As a result of an investigation of alleged violations of the AICPA Code of Professional Conduct, Mr. Chung with the firm of JC & Associates entered into a settlement agreement under the Joint Ethics Enforcement Program effective August 23, 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. Chung’s failure to ensure his firm obtained an appropriate peer review.
The ECA reviewed the allegations in the referral and information publicly available on the United States Department of Labor’s EFAST website and Mr. Chung’s responses to such findings. The ECA charged Mr. Chung with violations of the AICPA Code 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
The auditor failed to perform any audit procedures over the balances and transactions not certified as he believed a limited scope audit did not require any audit procedures (admitted in his 8/10/15 response).
Rule 501, Interpretation 501-5 – Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies
As the partner responsible for his firm’s peer review compliance, Mr. Chung failed to ensure it complied with state board requirements and those of the AICPA to undergo a peer review.
In consideration of the ECA forgoing further investigation of Mr. Chung’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Chung agreed as follows:
a. To waive his right to a hearing under AICPA bylaws section 7.4.
b. To neither admit nor deny the above specified charges.
c. To his suspension from membership in the AICPA for a period of two years from the effective date of this agreement.
d. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
e. To complete 39 hours of continuing professional education (CPE) courses (Upcoming Peer Review: Is Your Firm Ready?; Auditing Employee Benefit Plans: Mastering the Fundamentals; Annual Update for Accountants and Auditors; Audit Workpapers: Reviewing Field Work Documentation; Audit Workpapers: Documenting Field Word) within 12 months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
f. To comply with directive d. 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 during the year after the reviewer has been approved by the ECA or until completion of the CPE specified in e. above, if later. In addition, you must undergo pre-issuance review on two other audits or reviews performed by you that year, to be selected 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 audit and review engagements on which he expects to issue reports in the upcoming 12 months from which the two non-employee benefit plan audits or reviews 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 to be rendered, type of organization, his role and anticipated hours on each engagement anticipated date the report will be released and whether it is 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 are 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 or 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 required pre-issuance reviews.
g. To further comply with directive d. above, submit six months after the completion of the pre-issuance reviews and CPE above, whichever is later, a list of the highest level (audits, reviews, compilations with note disclosures) of engagements that he performed in the period between the date of completion of those or CPE and the end of the six-month period following completion of the or 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 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 engagement, 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 work 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 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.
i. 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.
j. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA of state society 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 state society 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.
k. To submit within 30-days after he has signed this agreement 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.
l. To schedule a system peer review of his firm. The review should be scheduled through his firm’s administering entity within 60 days of the effective date of this agreement and he must submit evidence of the scheduled system review by submitting a copy of the review team approval letter issued by his firm’s administering entity. The peer review must cover a one year period that ends July 30, 2015. His firm’s accepted peer review documents will be due to the ECA within 10 months of the effective date of this agreement.
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 firm, that 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.