As a result of an investigation of alleged violations of the code of professional conduct of the AICPA, Mr. Perez, with the firm of Perez & Company, CPAs, P.A. entered into a settlement agreement under the Joint Ethics Enforcement Program, effective June 15, 2015.
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. Perez’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 for the year ended December 31, 2011 of the employee benefit plan and certain other documents. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA’s Code of Professional Conduct as follows:
Rule 101 - Independence, Interpretation 101-3 – Nonattest Services
Non-attest services performed for the plan by the auditor impaired the auditor’s independence.
Rule 201 – General Standards, A. Professional Competence
The auditor lacked the competence necessary to perform the engagement in accordance with professional standards.
Rule 202 – Compliance with Standards
1. The auditor failed to obtain sufficient audit evidence with respect to year end investment balances, realized gains and losses, and dividend and interest income. (SAS 106; AU 326)
2. The auditor initially failed to obtain sufficient audit evidence with respect to the following areas: planning (materiality), contributions received and receivable (participant compensation), and participant data. (SAS 106; AU 326)
3. The auditor failed to obtain sufficient audit evidence with respect to the allocation of dividend and interest income to participant accounts. (SAS 106; AU 326)
4. The auditor initially failed to sufficiently document procedures performed in the following areas: internal controls, party-in-interest/prohibited transactions, and income taxes. (SAS 103; AU 339)
Rule 203 – Accounting Principles
1. The Statement of Changes in Net Assets failed to include the net change in fair value of each significant type of investment. (FASB ASC 962-205-45-7, AAG-EBP 3.46)
2. The fair value note disclosure in the revised financial statements failed to comply with GAAP with respect to Level 3 investments. (FASB ASC 820)
3. The originally issued financial statements failed to include a fair value disclosure as prescribed by GAAP. (FASB ASC 820).
4. The notes to the original and revised financial statements failed to include a subsequent events disclosure. (FASB ASC 450-20-50-9; FASB ASC 855-10-50-2)
In consideration of the ECA forgoing further investigation of Frank Perez Jr.’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Perez agrees 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.
c. To neither admit nor deny the above specified charges.
d. To his suspension from membership in the AICPA for a period of two years from the effective date of this agreement.
e. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
f. To complete the following continuing professional education (CPE) course within three months of the date he signs this agreement and provide evidence of such completion (e.g., attendance sheet, course completion certificate, etc.).
Independence 5.0 hours
g. To provide an attestation immediately, then every six months for a period of three years that he is no longer performing as an audit engagement partner. If he returns to performing such work, he agrees:
i. To complete the following continuing professional education (CPE) courses before beginning fieldwork on an audit engagement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
|Auditing Defined Contribution Plans*||8.0 hours |
|Audit Workpapers: Documenting Fieldwork ||3.5 hours |
|Total|| 11.5 hours |
*Required only if he is engaged to perform an audit of a defined contribution plan.
ii. 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 audit engagements 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 being engaged to perform an audit 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 or changes in his role as an engagement partner during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with audits or no longer acts in a supervisory capacity on such engagements, he must inform the ECA of this change 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.
iii. To further comply with directive e. above, submit six months after the completion of the pre-issuance reviews above, a list of the highest level (audit, review, compilation with note disclosures) of engagements that he performed in 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 his 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 or changes in his role until a suitable work product is selected for review. If his practice changes and he is no longer involved with audit, review, compilation with note disclosures or no longer acts in a supervisory capacity on such engagements, he must inform the ECA of this change 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
h. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA 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 committee of the AICPA, he must inform those responsible for such appointments of the results of this ethics investigation. This requirement shall remain in effect until the end of the three year attestation period or, if applicable, the ECA determines that the work product submitted to comply with directive g. iii. above substantially complies with professional standards.
i. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA societies in 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. This requirement shall remain in effect until the end of the three year attestation period or, if applicable, the ECA determines that the work product submitted to comply with directive g. iii. above substantially complies with professional standards.
j. To submit within 30-days after he has been engaged to audit an employee benefit plan 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.
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 end of the three year attestation period or, if applicable, the ECA determines that the work product he submitted to comply with directive g. iii. 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 current 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.