As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Oklahoma Society of CPAs, Mr. Cottrell, with the firm of Ronald C. Cottrell, CPA, entered into a settlement agreement under the Joint Ethics Enforcement Program, effective March 2, 2016.
Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee and the Oklahoma Society of CPAs Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Cottrell’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 and working papers for the engagement as well as Mr. Cottrell’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’s and Oklahoma Society of CPAs codes of professional conduct as follows:
Rule 201 – General Standards, B. Due Professional Care
Note 1 improperly describes the plan as a non-profit corporation.
Rule 202 – Compliance with Standards
1. The auditor did not disclose the reasons for the reissuance of his report in the auditors' report or ensure its disclosure in the notes to the financial statements. In addition the auditor did not properly date the reissued auditor’s report. (AU §530.05-.08)
2. The auditor initially failed to obtain sufficient appropriate audit evidence to support the opinion on the financial statements in the following areas (SAS 106):
· Planning (AICPA Audit & Accounting Guide – Employee Benefit Plans (AAG-EBP) ¶ 5.02);
· Investments (AAG-EBP ¶ 7.65);
· Contributions received and receivable (AAG-EBP ¶ 8.03, .07);
· Participant data (AAG-EBP ¶ 10.04-.06; ¶ 10.15-.16);
· Commitments and contingencies (AAG-EBP ¶ 12.07-.09);
· Administrative expenses (AAG-EBP ¶ 12.17-.18);
· Subsequent events (AAG-EBP ¶ 12.19); and
· Plan tax status (AAG-EBP ¶ 12.01).
3. The auditor failed to adequately document the procedures performed with regard to party-in-interest transactions. (SAS 103; AU §339.10)
4. The original and revised statement of net assets and the statement of changes in net assets available for benefits were improperly titled. (AAG-EBP 3.10)
5. The original auditor’s report improperly referred to the 2010 statement of plan income and expenses in the scope paragraph. (SAS 58; AU Section 508.08 and .65)
6. The original financial statements inappropriately state they were prepared on a basis of accounting prescribed by the DOL. The DOL does not prescribe accounting standards. (AU 623.03)
7. The original auditor’s report is improperly restricted. (AU 325.09-.12)
8. The original financial statements failed to indicate the basis of accounting used. (AU 623.05)
9. The financial statements improperly carried the fixed income annuity at amortized cost, not fair value. (FASB ASC 820)
Rule 203 – Accounting Principles
1. The original financial statements omitted substantially all required disclosures. (SAS 32; AU §431)
2. The original and revised statement of changes in net assets failed to include the net appreciation or depreciation in fair value of each significant type of investment. (ASC 962-205-45)
Rule 501 – Interpretation 501-5 – Failure to follow the requirements of governmental bodies, commissions, or other regulatory agencies:
A Schedule of Assets Held for Investment Purposes was not attached to the original financial statements. (AAG-EBP Exhibit A-1)
In consideration of the ECA forgoing further investigation of Mr. Cottrell’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Cottrell 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 Oklahoma Society of CPAs’ bylaws Article XIV – Section 14.3.
c. To neither admit nor deny the above specified charges.
d. To his suspension from membership in the AICPA and Oklahoma Society 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 complete 38.5 hours of continuing professional education (CPE) courses (Auditing Employee Benefit Plans; Auditing Defined Contribution Plans; Audit Workpapers: Documenting and Reviewing Fieldwork; Accounting and Auditing Update for Small Businesses) within 12 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, Mr. Cottrell agrees to hire an outside party, acceptable to the ECA to perform pre-issuance reviews of the reports, financial statements, and working papers of all employee benefit plan audits he performs in the year following the date the reviewer has been approved by the ECA and two (2) other engagements performed by him during that year, selected in advance by the ECA. 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 ECA of the highest level of engagements ( audits and reviews) on which he expects to issue reports in the upcoming 12 months. 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, type of organization, his role and anticipated hours on each engagement, the anticipated date the report will be released and whether it was an initial engagement. The ECA will select enter the two non-employee benefit plan audits that must be pre-issuance reviewed from this list.
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 and reviews or 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 further comply with directive e. above, submit a list of the highest level (audit, review, compilation with note disclosures) of engagements that he performed in the period between the date of completion of those CPE courses and pre-issuance reviews specified above and the end of the six-month period following completion of the CPE/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 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.
i. To submit within 30-days 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.
j. 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.
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 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.
l. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the Oklahoma Society of CPAs until he has completed all directives in this agreement. 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 Oklahoma 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 product submitted to comply with directive h above substantially complies with professional standards.
m. To be prohibited from teaching continuing professional education courses approved by the AICPA or the Oklahoma Society of CPAs 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 Oklahoma Society of CPAs. 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.
n. That the ECA shall publish his name, the name of his 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.