As a result of an investigation of alleged violations of the AICPA and Nevada Society of CPAs’ codes of professional conduct, Mr. Sarna with the firm of DJS Partners, LLP, entered into a settlement agreement under the Joint Ethics Enforcement Program effective March 2, 2017.
Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee and the Nevada Society of CPAs’ Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Sarna’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. Sarna’s responses to such allegations. The ECA charged Mr. Sarna with violations of the AICPA and Nevada Society of CPAs’ codes of professional conduct as follows:
Rule 201 – General Standards, B. Due Professional Care
Administrative expenses are presented on Statement of Change in Net Assets but Note 1 states operating expenses are paid by the company.
Rule 202 – Compliance with Standards
1. The initial auditor’s report failed to comply with reporting requirements outlined in the clarified auditing standards. (AU-C §700)
2. The revised auditor’s report failed to include the title “Independent Auditor’s Report”. (AU-C §700)
Rule 203 – Accounting Principles
The revised financial statements did not disclose the following:
1. Identification of investments that represent 5 percent or more of total net assets, as applicable for the plan. (FASB 962-325-45)
2. For assets and liabilities measured at fair value on a recurring basis, the disclosures required by FASB ASC 820-10-50.
Rule 501 – Interpretation 501-5 – Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies
1. As the partner responsible for his firm’s peer review compliance, Mr. Sarna failed to ensure it complied with state board requirements and those of the AICPA and the Nevada Society of CPAs to undergo a peer review.
2. A Schedule of Assets Held for Investment Purposes was not included in the reissued financial statements (U.S. Code § 1023 Annual Reports).
In consideration of the ECA forgoing further investigation of Mr. Sarna’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Sarna agreed as follows:
a. To waive his rights to a hearing under AICPA bylaws section 7.4 and Nevada Society of CPAs’ bylaws section Article II, (11) (b).
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 and the Nevada Society of CPAs 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 or the Nevada Society of CPAs and from using any AICPA and the Nevada Society of CPAs’ credentials.
e. To complete 32.0 hours of continuing professional education (CPE) courses (Auditing Employee Benefit Plans; Upcoming Peer Review: Is Your Firm Ready?; Accounting and Auditing Update for Small Businesses) within six 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 c. above, submit six months after completion of the CPE described in e. above a list of the highest level (audits, reviews, and compilations with note disclosures) of engagements that he performed in the period between the date of completion of those CPE courses and the end of the six-month period following completion of the CPE courses. 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 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 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, reviews or compilations (with note disclosures) 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.
g. 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.
h. 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 review by submitting a copy of the review team approval letter issued by his firm’s administering entity. His firm’s accepted peer review documents will be due to the ECA within 10 months of the effective date of this agreement.
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 f. above substantially complies with professional standards. This restriction will be communicated to his peer review oversight agency.
j. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the Nevada Society of CPAs 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 or the Nevada Society of CPAs, 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 he submitted to comply with directive f. above substantially complies with professional standards.
k. To be prohibited from teaching continuing professional education courses approved by the AICPA or the Nevada Society of CPAs in employee benefit plan content 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 and the Nevada Society of CPAs. This requirement shall remain in effect until the ECA determines that the work product he submitted to comply with directive f. above substantially complies with professional standards.
l. 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.
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, the charges, and the terms of this settlement agreement.