Terry, Michael - New Ellenton, SC

As a result of an investigation of alleged violations of the Code of Professional Conduct of the AICPA and the South Carolina Association of CPAs, Mr. Terry, with the firm of Michael Terry, CPA, LLC, entered into a settlement agreement under the Joint Ethics Enforcement Program, effective June 23, 2015.

 

The Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee and the Professional Ethics Committee of the South Carolina Association of CPAs) reviewed information publicly available on the United States Department of Labor’s EFAST website regarding Mr. Terry’s role as engagement partner on the audit of the financial statements for an employee benefit plan as of and for the year ended December 31, 2012.

 

The ECA reviewed the financial statements and workpapers for the engagement as well as Mr. Terry’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 and the South Carolina Association of CPAs’ Codes of Professional Conduct as follows:

 

Rule 201 – General Standards, A. Professional Competence

The auditor lacked the competence to complete the engagement in accordance with professional standards.

Rule 202 – Compliance with Standards

The auditor failed to obtain sufficient appropriate audit evidence to support the opinion on the financial statements in the following areas (AU-C 500):

a)      Contributions

b)      Benefit payments

c)      Participant loans

d)      Participant data (including investment allocations)

 

Rule 203 – Accounting Principles

The financial statements failed to disclose the following:

a) Investments are not disaggregated into appropriate classes.  In addition, investments are incorrectly identified as mutual funds in Note 4 when it appears they are pooled separate accounts. (FASB ASC 820-10-15)

b) Information regarding the Stable Value Fund does not include the average yield or crediting interest rate.  In addition, a description of events and circumstances that would allow issuers to terminate investment contracts is not disclosed. (FASB ASC 962-325-50-3)

c) Investments that represent 5% of net assets in 2011 are not disclosed. (FASB ASC 962-325-50-1A)

Rule 501, Interpretation 5 – Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies

1.The Schedule of Assets (Held at End of Year) does not indicate parties-in-interest, nor does it include participant loans.  (DOL 29 CFR 2520.103-10)

2.The auditor misrepresented his practice composition to his firm’s peer reviewer during his 2013 peer review by not disclosing he performed employee benefit plan audits.

 

Agreement:

In consideration of the ECA forgoing further investigation of Mr. Terry’s conduct as described above, and in consideration of the ECA forgoing any further proceedings in this matter, Mr. Terry 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 South Carolina 
           Association of CPAs bylaws Article XV, Section 15.2.
    c.    To neither admit nor deny the above specified charges. 
    d.    To his suspension of membership in the AICPA and the South Carolina Association of CPAs 
           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 provide an attestation immediately, then every six months for a period of three years that 
            he is no longer performing employee benefit plan audits.  If he returns to performing such 
            work, he agrees:

 

i.           To complete the following 16 hours of continuing professional education (CPE) courses prior to returning to such work and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

Auditing Employee Benefit Plans                  8 hours

Auditing Defined Contribution Plans             8 hours

                                                                                    Total                                  16 hours

 

ii.           To comply with directive e. above, 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 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 resuming employee benefit plan audits.

 

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 of employee benefit plans 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 completion of the pre-issuance reviews above, a list of the highest level of engagements (audit, review, compilation with note disclosures) that he performed in the period between the date of completion of the 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 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 audits, reviews, and compilations  with not 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.

 

iv.                  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.

 

 

  1. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the South Carolina Association 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 committee of the AICPA or the South Carolina Association 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 fiii above, if applicable, substantially complies with professional standards. 
  2. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in the area of 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 South Carolina Association of CPAs. This requirement shall remain in effect until the ECA determines that the work product submitted to comply with directive fiii. above, if applicable, substantially complies with professional standards. 
  3. 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 fiii above, if applicable, substantially complies with professional standards.  This restriction will be communicated to his peer review oversight agency.
  4. 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.
  5. That the ECA shall publish his name, the name of his current firm, the charges, and the terms of this settlement agreement.
  6. 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.