Irwin, Douglas A. of Madison, TN

March 2, 2020

As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Tennessee Society of CPAs, Mr. Irwin, with the firm of Daniels Irwin & Aylor CPAs, entered into a settlement agreement under the Joint Ethics Enforcement Program, effective January 27, 2020.

Information came to the attention of the ethics charging authority (ECA — AICPA Professional Ethics Executive Committee and Tennessee Society of CPAs Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Irwin’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 Department of Labor’s Employee Benefits Security Administration and Mr. Irwin’s responses to such findings as well as other relevant documents Mr. Irwin submitted to support his responses, including certain working papers, the financial statements, 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 of the AICPA and the Tennessee Society of CPAs as follows:

1.310.001 Compliance with Standards Rule  

  1. The auditor initially failed to document his communication with those charged with governance. (AU-C 260)
  2. The auditor initially failed to provide documentation of the plan’s service provider agreements to support his understanding of the entity and its environment.  (AU-C 315)
  3. The auditor initially failed to obtain audit evidence to support his understanding about the design and implementation of controls at the service organization.  (AU-C 402)
  4. The auditor initially over-relied on the Service Organization Control report and failed to obtain sufficient appropriate audit evidence to support the opinion in the following areas: (AU-C 330; AU-C 500)

    a.    
    Employer contributions
    b.    Benefit payments
    c.     Participant data

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

    a.    Plan tax status
    b.    Parties-in-interest
    c.     Commitment and contingencies
    d.    Subsequent events
     
  6. The original auditor’s report failed to conform to the clarified standards.  (AU-C 700)
  7. The auditor failed to gain an understanding of the types of investments that the plan holds to enable the auditor to understand the disclosures to be included in the financial statements.  (AU-C 315)
  8. The auditor failed to prepare audit documentation which addressed the deficiencies noted by the Department of Labor sufficient to enable an experienced auditor, having no previous connection with the audit, to understand the nature, timing, and extent of the audit procedures performed in the following areas: (AU-C 230)

    a.    Employer contribution
    b.    Participant data
    c.     Communications with those charged with governance
    d.    Parties-in-interest
    e.    Commitment and contingencies
    f.     Subsequent events

  9. The auditor failed to dual date or re-date the auditor’s report. (AU-C 560)
  10. The revised auditor’s report does not include an emphasis-of-matter paragraph that indicates that the financial statements are prepared in accordance with the modified cash basis of accounting.  (AU-C 800)

1.320.001 Accounting Principles Rule 

  1. The original financial statements failed to disclose the following:

    a.    Use of estimates (FASB ASC 962-325-50)
    b.    Accounting policy related to notes receivable from participants (FASB ASC 962-325-50)
    c.     Investment valuation and income recognition (FASB ASC 962-325-50
    d.    Fair value disclosures as required by FASB ASC 820
    e.    Risks and uncertainties (FASB ASC 275)
    f.      Subsequent events (FASB ASC 855)
    g.    The amount and disposition of forfeited nonvested accounts (FASB ASC 962-205-50)
    h.    Identification of investments that represent 5 percent or more of the net assets available for benefits (FASB ASC 962-325-45)


  2. The original and revised financial statements failed to disclose the following:
    a.    Related party transactions and party-in-interest transactions (FASB ASC 850)
    b.    If significant costs of plan administration are being absorbed by the employer (FASB ASC 962-205-50)

1.400.050 Governmental Bodies, Commissions, or Other Regulatory Agencies

The original and revised Schedule of Assets (Held at End of Year) failed to disclose participant loans in accordance with 29 CFR 2520.103-10.

Agreement

In consideration of the ECA forgoing further investigation of Mr. Irwin’s conduct as described above, and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Irwin 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 those of the Tennessee Society of CPAs bylaws section 6.6.
c.     To neither admit nor deny the above specified charges.
d.    To his suspension from membership in the AICPA and the Tennessee Society of CPAs for a period of one year 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 Tennessee Society 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 following continuing professional education (CPE) courses within twelve months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

  • Documenting Your EBP Audit: What you Need to Know — 10.5 hours
  • Employee Benefit Plan Audits: Common Misconceptions and How to Address Them — 2.0 hours
  • Audits of 401(k) Plans — 12.0 hours
  • Annual Update for Accountants and Auditors — 6.5 hours

    Total — 31.0 hours

g.    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 three employee benefit plan audit engagements performed by him during the one-year period following the date the reviewer has been approved by the ECA or until completion of the CPE specified in directive (f) above, if later.  He must submit the names of the chosen reviewers to the ECA for approval no later than 30 days of the date he signs this letter. Also, no later than 30 days after the effective date of this agreement, he must submit a list to the ECA of the employee benefit plan audit engagements on which he expects to issue reports in the upcoming 12 months from which the engagements subject to pre-issuance review will be selected. The following information should be included regarding the engagements listed:

  1. Anticipated number of total hours to be spent on the engagement
  2. Level of professional services to be rendered
  3. His role and His anticipated hours on each engagement
  4. Expected issuance date of your report
  5. Type of organization
  6. Whether it will be an initial 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 the following:

  1. The reviewer’s comments in detail for each engagement (a report that omits such detail will be unacceptable)
  2. Description of the nature of the entity reviewed
  3. The entity’s year end
  4. 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 agreed 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 audit engagements 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 audit engagements, 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 following information should be included regarding the engagements listed:

  1. Total hours spent on each engagement
  2. His role and hours on each engagement
  3. Level of professional services rendered
  4. Type of report issued
  5. Type of organization
  6. 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.

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 product he submitted to comply with directive (h), above, substantially complies 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 Tennessee Society 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 Tennessee Society 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 product he submitted to comply with directive (h), above, substantially complies with professional standards.

k.     To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA societies in areas of 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 Tennessee 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.

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 current 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.