professional competence to perform his role as engagement partner.
Rule 201 – General Standards, B. Due Professional Care
- The auditor’s original and reissued limited scope opinions incorrectly referred to Note H as the note containing a summarized listing of investment balances and transactions that were not subject to audit.
- The auditor’s original engagement and management representation letters erroneously indicated that he would and had performed a full scope audit.
Rule 202 – Compliance with Standards
- The auditor failed to document the procedures he performed in order to determine whether or not the plan’s guaranteed income contracts were fully benefit responsive. (AU §339.10 - .13, .20 & .21; SAS No. 103; AICPA Audit & Accounting Guide – Employee Benefit Plans (AAG-EBP) 7.50 & 7.51)
- The financial statements failed to disclose the federal income tax status of the plan and whether or not the plan had received a favorable determination letter from the IRS. (AAG-EBP 3.35g)
- The original and revised Schedule of Assets (Held at End of Year) was incorrectly presented as a note to the financial statements (Note H), was not correctly titled and initially failed to include participant loans. (AAG-EBP Appendix A)
- The revised Schedule of Assets (Held at End of Year) disclosed the plan’s investment in participant loans but failed to disclose the loans’ range in interest rates. (AAG-EBP Appendix A)
- The auditor failed to obtain sufficient competent evidential matter to support participant loan balances and related transactions to support his unqualified, limited scope opinion. (AAG-EBP 7.54 & 7.55)
- The auditor failed to evaluate loans in default in order to determine whether such balances should be reclassified as deemed distributions. In addition, such balances were not separately reported on Schedule G, Part I, Schedule of Loans or Fixed Income Obligations in Default or Classified as Uncollectible. (AAG-EBP 7.55)
- The auditor failed to document the audit procedures he performed on contributions received and benefit payments. (AU §339.10 - .13, .20 & .21; SAS No. 103)
- The auditor failed to document the audit procedures he performed on the allocation of investment earnings to individual participant accounts. (AAG-EBP 10.20b)
- The auditor failed to perform procedures to audit the timeliness of employee contribution remittances to the plan. (AAG-EBP 8.06e)
- Additions to net assets available for benefits incorrectly includes principle payments on participant loans. (AAG-EBP 3.34)
- Contributions for 2007 were overstated because the auditor failed to ensure that the 2006 contribution receivable was reversed from the 2007 contributions amount reported by the Plan’s trustee. (AAG-EBP 3.34)
Rule 501 – Acts Discreditable
When communicating with his peer review administering entity regarding his 2008 peer review Mr. Szabo misrepresented the composition of his practice and, as a result, failed to obtain an appropriate peer review.
In consideration of the ECA foregoing further investigation of Mr. Szabo’s conduct as described above and in consideration of the ECA foregoing any further proceedings in these matters, Mr. Szabo agrees as follows:
- To waive his rights to a hearing under AICPA bylaws Section 7.4.
- To neither admit nor deny the above-specified charges.
- To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance as set forth below.
- To be suspended by the AICPA for a period of two years.
- That the ECA shall publish his name, his firm’s name, the charges and terms of this agreement.
- To complete the following thirty-five hours of specified continuing professional education (CPE) courses within twelve months of the effective date of the agreement and provide evidence of such completion (e.g. attendance sheets, course completion certificates, etc.):
|Compilation Engagements: Mastering the Fundamentals
|Professional Ethics: The AICPA’s Comprehensive Course *
|Upcoming Peer Review: Is Your Firm Ready?
|Small Business Accounting Update
* He must achieve a self-study score of 90% or better and must indicate his state of licensure when registering for the course.
- To provide an attestation, immediately then every six months for three years from the effective date of this agreement, that he is not performing any attest services. If he returns to performing such work, he will be required to complete the following 40 hours of continuing professional education (CPE) prior to commencing fieldwork and to provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.):
|Annual Update for Accountants and Auditors
|Other GAAS and Accounting courses selected by the respondent and pre-approved by the Professional Ethics Division
- To comply with directive c., above, and if he returns to performing attest engagements, to hire an outside party, acceptable to the ECA, to perform a preissuance review of the reports, financial statements, and working papers on all audit engagements performed by him during the 12-month period following the date that the ECA approves the pre-issuance reviewer. He will provide the name(s) of those he selects to perform the preissuance reviews within 30 days of the effective date of this agreement for the ECA’s approval. He will permit the outside party to report, quarterly, to the ECA on his progress in complying with the terms of this letter as stated herein to comply with professional standards with the first such report due 120 days after the preissuance reviewer has been approved and each successive report due every 90 days thereafter. The pre-issuance reviews would be performed at his expense. A peer review being performed on his firm will not satisfy this requirement. The ECA reserves the right to extend the preissuance review period based on the results of the reviews.
- In further compliance with directive c. above, and if he returns to performing attest engagements, to submit six months after completion of the preissuance review period described in directive h. above, a list of the engagements that he performed during the six month period following completion of the preissuance review period. The following information should be included regarding the engagements listed: his role on the engagement, the type of entity, total number of hours spent on the engagement, his total hours spent on this engagement, the type of report issued and if 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 a copy of his report, the financial statements, and working papers related to that engagement for review by the ECA. The ECA reserves the right to extend the six month period in order to select a suitable engagement. After an initial review of such report, financial statements, and working papers, the ECA may decide that he has substantially complied with professional standards and close this matter. Or, the ECA may decide that an ethics investigation of the engagement 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 have his firm’s peer review process accelerated such that a peer review will be performed on his firm’s practice for the year ended December 31, 2010.
- That the ECA shall provide a copy of this settlement agreement to Mr. Szabo’s firm’s administering entity responsible for supervision of his firm’s peer review.
- To submit evidence of satisfactory completion of the CPE specified in item f. above (e.g. attendance sheets, course completion certificates) and other material requested in this agreement within the time specified to AICPA Professional Ethics Division.
- That he is prohibited from performing peer reviews in any capacity until he completes the directives stated above. This prohibition will be communicated to his peer review administering entity.
- 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.