As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Alabama Society of CPAs, Mr. King, with the firm of W. Thomas King, CPA, entered into a settlement agreement under the Joint Ethics Enforcement Program effective October 12, 2016.
Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee and the Alabama Society of CPAs Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. King’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. King’s responses to the findings 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 Alabama Society of CPAs codes of professional conduct as follows:
Rule 201 – General Standards, A. Professional Competence
The auditor undertook an engagement that he could not reasonably expect to complete in accordance with professional standards.
Rule 202 – Compliance with Standards
1. The auditor failed to obtain sufficient appropriate audit evidence to support the opinion on the financial statements in the areas of participant data and participant accounts [SAS 106; AU §326; AICPA Audit and Accounting Guide - Employee Benefit Plans (“AAG-EBP”) 10.04-.06; 10.15-.16; 10.21].
2. The original auditor’s report reflected a modified opinion on a full scope audit, whereas a limited scope report should have been issued as permitted by DOL regulations (SAS 58, 64, 79, 85, 93, 98; AU §508.26; AAG-EBP 13.37).
3. The original auditor’s report fails to identify the supplementary schedule subject to audit, express an opinion on the schedule, and the degree of responsibility taken with respect to it (SAS 119; AU §551.06, .12-.14, AAG-EBP 13.08-.11; SAS 118; AU §550.04, .07).
4. The revised auditors report inappropriately states that the December 31, 2010 statement of net assets available for benefits was compiled. The firm audited the plan in the prior year (SAS 26, 35, 72; AU §504.14-.17, AAG-EBP 13.43).
Rule 203 – Accounting Principles
1. The original statement of net assets available for benefits was not comparative (FASB ASC 205-10-45).
2. The original financial statements did not classify participant loans as notes receivable from participants (FASB ASC 962-310-35).
3. The original financial statements failed to disclose the following:
a. For assets and liabilities measured at fair value on a recurring basis, disclosures required by FASB ASC 820-10-50;
b. Identification of investments that represent 5 percent or more of total net assets, as applicable for the plan (FASB ASC 962-205-50); and
c. Required disclosures for fully benefit-responsive investment contracts (FASB ASC 962-325-50).
4. The original and revised financial statements failed to disclose the following:
a. Material party-in-interest transactions (FASB ASC 850-10-50); and
b. Information regarding risk and uncertainties arising from all financial instruments (FASB ASC 825-10-50).
Rule 501, Interpretation 501-5 – Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies
1. The supplemental schedule of assets held at end of year attached to both the original and revised financial statements did not identify all parties-in-interest as required by DOL 29 CFR 2520.103-10.
2. As the partner responsible for his firm’s peer review compliance, Mr. King failed to ensure it complied with state board requirements, and those of the AICPA and Alabama Society of CPAs to have his firm undergo a peer review that included a review of his employee benefit plan practice.
In consideration of the ECA forgoing further investigation of Mr. King’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. King 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 Article IX of the bylaws of the Alabama Society of CPAs.
c. To neither admit nor deny the above specified charges.
d. To his expulsion from membership in the AICPA and the Alabama Society of CPAs as of the effective date of this agreement.
e. 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.
f. That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.