As a result of an investigation of alleged violations of the AICPA Code of Professional Conduct, Mr. Malholtra, with the firm Atul Malhotra & Co., LLC, entered into a settlement agreement under the Joint Ethics Enforcement Program, effective November 2, 2018.
Information came to the attention of the Ethics Charging Authority (ECA) (AICPA Professional Ethics Executive Committee) alleging a potential disciplinary matter with respect to Mr. Malholtra’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. Malholtra’s responses to such findings as well as other relevant documents Mr. Malholtra submitted to support his responses, including certain workpapers, financial statements, and other relevant correspondence. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA Code of Professional Conduct as follows:
1.300.001 General Standards .01a. Professional Competence Rule
The auditor undertook an engagement he could not complete in accordance with professional standards.
1.300.001 General Standards .01b Due Professional Care Rule
- The auditor failed to exercise due professional care as the plan name is not consistent within the financial statements and those names used in the financial statements are also different from that of the Form 5500.
- The financial statements present administrative expenses on the statement of changes in net assets available for benefits; however, the footnotes disclose that all expenses of maintaining the plan are paid by the plan sponsor.
1.310.001 Compliance with Standards Rule
- The introductory paragraph of the auditor’s report failed to identify the statements of net assets available for benefits. (AU-C 700)
- The Basis for Disclaimer of Opinion paragraph of the auditor’s report failed to include the limited-scope certification as of December 31, 2013. Furthermore, the footnote disclosure for the limited-scope certification did not include investment income for 2014 and investments held at December 31, 2013. (AU-C 700)
- The auditor failed to prepare written audit programs that set forth the procedures necessary to accomplish the objectives of the audit in the areas of notes receivable from participants and contributions received and receivable. (AU-C 300)
- The auditor failed to document compliance with independence requirements. (AU-C 220)
- The auditor failed to document communications with those charged with governance. (AU-C 260)
- The auditor failed to adequately assess the SOC 1 reports. (AU-C 402)
- The auditor failed to obtain sufficient and appropriate audit evidence to express an opinion on the financial statements for substantially all audit areas. (AU-C 500)
1.320.001 Accounting Principles Rule
- The financial statements incorrectly classified all investments as mutual funds and failed to disclose the net change in each significant type of investment and include all required fair value disclosures. (FASB ASC 820 and 962-205-45-7)
- The statement of changes in net assets available for benefits did not specifically identify the source of contributions received. (FASB ASC 962)
- The fair value footnote failed to include 2013. (FASB ASC 205)
- The fair value footnote should not have included “participant loans receivable”. (FASB ASC 820)
- The financial statements failed to disclose transactions with related parties and parties-in-interest. (FASB ASC 850-10-50)
- The financial statements failed to disclose the basis for determining contributions by employers. (FASB ASC 962-205-50-1)
1.400.050 Governmental Bodies, Commissions, or Other Regulatory Agencies
- The supplemental schedule of assets (held at end of year) was not in the format prescribed by ERISA, failed to identify parties-in-interest, and failed to disclose the interest rate and term of participant loans. (29 CFR 2520-103.10)
- The auditor failed to have a valid license to practice in the state of New Jersey.
- As the partner responsible for peer review compliance, Mr. Malhotra failed to ensure the firm complied with the requirements of the AICPA to inform the firm’s administering entity of a practice area change requiring a System Review.
In consideration of the ECA forgoing further investigation of ’s conduct as described above, and in consideration of the ECA forgoing any further proceedings in the matter, agreed as follows:
a. To waive rights to further investigation of this matter in accordance with the Joint Ethics Enforcement Program (JEEP) Manual of Procedures.
b. To waive rights to a hearing under AICPA bylaws section 7.4.
c. To neither admit nor deny the above specified charges.
d. To the AICPA. expulsion from the AICPA includes the loss of AICPA credentials and certificates.
e. That the ECA shall provide a copy of this settlement agreement to the AICPA’s Peer Review Division staff, peer review administering entities and firm’s peer reviewer.
f. That the ECA shall publish name, the name of firm, the charges, and the terms of this settlement agreement.