As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Oklahoma Society of CPAs, Mr. Totty, with the firm of Bill Totty, CPA, entered into a settlement agreement under the Joint Ethics Enforcement Program effective December 14, 2016.
Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee and the Oklahoma Society of CPAs’ Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Totty’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. Totty’s responses to such allegations. The ECA charged Mr. Totty with violations of the AICPA and Oklahoma Society of CPAs’ codes of professional conduct as follows:
Rule 201 - General Standards A. Professional Competence
The auditor did not have the professional competence to complete the audit in accordance with professional standards.
Rule 203 – Accounting Principles
1. The financial statements do not comply with generally accepted accounting principles in that the following are incorrectly presented: shares released and allocated does not equal what has been presented in the allocated and unallocated columns, loan payment appears as a deduction from the unallocated column, employer contributions appear in the allocated column, notes payable should be in the allocated column, and unrealized loss on unallocated shares appears as a liability on the Statement of Net Assets Available for Benefits.
2. The financial statements failed to make disclosures required under FASB ASC 820 for assets measured at fair value on a recurring basis.
Rule 501 – Interpretation – 501-5 – Failure to follow governmental bodies, commissions, or other regulatory agencies
1. As the partner responsible for his firm’s peer review compliance, Mr. Totty failed to ensure it complied with state board requirements and those of the AICPA bylaws to undergo a peer review.
2. The Statement of Net Assets Available for Benefits was not presented comparatively as required by ERISA. (29 CFR 2520.103-1)
In consideration of the ECA forgoing further investigation of Mr. Totty’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Totty 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 and the Oklahoma Society of CPAs bylaws Article 14, Section 14.4.
c. To neither admit nor deny the above specified charges.
d. To his suspension from membership in the AICPA and the Oklahoma 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 and the Oklahoma Society of CPAs and from using any AICPA credentials.
e. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
f. To complete a 9 hour continuing professional education course (Upcoming Peer Review: Is Your Firm Ready?) within three months of the effective date of 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 return to performing such work, he agrees:
· To complete 37.5 hours of continuing professional education courses (Auditing Employee Benefit Plans*; Annual Accounting and Auditing Workshop; Internal Control and Risk Assessment: Key Factors in a Successful Audit; Accounting and Auditing Update for Small Businesses) prior to commencing such work and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
* Required only if he returns to performing employee benefit plan audits
· 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 audits and reviews 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 commencing an audit or review 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 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, changes in his role during the period he is subject to the pre-issuance reviews or if he has not performed any audits and reviews. If his practice changes and he is no longer involved with audits and 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 comply with directive e. above, submit six months after completion of the pre-issuance reviews 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 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, 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, and 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, 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 commenced performing 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.
h. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the Oklahoma 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 other committee of the AICPA or the Oklahoma 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 submitted to comply with g. above, if applicable, substantially complies with professional standards.
i. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA societies in the areas of audit and accounting and employee benefit plans 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 Oklahoma Society of CPAs. This requirement shall remain in effect until the ECA determines that the work product submitted to comply with directive g. above, if applicable, 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, if applicable, 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.