As a result of an investigation of alleged violations of the Code of Professional Conduct of the AICPA, Mr. Burns, with the firm of GJ Burns, CPA, LLC, (formerly of K.E. McGillivray & Company, LLC) entered into a settlement agreement under the Joint Ethics Enforcement Program, effective January 4, 2016.
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. Burns’ performance of professional services in connection with the audit of the financial statements for an employee benefit plan as of and for the fiscal year ended June 30, 2012.
The ECA reviewed the financial statements and working papers for the fiscal year ended June 30, 2012 and certain other documents Mr. Burns 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 as follows:
Rule 202 – Compliance with Standards
1. The auditor 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 areas of contributions and internal controls, specifically consideration of the SOC 1. (SAS 103; AU 339)
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 (SAS 106; AU 326):
a. Participant data;
b. Benefit payments;
c. Participant loans;
d. Administrative expenses;
e. Parties-in-interest transactions;
f. Income tax status;
g. Commitments & contingencies; and
h. Subsequent events.
3. In communications with those charged with governance, the auditor inappropriately stated that no significant deficiencies in internal control were noted. (SAS 115; AU 325)
4. The auditor failed to assess risk by audit area and assertion for all areas of the audit. (SAS 109; AU 314)
5. The auditor failed to obtain a management representation letter from the plan’s management. (SAS 85; AU 333)
Rule 203 – Accounting Principles
1. Forfeitures are incorrectly presented as a liability on the face of the financial statements. (FASB ASC 962-205-45)
2. The fair value measurement note does not disaggregate investments into proper classifications. In addition, the auditor failed to properly document consideration of leveling for investments. (FASB ASC 820-10-50)
3. The following disclosures are incomplete or have been omitted from the original and revised notes to the financial statements:
a. Disclosure of parties-in-interest have been omitted. (FASB ASC 850-10-50-1)
b. Disclosure of forfeitures is incomplete as it does not disclose forfeitures used during
the year. (FASB 962-205-50-1)
Rule 501 – Acts Discreditable
The auditor misrepresented his practice composition to his firm’s peer reviewer during his 2012 peer review by not disclosing he performed employee benefit plan audits.
Rule 501, Interpretation 501-5 – Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies
Note 6 to the original financial statements, “schedule of investments”, attempts to replace the required “Schedule of Assets (Held at End of Year)”. However, the note is not in the format prescribed by ERISA, does not indicate parties-in-interest, omits participant loans, and incorrectly presents forfeitures. (DOL 29 CFR 2520.103-10)
In consideration of the ECA forgoing further investigation of Gregg J. Burns’ conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Burns 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.
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 20 hours of continuing professional education (CPE) courses (Auditing Employee Benefit Plans; Applying the Risk Assessment Standards to Smaller Business Audits) within six months of the date he signs 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 highest level of engagements (audits, reviews and compilations with note disclosures) 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 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.
h. To 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 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 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 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.
i. Within 30 days of the effective date of this agreement, he must provide copies of his firm’s most recent peer review documents to the ECA.
j. 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 ECA determines that the work product submitted to comply with directive h. above substantially complies with professional standards.
k. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA 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. 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.
l. 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.
m. 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.
n. That the ECA shall publish his name, the name of his current firm, the charges, and the terms of this settlement agreement.
o. 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.