As a result of an investigation of alleged violations of the Code of Professional Conduct of the AICPA, Mr. Catalanotto, with the firm of Catalanotto, CPA, P.C., entered into a settlement agreement under the Joint Ethics Enforcement Program effective July 24, 2018.
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. Catalanotto’s performance of professional services in the audit of the financial statements of a common interest realty association as of and for the year ended December 31, 2013.
The ECA reviewed the auditor’s report, the financial statements, certain working papers for the engagement, and the allegations as well as Mr. Catalanotto’s responses and other relevant documents he submitted to support his responses. Based on this information, there appears to be prima facie evidence of a violation 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 that he could not complete in accordance with professional standards.
Rule 202 – Compliance with Standards
1. The auditor failed to implement the clarified auditing standards in his report on the financial statements. (AU-C §700)
2. The auditor failed to identify or opine on the Schedule of Repairs and Maintenance included within the financial statements. (AU-C §700.25)
3. The auditor failed to prepare a written audit program that sets forth the procedures necessary to accomplish the objectives of the audit. (AU-C §300.09)
4. The auditor failed to document the timing of when workpapers were completed and when they were reviewed. (SAS 122, 123, 128; AU-C §230.09)
5. The auditor failed to adequately plan the audit engagement. (AU-C §240; AU-C §320; AU-C §315; AU-C §350; AU-C §520)
6. The auditor failed to document his performance of overall analytical procedures and his expectations or evaluation of the results of substantive analytical procedures performed. (AU-C §520)
7. The auditor failed to obtain sufficient appropriate audit evidence to support the opinion on the financial statements in the following areas: (AU-C §500)
a. Stockholder arrears;
b. Land, building, and depreciation expense;
c. Unamortized mortgage refinancing costs;
d. Accounts payable;
e. Mortgage payable;
f. Stockholders’ equity;
g. Commitments and contingencies; and
h. Subsequent event.
8. The auditor failed to document the terms of the audit engagement. (AU-C §210)
9. The auditor failed to obtain written representations from management. (AU-C §580)
Rule 203 – Accounting Principles
The financial statements did not disclose, or inadequately disclosed, the following:
a. A description of the nature of the prior period adjustments and their impact on opening balances as required by FASB ASC 250-10-50.
b. A description of tax years that remain subject to examination by major tax jurisdictions as required by FASB ASC 740-10-50-15.
c. The policy for the determination of cash and cash equivalents as required by FASB ASC 235-10-50.
d. For assets and liabilities measured at fair value on a recurring basis, certain disclosures required by FASB ASC 820-10-50; and
e. Subsequent events disclosures required by FASB ASC 855-10-50.
Rule 501 - Acts Discreditable
As the partner responsible for his firm’s peer review compliance, Mr. Catalanotto failed to ensure he complied with the membership requirements of the AICPA to have his firm undergo a peer review.
In consideration of the ECA forgoing further investigation of Mr. Catalanotto’s conduct as described above, and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Catalanotto 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.
c. To neither admit nor deny the above specified charges.
d. To his suspension from membership in 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 or certificates.
e. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
f. To complete 18 hours of continuing professional education (CPE) courses (Annual Update for Preparation, Compilation, and Review Engagements; Real World Business Ethics for CPA’s in A&A) within six 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 audit engagements. If he returns to performing such work, he agrees:
- To complete 31.5 hours of continuing professional education (CPE) courses (Accounting and Auditing Update for Small Businesses; Audit Workpapers: Documenting and Reviewing Fieldwork; Applying the Risk Assessment Standards to Ensure a Quality Audit; A Firm’s System of Quality Control) prior to commencing such work 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 audit 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 he commences performing such engagements.
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 audit engagements during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with audit engagements, no longer acts in a supervisory capacity on such engagements or he 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 undergo the required pre-issuance reviews.
- To further comply with directive e, above, submit, six (6) 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 six (6) month period following the date he completed the 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 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 he 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 AICPA joint trial board for a hearing or take such other action as it deems appropriate.
h. 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 he submitted to comply with directive g. above, substantially complies with professional standards. This prohibition will be communicated to his peer review oversight agency.
i. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the state CPA societies until he has completed all directives in this letter. This prohibition 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 prohibition shall remain in effect until the ECA determines that the work product he submitted to comply with directive g. above, substantially complies with professional standards.
j. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA societies in accounting or 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 he submitted to comply with directive g. above substantially complies with professional standards.
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.
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.