Broadhead, Stephen Y. of Salt Lake City, UT

March 2, 2020

As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Utah Association of CPAs, Mr. Broadhead, with the firm of Stephen Y. Boradhead, CPA entered into a settlement agreement under the Joint Ethics Enforcement Program, effective November 4, 2019.

Information came to the attention of the ethics charging authority (ECA — AICPA Professional Ethics Executive Committee and Utah Association of CPAs Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Broadhead’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, 2015. 

The ECA reviewed the findings of the U. S. Department of Labor’s Employee Benefits Security Administration and Mr. Broadhead’s responses to such findings as well as other relevant documents Mr. Broadhead submitted to support his responses, including the auditor’s report, financial statements, and certain working papers. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA and Utah Association of CPAs codes of professional conduct as follows:   

1.300.001 General Standards .01a. Professional Competence Rule

The auditor undertook an engagement that he could not competently complete in accordance with professional standards.

1.300.001 General Standards .01b Due Professional Care Rule

The investments note in the original financial statements improperly report investments as pooled separate accounts rather than registered investment companies.

1.310.001 Compliance with Standards Rule

  1. The auditor initially failed to obtain sufficient appropriate audit evidence to support the opinion on the financial statements in the following areas: (AU-C §500)

    a)    Internal controls, specifically internal controls at the plan sponsor
    b)    Contributions, specifically the testing of employee contributions
    c)    Participant data and participant accounts
    d)    Commitments and contingencies

  2. The auditor initially failed to adequately document procedures performed in the following areas: (AU-C §230)

    a)    Communications with those charged with governance
    b)    Planning, specifically the firm’s independence; its review of plan documents, agreements, and minutes; and fraud risk inquiries
    c)    Internal controls, specifically its review of the SOC-1 reports
    d)    Benefit payments
    e)    Party-in-interest and prohibited transactions

  3. The auditor failed to re-date or dual date the report on the reissued financial statements. (AU-C §560)

1.400.050 Governmental Bodies, Commissions, or Other Regulatory Agencies

The Schedule of Assets (Held at End of Year) improperly identified Nationwide Life Insurance Co. as the issuer in column (b), whereas the name of the security should have been stated, and accordingly, all investments were improperly identified as parties-in-interest to the plan. (DOL 29 CFR 2520.103-10)

Agreement

In consideration of the ECA forgoing further investigation of Mr. Broadhead’s conduct as described above, and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Broadhead 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. and the Utah Association of CPAs bylaws Article VIII.
c. To neither admit nor deny the above specified charges.
d. To his suspension from membership in the AICPA and the Utah Association of CPAs 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 the Utah Association of CPAs 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 4.5-hour continuing professional education (CPE) course* “Upcoming Peer Review: Is Your Firm Ready?” within six months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
g. To provide an attestation immediately, then every six months for a period of three years that he is no longer performing audits. If he returns to performing such work, he agreed:

  1.  To complete the following continuing professional education (CPE) courses* prior to commencing such work and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

    Annual Update for Accountants and Auditors            6.5 hours
    Audit Workpapers: Documenting Field Work             2.5 hours
    Total CPE —   9.0 hours

  2. To comply with directive (e) above, he agreed 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 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 accepting such an engagement.

    He agreed 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 report should include:

    i. the reviewer’s comments in detail for each engagement (a report that omits such detail will be unacceptable)
    i. description of the nature of the entity reviewed
    ii. the entity’s year end
    iii. the date of the review

    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 agreed to have these pre-issuance reviews 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 agreed 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.

  3. 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 following information should be included regarding the engagements listed:

    i.        total hours spent on each engagement
    ii.      his role and hours on each engagement
    iii.    level of professional services rendered
    iv.     type of report issued
    v.       type of organization
    vi.     whether it was an initial engagement

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 agreed 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.

h.    To provide an additional 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 agreed:

                      i.        To complete the following continuing professional education (CPE) courses* prior to commencing such work and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

Auditing Employee Benefit Plans       15.5 hours
Documenting Your EBP Audit: What You Need to Know   10.5 hours
Total CPE – 26.0 hours

                     ii.        To comply with directive (e) above, he agreed 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 plans 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 accepting such an engagement.

He agreed 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 report should include:

i.        the reviewer’s comments in detail for each engagement (a report that omits such detail will be unacceptable)
ii.      description of the nature of the entity reviewed
iii.    the entity’s year end
iv.     the date of the review

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 agreed to have these pre-issuance reviews 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 agreed 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.

                    iii.        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 following information should be included regarding the engagements listed:

i.        total hours spent on each engagement
ii.      his role and hours on each engagement
iii.    level of professional services rendered
iv.     type of report issued
v.       type of organization
vi.     whether it was an initial engagement

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 agreed 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.

                   iv.        To submit, within 30-days after accepting an employee benefit plan audit engagement, evidence that his firm has submitted an application to join the Employee Benefit Plan Audit Quality Center. Upon membership in that Center, he agreed that his firm will comply with the directives of that Center.

i.      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 (g iii) and/or (h iii), above, if applicable, substantially comply with professional standards. This prohibition will be communicated to his firm’s peer review administering entity. 

j.      To be prohibited from serving as a member of any ethics or peer review committee of the AICPA and the Utah Association of CPAs 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 and the Utah Association of CPAs, 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 directives (g iii) and/or (h iii), above, if applicable, substantially comply with professional standards. 

k.     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 Utah Association of CPAs. This prohibition shall remain in effect until the ECA determines that the work products he submitted to comply with directives (g iii) and/or (h iii), above, if applicable, substantially comply with professional standards. 

l.      That the ECA shall provide a copy of this settlement agreement to the AICPA’s Peer Review Division staff, his firm’s peer review administering entity, and his firm’s peer reviewer.

m.   That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.

n.    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.