London, Stuart W. of Beachwood, OH 

Published June 06, 2017

As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Ohio Society of CPAs, Mr. London, with the firm of London Group CPAs, Inc., entered into a settlement agreement under the Joint Ethics Enforcement Program effective May 3, 2017.

Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee and the Ohio Society of CPAs Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. London’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, 2014.

The ECA reviewed the findings of the U.S. Department of Labor’s Employee Benefits Security Administration and Mr. London’s responses to such findings as well as 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 and Ohio Society of CPAs’ codes of professional conduct as follows:

1.300.001 General Standards Rule .01a. Professional Competence

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

1.310.001 Compliance with Standards Rule

  1. The statement of net assets available is comparative, however the auditor’s report does not provide any information about the prior year engagement. (AU-C 700.44)

  2. The auditor failed to obtain sufficient appropriate audit evidence to support the opinion on the financial statements in the following areas of the audit (AU-C 580):

    1. Investments;

    2. Participant loans;

    3. Commitments and contingencies; and

    4. Subsequent events.

  3. The auditor originally failed to prepare audit documentation that would enable an experienced auditor, having no previous connection to the audit, to understand the work performed and conclusions reached in the following areas of the audit (AU-C 500):

    1. Contribution;

    2. Participant data;

    3. Benefit payments;

    4. Parties-in-interest; and

    5. Internal controls.

  4. The audit report failed to identify the cash basis of accounting, and incorrectly indicated the financials were on a GAAP basis. (AU-C 700)

1.320.001 Accounting Principles Rule

The following required notes to the financial statements have been omitted or are incomplete:

  1. Vesting (FASB ASC 962-205-50-1);

  2. Allocation provisions (FASB ASC 962-205-50-1);

  3. The accounting policy for, and amount of, forfeitures during the year (FASB ASC 962-205-50-1);

  4. Disclosure of the employer absorbing costs of plan administration (FASB ASC 962-205-50-1);

  5. The methods used to determine the fair value of investments (FASB ASC 962-325-50-1);

  6. The methods used to determine employer contributions (FASB ASC 962-205-50-1);

  7. Disclosures required for assets measured at fair value on a recurring basis (FASB ASC 820);

  8. Identification of investments that make up more than 5% of net assets available for benefits (FASB ASC 962-325-45-7); and

  9. Transactions with parties-in-interest (FASB ASC 850-10-50-1).

1.400.050 Government Bodies, Commissions, or Other Regulatory Agencies

The Schedule of Assets (Held at End of Year) is not in the format prescribed by ERISA, does not identify parties-in-interest, and fails to present participant loans. (29 CFR 2520.103-11)

Agreement:

In consideration of the ECA forgoing further investigation of Mr. London’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. London agreed as follows:

  1. To waive his rights to further investigation of this matter in accordance with the Joint Ethics Enforcement Program (JEEP) Manual of Procedures.

  2. To waive his rights to a hearing under AICPA bylaws section 7.4 and the Ohio Society of CPAs bylaws Article VII, Section C.

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

  4. To his admonishment by the AICPA and the Ohio Society of CPAs from the effective date of this agreement.

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

  6. To complete 19 hours of continuing professional education (CPE) courses (Audit Workpapers: Documenting Field Work; Annual Update for Accountants and Auditors; Internal Control and Risk Assessment: Key Factors in a Successful Audit) within 3 months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

  7. To comply with directive e. above, submit six months after completion of the CPE courses, 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 CPE courses and the end of the six-month period following completion of the CPE courses. 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 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 trial board for a hearing or take such other action as it deems appropriate.

  8. To provide to the ECA, a copy of his firm’s most recent peer review documents.

  9. To provide an attestation immediately, then every 6 months for a period of 3 years that he is no longer performing employee benefit plan audit engagements. If he returns to performing such work, he agrees:

    • To complete a 12 hour continuing professional education (CPE) course (Auditing Employee Benefit Plans) prior to commencing such work and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

    • To comply with directive e. above, 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. He must submit the names of the chosen reviewers to the ECA for approval no later than 30 days after accepting an employee benefit plan audit.

      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 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 of employee benefit plans. If his practice changes and he is no longer involved with audits of employee benefit plans, 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.

    • To further comply with directive e. above, submit six months after the completion of the pre-issuance reviews, a list of the audits of employee benefit plans 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 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 of employee benefit plans until a suitable work product is selected for review. If his practice changes and he is no longer involved with audits of employee benefit plans, 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 trial board for a hearing or take such other action as it deems appropriate.

    • To submit within 30-days after he has returned to such work, evidence that his firm has submitted an application to join the Employee Benefit Plan Audit Quality Center. Upon membership in that Center, he agrees that his firm will comply with the directives of that Center.

  10. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the Ohio 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 Ohio 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 products submitted to comply with directives g. and i., above, if applicable, substantially comply with professional standards.

  11. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in 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 Ohio Society of CPAs. This requirement shall remain in effect until the ECA determines that the work products submitted to comply with directives g. and i. above, if applicable, substantially comply with professional standards.

  12. 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 products he submitted to comply with directives g. and i. above, if applicable, substantially comply with professional standards. This restriction will be communicated to his peer review oversight agency.

  13. 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.

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

  15. 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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