As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Virginia Society of CPAs, Mr. Schaben, with the firm of Boitnott & Schaben, LLC, entered into a settlement agreement under the Joint Ethics Enforcement Program, effective December 3, 2018.
Information came to the attention of the Ethics Charging Authority (ECA, comprising AICPA Professional Ethics Executive Committee and the Virginia Society of CPAs Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Schaben’s performance of professional services on the audit of an employee benefit plan for the year ended December 31, 2014.
The ECA has reviewed the findings of the U.S. Department of Labor’s Employee Benefit Security Administration and Mr. Schaben’s responses to such findings as well as other relevant documents Mr. Schaben submitted to support his response, including certain work papers, financial statements, relevant emails and other correspondence. Based on this information, there appears to be prima facie evidence of violations of the rules of the codes 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 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.
- The auditor failed to exercise due professional care in his review of the financial statements as there are several conflicting statements regarding if the insurance contract is fully benefit-responsive. If the insurance contract is fully benefit- responsive, then the required disclosures were not made in the financial statements.
1.310.001 Compliance with Standards Rule
- The auditor failed to obtain sufficient evidence or prepare audit documentation that supports the procedures performed for investments, contributions received and receivable, benefit payments, and participant data and participant accounts. (AU-C 230)
- The auditor did not properly assess the risk that the financial statements were misstated in that he failed to conduct an engagement team discussion. (AU-C 315)
- The auditor failed to obtain sufficient and appropriate audit evidence to express an opinion on the financial statements for party-in-interest transactions. (AU-C 230)
- The auditor initially failed to prepare audit documentation that would enable an experienced auditor, having no previous connection to the audit, to understand the procedures performed for plan tax status and administrative expenses. (AU-C 230)
- The auditor failed to adequately assess the SOC 1 reports. (AU-C 402)
1.320.001 Accounting Principles Rule
- The statement of net assets available for benefits failed to present all investments at fair value and incorrectly classified notes receivable from participants as an investment. (FASB ASC 962)
- The financial statements failed to disclose the net change in fair value of each significant type of investment. (FASB ASC 962)
- The financial statements omitted required disclosures for assets and liabilities measured at fair value on a recurring basis. (FASB ASC 820)
- The financial statements failed to disclose the amount of forfeitures used during 2014. (FASB ASC 962)
- The financial statements failed to disclose subsequent events. (FASB ASC 855)
- The accounting policy disclosed for notes receivable from participants is not in conformity with accounting principles generally accepted in the United States of America. (FASB ASC 962)
In consideration of the ECA forgoing further investigation of Schaben’s conduct as described above, and in consideration of the ECA forgoing any further proceedings in the matter, agrees 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 and the Virginia Society of CPAs’ bylaws Article VII.
c. To neither admit nor deny the above specified charges.
d. To the AICPA and the Virginia Society of CPAs.
e. To comply immediately with professional standards applicable to the professional services performs and to submit evidence of such compliance.
f. To complete the following continuing professional education (CPE) within months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
Audits of 401(k) Plans—12.0 hours
Documenting Your EBP Audit: What You Need to Know—9.0 hours
Annual Accounting and Auditing Workshop—20.5 hours
Internal Control and Risk Assessment: Key Factors in a Successful Audit —8.0 hours
g. To comply with directive e., above, 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 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, must undergo a pre-issuance review on two other audit engagements performed by him that year. 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, must submit a list to the ECA of the audit engagements on which expects to issue reports in the upcoming 12 months from which the two other engagements subject to pre-issuance review will be selected.
He agrees to permit the outside party to report quarterly to the ECA on 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, agrees to inform the ECA of such. agrees to have this pre-issuance review performed at 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.
agrees to inform the ECA of any changes in the composition of practice, changes in role or if has not performed any audits during the period is subject to the pre-issuance reviews. If practice changes and is no longer involved with audits, no longer acts in a supervisory capacity on such engagements or has not performed such engagements during the above specified period, must inform the ECA of this change and the ECA may require that attest every six months for three years as to the nature of practice. If, during the three-year attestation period, returns to performing such engagements, 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 CPE and 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 CPE and pre-issuance reviews.
The ECA will select one of these engagements for review. will be informed of this selection and will be asked to submit information to include a copy of 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 firm would not exempt from this requirement.
He agrees to inform the ECA of any changes in the composition of practice, changes in role or if has not performed any audits, reviews, or compilations with note disclosures, until a suitable work product is selected for review. If practice changes and is no longer involved with audits, reviews, or 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, must inform the ECA of this change and the ECA may require that attest every six months for three years as to the nature of practice. If, during the three-year attestation period, returns to performing such engagements, 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 has substantially complied with professional standards and close this matter. Or, the ECA may decide that an ethics investigation of the engagement 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 has signed this agreement, evidence that firm has submitted an application to join the Audit Quality Center. Upon membership in that Center, agrees that firm will comply with the directives of that Center.
j. This prohibition will remain in effect until the ECA determines that the work product submitted to comply with directive , above, substantially complies with professional standards. This prohibition will be communicated to peer review oversight agency.
k. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the Virginia Society of CPAs until has completed all directives in this letter. This prohibition will be communicated to those responsible for appointments to such committees. In addition, if applies to join any other committee of the AICPA and the Virginia Society of CPAs, 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 submitted to comply with directive , above, substantially complies 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 and the Virginia Society of CPAs. 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. 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.
n. That the ECA shall publish name, the name of firm, the charges, and the terms of this settlement agreement.
o. That the ECA shall monitor compliance with the terms of this settlement agreement and initiate an investigation where the ECA finds there has been noncompliance.