Jones, Thomas of East Islip, NY

As a result of an investigation of alleged violations of the AICPA’s Code of Professional Conduct, Mr. Jones, with the firm of Jones, Little & Co., CPAs, LLP, entered into a settlement agreement under the Joint Ethics Enforcement Program, effective October 9, 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. Jones’ 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 information from the Department of Labor’s E-fast website, the financial statements, certain workpapers, and Mr. Jones’ responses to the ECA’s inquiries as well as relevant documents Mr. Jones submitted to support his responses. 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 lacked the competence to complete the engagement in accordance with professional standards.

Rule 202 - Compliance with Standards

1.   The auditor failed to obtain an understanding of the entity and its internal controls.  (AU-C 315)

2.   The auditor failed to prepare audit documentation that would enable an experienced auditor, having no previous connection to the audit, to understand the procedures performed for participant data and individual participant accounts.  (AU-C 230) 

3.   The auditor failed to obtain sufficient and appropriate audit evidence to express an opinion on the financial statements regarding subsequent events.  (AU-C 500)

4.   The auditor’s report did not contain the language required by AU-C 700.

5.   The auditor failed to provide the required communications with those charged with governance.  (AU-C 260). 

6.   The plan disclosed the financial statements are prepared on the modified-cash basis of accounting; however, the auditor’s report failed to include a “Basis of Accounting” paragraph and the basis failed to be presented on the face of the financial statements.  (AU-C 800)

Rule 203 - Accounting Principles

1.   The fair value disclosure is not comparative. (FASB ASC 205-10-45)

2.   The fair value disclosure is incorrect as the common/collective trust accounts are reported as level 1 investments, the leveling table includes “loan participants”, mutual funds are not disaggregated by class/risk, and it is not comparative. (FASB ASC 820 and 205-10-45)

3.   The financial statements failed to disclose:

a.   Related party and party-in-interest transactions; (FASB ASC 850-10-50)

b.   The net change in each significant type of investment; (FASB ASC 962-205-45)

c.   Investments that represent 5% or more of total net assets; (FASB ASC 962-325-50)

d.   The accounting policy for forfeited nonvested assets; and (FASB ASC 962-205-50)

e.   The accounting policy for notes receivable from participants and correct terminology for such assets.  (FASB 235 and 962)

4.   The statement of changes in net assets available for benefits failed to separately present interest income from notes receivable from participants.  (FASB ASC 962) 

Rule 501, Interpretation 501-5 – Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies 

1.   The supplemental schedule of assets (held at end of year) did not identify parties-in-interest to the plan and did not disclose the term of participant loans.  (29 CFR 2520-103.10)

2.   The certification disclosure failed to include investment income as being covered by the limited-scope certification.  (29 CFR 2520-103.8)

Agreement:

In consideration of the ECA forgoing further investigation of Mr. Jones’ conduct as described above, and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Jones 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 the following continuing professional education (CPE) courses (Internal Control and Risk Assessment: Key Factors in a Successful Audit; GAAS: A Comprehensive Review for Auditors; Audit Workpapers: Documenting and Reviewing Field Work; Annual Update for Preparation, Compilation and Review Engagements) within twelve months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

g.   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 two audits performed by him during the one-year period following the date the reviewer has been approved by the ECA or until completion of the CPE specified in directive f. above, if later.  He must submit the names of the chosen reviewers to the ECA for approval no later than 30 days of the date he signs this letter. 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 audits subject to pre-issuance review will be selected.

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 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 or if he has not performed any audits during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with audits, 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.

h.   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, and 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, and 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 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.

i.    To provide an 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 the following continuing professional education (CPE) courses (Audits of 401(k) Plans; Advanced Auditing for Employee Benefit Plans; Documenting Your EBP Audit: What You Need To Know) 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 commencing such work.

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 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 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 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 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 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, and 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 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 returning to such work, 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.

j.    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 h. and i. above, substantially comply with professional standards. This prohibition will be communicated to his peer review oversight agency. 

k.   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 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 products he submitted to comply with directive h. and i. above, substantially comply with professional standards. 

l.    To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA societies in 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. This prohibition shall remain in effect until the ECA determines that the work products he submitted to comply with directive h. and i. above substantially comply with professional standards. 

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.

o.         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.