As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Texas Society of CPAs, Ms. Storm with the firm of CA Storm, PC, entered into a settlement agreement under the Joint Ethics Enforcement Program effective October 2, 2017.
Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee and the Texas Society of CPAs’ Professional Ethics Committee) alleging a potential disciplinary matter with respect to Ms. Storm’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 findings of the U.S. Department of Labor’s Employee Benefits Security Administration and Ms. Storm’s responses to such findings as well as other relevant documents she submitted to support her response. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA Code of Professional Conduct and 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) as follows:
Rule 202 – Compliance with Standards – (TSBPA 501.85)
1. The auditor originally failed to obtain sufficient appropriate audit evidence to support the opinion on the financial statements in the following areas of the audit (AU-C 500):
a. contributions received and receivable;
b. participant data;
c. benefit payments;
d. plan obligations;
e. administrative expenses;
f. income taxes;
g. commitments and contingencies;
h. subsequent events; and
i. parties-in-interest/prohibited transactions.
2. The auditor originally failed to obtain a proper understanding of the plan, including the plan’s internal control. In addition, risk was originally not properly assessed for the audit. (AU-C 315)
3. The auditor originally failed to establish and document an overall audit strategy. (AU-C 300)
4. The auditor originally failed to properly document her consideration of fraud related to the audit. (AU-C 240)
5. The revised audit report was incorrectly dated based on changes to the financial statements and the date of the new representation letter. (AU-C 700)
Rule 203 – Accounting Principles – (TSBPA 501.61)
The notes to the financial statements omit the following disclosures:
a. description of the participants covered by the plan (FASB ASC 965-205-50-1);
b. the method of determining participants’ contributions (FASB ASC 965-205-50-1);
c. employer absorbed costs of plan administration (FASB ASC 965-205-50-1);
d. party-in-interest transactions (FASB ASC 850-10-50); and
e. subsequent events (FASB ASC 855-10-50).
In consideration of the ECA forgoing further investigation of Ms. Storm’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Ms. Storm agreed as follows:
a. To waive her rights to further investigation of this matter in accordance with the Joint Ethics Enforcement Program (JEEP) Manual of Procedures.
b. To waive her rights to a hearing under AICPA bylaws section 7.4 and the Texas Society of CPAs bylaws Article III.
c. To neither admit nor deny the above specified charges.
d. To her suspension from membership in the AICPA and the Texas Society of CPAs for a period of two years from the effective date of this agreement. During the period of suspension, she is prohibited from representing herself 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 she performs and to submit evidence of such compliance.
f. To complete 53 hours of continuing professional education (CPE) courses (Auditing Employee Benefit Plans; Auditing Workpapers: Documenting Fieldwork; Applying the Risk Assessment Standards To Ensure a Quality Audit; Internal Control and COSOS Essentials for Financial Managers, Accountants and Auditors; Annual Update for Accountants and Auditors; Upcoming Peer Review: Is Your Firm Ready?) within 12 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, she 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 her 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. She 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.
She agrees to permit the outside party to report quarterly to the ECA on her 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. She agrees to have this pre-issuance review performed at her 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.
She agrees to inform the ECA of any changes in the composition of her practice, changes in her role during the period she is subject to the pre-issuance reviews or if she has not performed any . If her practice changes and she is no longer involved with , no longer acts in a supervisory capacity on such engagements, or has not performed such engagements during the above specified period, she must inform the ECA of this and the ECA may require that she attest every six months for three years as to the nature of her practice. If, during the three-year attestation period she returns to performing such engagements she must inform the ECA and undergo the pre-issuance reviews.
h. To further comply with directive e. above, submit six months after the pre-issuance reviews and CPE a list of the audits, reviews and compilations with note disclosures that she performed in the period between the date of completion of those pre-issuance reviews and CPE and the end of the six-month period following completion of the and CPE. The ECA will select one of these engagements for review. She will be informed of this selection and will be asked to submit information to include a copy of her report, the financial statements, and working papers related to that engagement for review by ECA. The ECA may extend the period to select an engagement to ensure a suitable selection is available. A peer review undergone by her firm would not exempt her from this requirement.
She agrees to inform the ECA of any changes in the composition of her practice, changes in her role or if she has not performed any audits, reviews, and compilations with note disclosures until a suitable work product is selected for review. If her practice changes and she is no longer involved with audits, reviews, and 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, she must inform the ECA of this and the ECA may require that she attest every six months for three years as to the nature of her practice. If, during the three-year attestation period she returns to performing such engagements she 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 she has substantially complied with professional standards and close this matter. Or, the ECA may decide that an ethics investigation of the engagement she 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.
i. To submit within 30-days after she has signed this agreement evidence that her firm has submitted an application to join the Employee Benefit Plan Audit Quality Center. Upon membership in that Center, she agrees that her firm will comply with the directives of that Center.
j. Provide a copy of documents from the firm’s peer review for the year ended August 31, 2015 within 30 day of the effective date of this agreement.
k. 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 she has completed all directives in this letter. This restriction will be communicated to those responsible for appointments to such committees. In addition, if she applies to join any other committee of the AICPA or the Texas Society of CPAs she 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.
l. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in accounting and auditing and employee benefit plans until she 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 and the Texas Society of CPAs. 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.
m. To be prohibited from 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 she submitted to comply with directive h. above substantially complies with professional standards. This restriction will be communicated to her peer review oversight agency.
n. That the ECA shall provide a copy of this settlement agreement to the AICPA’s Peer Review Division staff, her peer review administering entities and her firm’s peer reviewer.
o. That the ECA shall publish her name, the name of her firm, the charges, and the terms of this settlement agreement.
p. That the ECA shall monitor her compliance with the terms of this settlement agreement and initiate an investigation where the ECA finds there has been noncompliance.