Eckert, Terrance S. of Dallas, TX

As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Texas Society of CPAs, Mr. Eckert, with the firm of Candy & Schonwald, PLLC, entered into a settlement agreement under the Joint Ethics Enforcement Program, effective April 2, 2018.

Information came to the attention of the Ethics Charging Authority (ECA) (comprised of the AICPA Professional Ethics Committee and the Texas Society of CPAs Professional Ethics Executive Committee) alleging a potential disciplinary matter with respect to Mr. Eckert’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, 2014.  

The ECA reviewed the findings of the U.S. Department of Labor’s Employee Benefits Security Administration and Mr. Eckert’s responses to such findings as well as other relevant documents Mr. Eckert submitted to support his responses, including the auditor’s report, financial statements and workpapers. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA Code of Professional Conduct and the Texas Society of CPAs Code of Professional Conduct (this code consists of both the Texas State Board of Public Accountancy (TSBPA) Rules of Professional Conduct and the AICPA Code of Professional Conduct) (collectively the “Codes”) as follows:

1.310.001 Compliance with Standards Rule - (TSBPA 501.60)
1.   
The auditor initially failed to obtain sufficient appropriate audit evidence to support the opinion on the financial statements in the following areas (SAS 122; AU-C §500).

a.    Internal controls [AU-C §402; AICPA Audit and Accounting Guide - Employee Benefit Plans (AAG-EBP) 4.07-.08];

b.    Investments, investment income, and participant accounts, specifically as of and for the period ending April 29, 2014, the date of the change in trustees (AAG-EBP 5.215); and

c.    Participant data, specifically failure to test underlying payroll (AAG-EBP 5.165).

2.    The auditor failed to adequately supervise and review the work of the staff on the audit engagement (AU-C §220).

1.320.001 Accounting Principles Rule - (TSBPA 501.61)
The financial statements failed to disclose, or inadequately disclosed, the following:

a.    The significant unobservable inputs for the valuation methodology of the employer stock (FASB ASC 820-10-50);

b.    The Level 3 asset reconciliation disclosing purchases, sales, issuances, and settlements as required by FASB ASC 820; and

c.    Related party (party-in-interest) transactions (FASB ASC 850-10-50).

Agreement:
In consideration of the ECA forgoing further investigation of Mr. Eckert’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Eckert 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 Article III of the bylaws of the Texas Society of CPAs.

c.     To neither admit nor deny the above specified charges.

d.    To his suspension from membership in the AICPA and the Texas Society of CPAs for a period of one year 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 Texas 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 the 7 hour continuing professional education (CPE) course (Upcoming Peer Review: Is Your Firm Ready?) 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 or review engagements. If he returns to performing such work, he agrees:

·      To complete 23.5 hours of continuing professional education (CPE) courses (Annual Update for Accountants and Auditors; Audit Workpapers: Documenting and Reviewing Fieldwork) 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 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 accepting such an 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 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, he agrees to inform the ECA of such. He agrees to have these pre-issuance reviews 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 or if he has not performed any audits or reviews during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with audits or reviews, no longer act 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 months after completion of the pre-issuance reviews a list of the highest level (audits, reviews, compilations with note disclosures) of engagements that he performed in the six-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 provide an additional attestation immediately, then every six months for a period of three years that he is no longer performing employee benefit plan audits. If he returns to performing such work, he agrees:

·      To complete, in addition to the CPE prescribed in g. above, a 15.5 hour CPE course (Auditing Employee Benefit Plans) 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 employee benefit plan audits 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 accepting such an 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 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, he agrees to inform the ECA of such. He agrees to have these pre-issuance reviews 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 or if he has not performed any employee benefit plan audits during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with employee benefit plan audits, no longer act 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 months after completion of the pre-issuance reviews a list of the highest level (audits, reviews, compilations with note disclosures) of engagements that he performed in the six-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.

·      To submit within 30-days after he has accepted an engagement to audit an employee benefit plan, 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.

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 products he submitted to comply with directives g. and/or h. above substantially complies with professional standards. This prohibition 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 Texas Society of CPAs 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 or the Texas Society of CPAs he must inform those responsible for such appointments of the results of this ethics investigation. This prohibition will remain in effect until the ECA determines that the work products he submitted to comply with directives g. and/or h. above substantially complies with professional standards.

k.     To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA societies in the areas of accounting, auditing, and employee benefit plans until he has completed all directives in this letter. This prohibition will be communicated to those responsible for engaging CPE instructors at the AICPA and the Texas Society of CPAs.  This prohibition will remain in effect until the ECA determines that the work products he submitted to comply with directives g. and/or h. above substantially complies with professional standards.

l.      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.

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.