As a result of an investigation of alleged violations of the AICPA Code of Professional Conduct, Mr. Hanley with the firm of Hanley & Company CPAs, entered into a settlement agreement under the Joint Ethics Enforcement Program effective May 3, 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. Hanley’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. Hanley’s responses to such allegations. The ECA charged Mr. Hanley with violations of the AICPA Code of Professional Conduct as follows:
Rule 201 – General Standards, B. Due Professional Care
The auditor’s report refers to the incorrect note in indicating information certified as complete and accurate.
Rule 202 – Compliance with Standards
The auditor failed to perform any procedures to determine whether investments were benefit responsive. (SAS 106)
Rule 203 – Accounting Principles
1. Pooled separate accounts are improperly classified Level 1 investments in the financial statements. (FASB ASC 820);
2. The required disclosures regarding subsequent events were omitted from the financial statements. (FASB ASC 855-10-50)
Rule 501 – Acts Discreditable
As the partner responsible for the firm’s peer review compliance, Mr. Hanley failed to ensure it complied with bylaws of the AICPA to undergo a peer review.
In consideration of the ECA forgoing further investigation of Mr. Hanley’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Hanley agreed as follows:
a. To waive his rights to a hearing under AICPA bylaws section 7.4.
b. To neither admit nor deny the above specified charges.
c. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
d. To his suspension from the AICPA 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 from using any AICPA credentials.
e. To provide an attestation immediately, then every six months for a period of three years that he is no longer performing audit or review engagements. If he returns to performing such work, he agrees:
· To complete 46.5 hours of continuing professional education (CPE) courses (Auditing Employee Benefit Plans*; Auditing Defined Contribution Plans*; Upcoming Peer Review: Is Your Firm Ready?; Accounting and Auditing Update for Small Businesses; Audit Workpapers: Documenting and Reviewing Fieldwork) prior to commencing an audit or review engagement and provide evidence of completion (e.g., attendance sheets, course completion certificates, etc.)
*If he resumes employee benefit plan audit engagements
· To comply with directive c. 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 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 names of the chosen reviewers to the ECA for approval no later than 30 days after resuming audit and review engagements.
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 and composition 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 or reviews If his practice changes and he is no longer involved with audits or reviews, 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 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 c. above, submit six months after completion of the pre-issuance reviews a list of the highest level of engagements (audits, reviews or compilations with note disclosures) 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 audits or reviews until a suitable work product is selected for review. If his practice changes and he is no longer involved with audits or reviews, 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 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 submit within 30-days after he has resumed audits of employee benefit plans 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.
· To schedule a system peer review of his firm’s returning to audit or review engagements. The review should be scheduled through his firm’s administering entity within 30 days of resuming audits or reviews 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 period covered should be mutually agreed upon by his firm and the peer reviewer. His firm’s accepted peer review documents will be due to the ECA within 10 months of resuming audit or review engagements.
f. 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 e. above, if applicable, substantially complies with professional standards. This restriction will be communicated to his peer review
g. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the state societies 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 state societies, 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 e. above substantially complies with professional standards.
h. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA 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 he submitted to comply with directives e. above substantially comply with professional standards.
i. 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.
j. That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.
k. 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.