As a result of an investigation of alleged violations of the Code of Professional Conduct of the AICPA, Mr. Carmina, with the firm of Steven A. Carmina, CPA, entered into a settlement agreement under the Joint Ethics Enforcement Program, effective July 31, 2017.
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. Carmina’s performance of professional services on the audit of the financial statements of a not for profit as of and for the year ended December 31, 2012.
The ECA reviewed information publicly available on the Federal Audit Clearinghouse’s website, the auditor’s reports, financial statements, and Mr. Carmina’s responses to the ECA’s inquiries as well as other relevant documents Mr. Carmina 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 Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards and the Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133 fail to use the current definitions for control deficiency, significant deficiency and material weakness. (AU-C 265.07; (AICPA Audit Guide - Government Auditing Standards and Circular A-133 Audits (AAG-SLA) 4.28, 13.23)
2. The sixth paragraph of the Independent Auditor’s report referring to the report on its consideration of internal control over financial reporting and its tests of compliance does not include all language required by current professional standards and improperly references the date of the prior year’s report. (GAGAS 4.22; AAG-SLA 4.22)
3. The Schedule of Findings and Questioned Costs incorrectly reported the threshold used to distinguish between Type A and Type B programs. (AAG-SLA 13.40)
4. The Schedule of Findings and Questioned Costs reports that findings related to the major program were identified; however, no such findings were listed and no reference was made to those findings in the Report on Compliance with Requirements Applicable to Each Major Program. (AAG-SLA 13.40 & .43)
5. The auditor failed to adequately document: (AU-C 230)
- Engagement planning; (AU-C 300.14)
- Risk assessment; (AU-C 315.05-.11, .26-.27 & .33)
- System of internal control; (AU-C 315.12-.25)
- Fraud risk; and (AU-C 315.29a)
- Compliance testing. (AAG-SLA 10.33-.44)
6. The independent auditor’s report fails to conform to professional standards. (AU-C 700)
7. The auditor’s report does not quantify the misstatement that resulted in the qualification of the opinion or, if not reasonably determinable, so state. (AU-C 705.18)
8. The Schedule of Federal Financial Assistance does not include a note that describes the significant accounting policies used in preparing the schedule. (AAG-SLA 7.19; OMB A-133 .310 (b)(4))
9. The Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards fails to include a description of the departures from the standard audit report. (AAG-SLA 4.28)
Rule 203 – Accounting Principles
The financial statements fail to disclose the date through which subsequent events have been reviewed. (FAS ASC 855-10-50)
Rule 501, Interpretation 5 – Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies
1. The auditor failed to meet the continuing professional education requirements of Government Auditing Standards. (GAGAS 3.76)
2. As the partner responsible for his firm’s peer review, Mr. Carmina failed to ensure his firm obtained a peer review in compliance with the requirements of Government Auditing Standards (the Yellow Book).
In consideration of the ECA forgoing further investigation of Mr. Carmina’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Carmina 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 10.5 hours of continuing professional education (CPE) courses (Real World Business Ethics for CPAs in A&A; Performing a Compilation Engagement; Reporting on Compilation Engagements) within three months of the date he signs this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
g. To provide an attestation immediately, then every six months for a period of three years that he is no longer performing audits or reviews. If he returns to performing such work, he agrees:
- To complete 45 hours of continuing professional education (CPE) courses (Upcoming Peer Review: Is Your Firm Ready?; Audit Workpapers: Documenting Field Work; Applying the Risk Assessment Standards to Smaller Business Audits; Case Studies in Not-for-Profit Accounting and Auditing*; Yellow Book: Government Auditing Standards*; Studies on Single Audit and Yellow Book Deficiencies*) prior to commencing an audit or review engagement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
*To be completed if Mr. Carmina returns to performing engagements subject to OMB Circular A-133/Uniform Guidance.
- To comply with directive e. above, Mr. Carmina 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 audit and review engagements performed by him for one year from the date the reviewer has been approved by the ECA. He must submit the name of the chosen reviewer to the ECA for approval no later than 30 days after returning to performing such work.
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 and/or reviews 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.
- To further comply with directive e. above, submit a list of the audit and review engagements that he performed in the period between the date of completion of the CPE in directive g. and the end of the six-month period following completion of the CPE. 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 or reviews 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
- To schedule a peer review of his firm’s system of quality control. The review should be scheduled through his firm’s administering entity within 60 days of returning to such work. The peer review period covered must be mutually agreed upon by your firm and the peer reviewer. The accepted peer review documents will be due to the ECA 10 months after the firm’s year-end. He must submit evidence of the scheduled review by submitting a copy of the review team approval letter issued by his firm’s administering entity. In addition, his firm’s peer review will be due to the ECA six months after the year end date determined by the ECA.
- *To submit within 30 days after he has accepted this agreement evidence that his firm has submitted an application to join the Governmental Audit Quality Center. Upon membership in that Center, he agrees that his firm will comply with the directives of that Center.
* To be completed if Mr. Carmina returns to performing engagements subject to OMB Circular A-133/Uniform Guidance.
h. 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 g. above substantially complies with professional standards.
i. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in accounting and auditing 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 g. above substantially complies with professional standards.
j. 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 g. above substantially complies with professional standards. This restriction will be communicated to his peer review oversight agency.
k. 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.
l. That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.
m. 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.