As a result of an investigation of alleged violations of the AICPA’s Code of Professional Conduct, Mr. Miller, with the firm of Pellegrino Honick McFarland & Miller, P.A., 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. Miller’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 information from the Department of Labor’s E-fast website, the financial statements, certain workpapers, and Mr. Miller’s responses to the ECA’s inquiries as well as relevant documents Mr. Miller 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 undertook an engagement he could not complete in accordance with professional standards.
Rule 201 – General Standards, B. Due Professional Care
1. The Basis of Accounting disclosure incorrectly states that plan distributions are recorded on the cash basis of accounting.
2. The financial statements disclose that the employer matches participant contributions, up to a certain percentage; however, the statement of changes net assets available for benefits presents only employer contributions.
Rule 202 – Compliance with Standards
1. The subsequent event footnote is dated June 3, 2014; however, the audit report is dated May 15, 2014. (AU-C 560)
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 substantially all audit areas. (AU-C 230)
Rule 203 – Accounting Principles
1. The financial statements failed to disclose the following:
a. For assets and liabilities measured at fair value on a recurring basis, the disclosures required by FASB ASC 820;
b. The basis for determining participant contributions (FASB ASC 962-205-50); and
c. The net change in each significant type of investment (FASB ASC 962-205-45-7).
2. The statement of net assets available for benefits improperly included notes receivable from participants as an investment. (FASB ASC 962-310-45-2)
In consideration of the ECA forgoing further investigation of Mr. Miller’s conduct as described above, and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Miller 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 admonishment by the AICPA.
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 (Audits of 401(k) Plans; Auditing Defined Contribution Retirement Plans; Annual Accounting and Auditing Workshop; Audit Workpapers: Documenting Fieldwork; Internal Control and Risk Assessment: Key Factors in a Successful Audit) 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 all audits of employee benefit plans performed by him for one year from the date the reviewer has been approved by the ECA or until completion of the CPE specified in directive f. above, if later. In addition, he must undergo a pre-issuance review on two non-employee benefit plan audit engagements 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 non-employee benefit plan audit engagements on which he expects to issue reports in the upcoming 12 months from which the two other 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, 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.
i. To submit, within 30-days after he has signed this agreement, 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. Provide a copy of his most recent peer review report within 60 days of the effective date of this agreement.
k. 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 h., above, substantially complies with professional standards. This prohibition will be communicated to his peer review oversight agency.
l. 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 product he submitted to comply with directive h., above, substantially complies with professional standards.
m. 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 product he submitted to comply with directive h., above substantially complies with professional standards.
n. 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.
o. That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.
p. 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.