As a result of an investigation of alleged violations of the Code of Professional Conduct of the AICPA, Mr. James, with the firm of James & Associates CPAs, Inc. entered into a settlement agreement under the Joint Ethics Enforcement Program, effective October 2, 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. James’ performance of professional services on the audit of the financial statements of a not for profit entity as of and for the fiscal year ended June 30, 2012.
The ECA reviewed the findings of the Department of Health & Human Services, Office of Inspector General and Mr. James’ responses to such findings as well as other relevant documents Mr. James submitted to support his responses. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA Code of Professional Conduct as follows:
Rule 202 - Compliance with Standards
1. The auditor failed to opine on the prior year summarized information. The auditor also failed to note that the financial statements did not disclose the prior year summarized information which does not constitute a presentation in accordance with generally accepted accounting principles. (SAS 58; AU 508; AAG-NPO 14.05-.07, 3.30-.31)
2. The auditor failed to dual date or re-date the audit report as additional procedures were performed. (SAS 1; AU Section 530)
3. The audit report failed to state that supplementary information is the responsibility of management and was derived from, and relates directly to, the underlying accounting and other records used to prepare the financial statements. (SAS 119; AU 551)
4. The auditor failed to properly document changes made to the audit file after the documentation completion date. (SAS 103; AU 339)
5. The auditor failed to properly supervise the engagement. (SAS 108; AU 311)
6. The auditor failed to identify and audit major programs as it relates to cluster of programs. (AAG-SLA par. 5.31, 8.38-.42; OMB Circular A-133 §___.500 Scope of Audit)
7. The auditor failed to prepare documentation in sufficient detail to enable an auditor having no previous connection to the audit to understand the nature, timing, and extent of auditing procedures performed. (GAGAS par. 4.19)
Rule 501, Interpretation 501-5 – Failure to follow requirements of government bodies, commissions, or other regulatory agencies
The auditor failed to comply with the CPE requirements contained in Government Auditing Standards. (OMB Circular A-133; AAG-SLA 2.19)
In consideration of the ECA forgoing further investigation of ’ conduct as described above, and in consideration of the ECA forgoing any further proceedings in the matter, Mr. James agreed as follows:
a. To waive rights to further investigation of this matter in accordance with the Joint Ethics Enforcement Program (JEEP) Manual of Procedures.
b. To waive rights to a hearing under AICPA bylaws section 7.4.
c. To neither admit nor deny the above specified charges.
d. To his admonishment by the AICPA.
e. To comply immediately with professional standards applicable to the professional services performs and to submit evidence of such compliance.
f. To complete 41.5 hours of continuing professional education (CPE) (Annual Update for Accountants and Auditors; Governmental and Not-for-Profit Annual Update; Advanced Topics in a Single Audit; Studies on Single Audit & Yellow Book Deficiencies; Audit Workpapers: Reviewing Field Work Documentation) within months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
g. To comply with directive e., above, 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 audits subject to 2 CFR 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”) performed by him during the one-year period following the date the reviewer has been approved by the . must submit the names of the chosen reviewers to the ECA for approval no later than 30 days of the date signs this letter. Also, no later than 30 days after the effective date of this agreement, must submit a list to the ECA of the on which expects to issue reports in the upcoming 12 months from which the two audits subject to pre-issuance review will be selected.
He agrees to permit the outside party to report quarterly to the ECA on progress in complying with this agreement as stated herein to comply with professional standards.
The first report is due 120 days after the reviewer has been approved by the ECA with subsequent reports due every 90 days thereafter. If none of the engagements selected for pre-issuance review were performed during a reporting period, agrees to inform the ECA of such. agrees to have this pre-issuance review performed at 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 practice, changes in role or if has not performed any during the period is subject to the pre-issuance reviews. If practice changes and is no longer involved with audits subject to Uniform Guidance, no longer acts in a supervisory capacity on such engagements or has not performed such engagements during the above specified period, must inform the ECA of this change and the ECA may require that attest every six months for three years as to the nature of practice. If, during the three-year attestation period, returns to performing such engagements, must inform the ECA of this change and undergo the required pre-issuance reviews.
h. To further comply with directive e., above, submit, months after completion of the CPE and pre-issuance reviews, a list of the highest level (audits, reviews, and compilations with note disclosures) of engagements that performed in the month period following the date completed the CPE and pre-issuance reviews. 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 report, the financial statements, and working papers related to that engagement for review by the 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 from this requirement.
He agrees to inform the ECA of any changes in the composition of practice, changes in role or if he has not performed any audits, reviews or compilations with note disclosures, until a suitable work product is selected for review. If his practice changes and he is no longer involved with audits, reviews or compilations with note disclosures, no longer acts in a supervisory capacity on such engagements or has not performed such engagements during the above specified period, must inform the ECA of this change and the ECA may require that attest every six months for three years as to the nature of practice. If, during the three-year attestation period, 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 has substantially complied with professional standards and close this matter. Or, the ECA may decide that an ethics investigation of the engagement 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 AICPA joint trial board for a hearing or take such other action as it deems appropriate.
i. To be prohibited from performing peer reviews in any capacity until the above directives in this letter have been completed. This prohibition will remain in effect until the ECA determines that the work product submitted to comply with directive h., above, substantially complies with professional standards. This prohibition will be communicated to peer review oversight agency.
j. To submit, within 30-days after he has signed this agreement, evidence that his firm has submitted an application to join the Audit Quality Center. Upon membership in that Center, he agrees that his firm will comply with the directives of that Center.
k. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA until has completed all directives in this letter. This prohibition will be communicated to those responsible for appointments to such committees. In addition, if applies to join any other committee of the AICPA, he must inform those responsible for such appointments of the results of this ethics investigation. This prohibition shall remain in effect until the ECA determines that the work product he submitted to comply with directive h., above, substantially complies with professional standards.
l. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA societies in Uniform Guidance and Accounting and Auditing until he has completed all directives in this letter. This prohibition will be communicated to those responsible for engaging CPE instructors at the AICPA. This prohibition shall remain in effect until the ECA determines that the work product submitted to comply with directive h., above substantially complies with professional standards.
m. That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.
n. 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.