As a result of an investigation of alleged violations of the Code of Professional Conduct of the AICPA, Mr. Walker, with the firm of Walker & Associates, 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. Walker’s performance of professional services on the audit of the financial statements of an employee benefit plan as of and for the year ended December 31, 2013.
The ECA reviewed the financial statements and certain workpapers for the engagement as well as Mr. Walker’s responses and other relevant documents he submitted to support his response. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA’s Code of Professional Conduct as follows:
Rule 201 – General Standards, A. Professional Competence
The auditor undertook an engagement he could not complete in accordance with professional standards.
Rule 202 – Compliance with Standards
- The original auditor’s report did not contain the language and format required by AU-C 700.
- The financial statements refer to the “independent accountants’ audit report” in the note disclosures and on the face of the financial statements. (AU-C 700)
- The auditor failed to adequately document work performed for final analytics. (AU-C 230)
- The auditor initially failed to prepare a written audit program that set forth the procedures necessary to accomplish the objectives of the audit in the area of benefit obligations. (AU-C 300)
- The financial statements failed to include investment income as being part of the limited-scope certification. (AU-C 700)
- The auditor failed to adequately assess the SOC 1 reports. (AU-C 402)
- The auditor failed to obtain sufficient and appropriate audit evidence to express an opinion on the financial statements regarding: (AU-C 500)
- Benefit payments;
- Participant data; and
- Risk assessment; specifically, the auditor did not support the assessment of control risk below high. (AU-C 315 and 330)
- The auditor failed to obtain a proper limited-scope certification. (AU-C 500)
- The auditor failed to adequately document communications with those charged with governance. (AU-C 260)
Rule 203 – Accounting Principles
- The financial statements failed to disclose net appreciation (depreciation) by investment type. (FASB ASC 965-20-45)
- The financial statements failed to disclose transactions with related parties and parties-in-interest. (FASB ASC 850-10-50)
In consideration of the ECA forgoing further investigation of Mr. Walker’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Walker agreed as follows:
- To waive his rights to further investigation of this matter in accordance with the Joint Ethics Enforcement Program (JEEP) Manual of Procedures.
- To waive his rights to a hearing under AICPA bylaws section 7.4.
- To neither admit nor deny the above specified charges.
- To his admonishment by the AICPA.
- To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
- To complete 71.5 hours of continuing professional education (CPE) courses (Auditing Employee Benefit Plans; Respondent selected course specific to H&W plans, to be pre-approved by the ECA; Internal Control and Risk Assessment: Key Factors in a Successful Audit; Audit Workpapers: Reviewing Field Work Documentation; Applying the Risk Assessment Standards to Ensure a Quality Audit; GAAS: A Comprehensive Review for Auditors; Annual Accounting & Auditing Workshop; Annual Update for Preparation, Compilation & Review Engagements) within one year of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
- To comply with directive e. 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 for one year from the date the reviewer has been approved by the ECA. In addition, he must undergo a pre-issuance review on two non-employee benefit plan audits performed by him that year. 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 the ECA of the audits on which he expects to issue reports in the upcoming 12 months from which the two non-employee benefit plan audits 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, his role and anticipated hours on each engagement, type of organization, 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 due every 90 days thereafter. He agrees to have these pre-issuance reviews performed at his expense. The ECA has the right to extend the period of time and the 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 employee benefit plan or other audits. If his practice changes and he is no longer involved with employee benefit plan audits or other audits, 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 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 e. above, submit six months after the due date for completion of the CPE and pre-issuance reviews, whichever is later, 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 CPE and 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 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, 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, 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, he must inform the ECA of this 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 be prohibited from serving as a member of any ethics or peer review committee of the AICPA 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 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 h. above substantially complies with professional standards.
- To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in auditing 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. This requirement shall remain in effect until the ECA determines that the work product submitted to comply with directive h. above substantially complies with professional standards.
- To be prohibited fro 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 h. above substantially complies with professional standards. This restriction will be communicated to his peer review oversight agency.
- 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.
- That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.
- 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.