Farris, Stephen Ronald of Douglasville, GA

As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Georgia Society of CPAs, Mr. Farris, with the firm of Steve Farris, P.C., entered into a settlement agreement under the Joint Ethics Enforcement Program effective May 19, 2016.

 

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

1.   The auditor failed to obtain a sufficient understanding of the firm’s internal control.  In addition, the auditor failed to properly assess risk for the audit.  (SAS 109; AU 314)

2.   The auditor failed to obtain sufficient appropriate audit evidence to support the opinion on the financial statements in the following areas: (SAS 106; AU 326)

a.    Contributions received and receivable;

b.    Participant data;

c.    Benefit payments;

d.    Parties-in-interest;

e.    Income taxes;

f.     Commitments and contingencies; and

g.    Subsequent events.

3.   The audit report incorrectly states the financial statements are presented on the cash basis of accounting, although it is apparent the cash basis of accounting was not used. In addition, there is no disclosure in the notes to the financial statements explaining the basis of accounting used.  Finally, the notes to the financial statements refer to generally accepted accounting principles although non-GAAP financials are presented. 

 

Rule 203 - Accounting Principles

1.   The statement of net assets available for benefits is not comparative and participant loans are improperly included as investments on the face of the statements.  (AAG-EBP A.51a; FASB ASC 962-310-45-2)

2.   The following disclosures have been omitted from the notes to the financial statements:

a.    Account balances and transactions that were certified by the trustee and therefore not subject to audit (AAG-EBP 7.73-7.77);

b.    Date of management’s review and subsequent events (FASB ASC 855-10-50-1);

c.    Disclosures required for investments presented at fair value on a recurring basis (FASB ASC 820-10-50-2);

d.    Parties-in-interest (FASB ASC 850-10-50-1);

e.    Accounting policies for and disposition of forfeited accounts (FASB ASC 962-205-50-1); and

f.     Risks and uncertainties (FASB ASC 275).

 

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

1.   A schedule of assets (held at end of year) was not attached to the financial statements. (29 U.S. Code §1023)

2.   As the partner responsible for his firm’s peer review compliance, Mr. Farris failed to ensure it complied with state board requirements and those of the AICPA and the Georgia Society of CPAs to undergo a proper peer review. 

 

Agreement:

In consideration of the ECA forgoing further investigation of Mr. Farris’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Farris 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 Georgia Society of CPAs’ ARTICLE XI – Section 4(b).

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

d.   To his suspension from membership in the AICPA and the Georgia Society of CPAs for a period of two years from the effective date of this agreement. During the period of suspension, he is prohibited from representing himself as a member of the AICPA and the Georgia Society of CPAs and from using any AICPA credentials. 

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

f.    To complete a 10 hour continuing professional education (CPE) course (Annual Update for Accountants and Auditors) within 6 months of signing this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

g.   To provide an attestation immediately, then every 6 months for a period of within 3 years that he is no longer performing financial statement audits.  If he returns to performing such work, he agrees:

·         To complete 13 hours of continuing professional education courses (Clarified Auditing Standards: What You Need to Know; Audit Workpapers: Documenting Field Work) 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, Mr. Farris 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 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 accepting 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, changes in his role during the period he is subject to the pre-issuance reviews or if he has not performed any audits.  If his practice changes and he is no longer involved with audits, 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, Mr. Farris agrees to submit six months after the due date for completion of the pre-issuance reviews in g. above, a list of the audit engagements 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 until a suitable work product is selected for review.   If his practice changes and he is no longer involved with audits, 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.

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

·         To complete 22 hours of continuing professional education courses (Auditing Defined Contribution Plans; Auditing Employee Benefit Plans; SOC1(SM) Reports: How to Effectively Use the EBPAQC Tool) in addition to that outlined in directive g. above, 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, Mr. Farris 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 audit engagements 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 h. above, if later.  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 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, changes in his role during the period he is subject to the pre-issuance reviews or if he has not performed any employee benefit plan audits.  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 submit six months after the due date for completion of the pre-issuance reviews, a list of the employee benefit plan audit engagements 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 employee benefit plan audits until a suitable work product is selected for review.   If his practice changes and he is no longer involved with employee benefit plan audits, 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 accepted an employee benefit plan audit engagement, 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.

i.    To schedule a system peer review of his firm within 60 days of accepting an audit engagement and submit evidence of the scheduled system review by submitting a copy of the review team approval letter issued by his firm’s administering entity.  His firm’s system peer review will be due ten months after the date scheduled. 

j.    To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the Georgia 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 Georgia 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 h. above substantially comply with professional standards. 

k.   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 Georgia Society of CPAs.  This requirement shall remain in effect until the ECA determines that the work products submitted to comply with directives g. and h. above substantially comply with professional standards.

l.    To be prohibited from performing peer reviews in any capacity until the directives in this letter have been completed.  This requirement shall remain in effect until the ECA determines that the work products submitted to comply with directives g. and h. above substantially comply 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. 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.