Newsome, Jr., Darrell N. of Lexington, SC

As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the South Carolina Association of CPAs, Mr. Newsome, with the firm of Newsome & Company, P.C. entered into a settlement agreement under the Joint Ethics Enforcement Program, effective November 13, 2019. 

Information came to the attention of the ethics charging authority (ECA — AICPA Professional Ethics Executive Committee and the South Carolina Association of CPAs Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Newsome’s performance of professional services on the audit of the financial statements of a not for profit entity as of and for the fiscal year ended June 30, 2015.

The ECA reviewed the auditor’s report and selected working papers as well as other relevant documents Mr. Newsome submitted. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA and South Carolina Association of CPAs’ codes of professional conduct as follows: 

1.310.001 Compliance with Standards Rule

  1. The auditor failed to meet the 80 hours of accounting and auditing continuing professional education as required by Government Auditing Standards for this audit.
  2. The auditor’s report failed to include the appropriate section headings related to the "Report on the Financial Statements," "Other Matters," and "Other Reporting Requested by Government Auditing Standards." In addition, the “Other Matters” paragraphs are not included immediately after the auditor’s opinion on the financial statements. (AU-C 700, AU-C 706)
  3. The introductory paragraph of the auditor’s report does not accurately identify the statements that comprise the financial statements. (AU-C 700)
  4. The Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards incorrectly identified the opinion units and failed to identify the title of each statement that the financial statements comprise. (AU-C 935, Audit Guide for Government Auditing Standards and Single Audits ("AAG-GAS") 4.54)
  5. The Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards failed to include the definition of significant deficiency and a statement that material weaknesses may exist that have not been identified. (AU-C 935, AU-C 265, AAG-GAS 4.54)
  6. The auditor failed to adequately plan the audit. (AU-C 300, AU-C 315, AU-C 330)
  7. The auditor failed to plan and perform an audit in accordance with OMB Circular A-133.
  8. The auditor failed to obtain sufficient and appropriate audit evidence to support an opinion of the financial statements in substantially all areas of the audit. (AU-C 500)

Agreement

In consideration of the ECA forgoing further investigation of Mr. Newsome’s conduct as described above, and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Newsome agreed as follows:

  1. To waive his rights to further investigation of this matter in accordance with the Joint Ethics Enforcement Program (JEEP) Manual of Procedures
  2. To waive his rights to a hearing under AICPA bylaws section 7.4 and the South Carolina Association of CPAs bylaws Article XV, Section 15.2.
  3. To neither admit nor deny the above specified charges.
  4. To his suspension from membership in the AICPA and the South Carolina 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 South Carolina Association of CPAs and from using any AICPA credentials or certificates.
  5. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
  6. To complete the following continuing professional education (CPE) courses* within eighteen months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

    New Staff: Core Concepts - Audit Evidence — 1.5 hours

  7. Internal Control: How Does It Impact an Audit? — 3.5 hours

    Experienced Staff/New In-Charge - Understanding the Concept of Sampling Substantive Sampling — 2.0 hours

    Applying the Risk Assessment Standards to Ensure a Quality Audit — 6.5 hours

    GAAS: A Comprehensive Review for Auditors — 11.5 hours

    Audit Workpapers: Documenting Field Work — 2.5 hours

    Audit Workpapers: Reviewing Field Work Documentation — 1.5 hours

    Studies on Single Audit and Yellow Book Deficiencies — 9.0 hours

    Fundamentals for Performing a Single Audit Under the Uniform Guidance — 8.0 hours

    A Firm's System of Quality Control — 8.0 hours

    Total — 54.0 hours

  8. 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 subject to Government Auditing Standards and/or Uniform Guidance performed by him for one year from the date the reviewer has been approved by the ECA. In addition, he must undergo a pre-issuance review on two other audits performed by him that year. He 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, he must submit a list to the ECA of the audit engagements on which he expects to issue reports in the upcoming 12 months from which the two other audits subject to pre-issuance review will be selected. The following information should be included regarding the engagements listed:

    ·     anticipated number of total hours to be spent on the engagement;

  9. ·     level of professional services to be rendered;

    ·     his role and his anticipated hours on each engagement;

    ·     type of organization; and

    ·     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 reviewer’s comments in detail for each engagement (a report that omits such detail will be unacceptable);

    ·     description of the nature of the entity reviewed;

    ·     the entity’s year end; and

    ·     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 this pre-issuance review 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 subject to pre-issuance review during the period. If his practice changes and he is no longer involved with such 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.

  10. To further comply with directive (e<) above, submit, six months after completion of the CPE courses and pre-issuance reviews, whichever is later, 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 courses and pre-issuance reviews. The following information should be included regarding the engagements listed:

    ·       total hours spent on each engagement;

  11. ·       his role and hours on each engagement;

    ·       level of professional services rendered;

    ·       type of report issued;

    ·       type of organization; and

    ·       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.

  12. Provide a copy of your most recent peer review report and acceptance letter from your firm’s peer review administering entity within 60 days of the effective date of this agreement.
  13. 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.
  14. To submit, within 30-days after he has signed this agreement, evidence that his firm has submitted an application to join the Governmental Audit Quality Center. Upon membership in that Center, he agreed that his firm will comply with the directives of that Center.
  15. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA and the South Carolina 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 South Carolina 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 product he submitted to comply with directive (h) above, substantially complies with professional standards.
  16. 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.
  17. That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.
  18. 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.