Monthly Archives: September 2014

SCACPA and AICPA’s Joint Ethics Enforcement Process

It is a sad day for everyone when a CPA has to respond to an ethics investigation concerning his or her professional conduct. Although unpleasant as it may be for us to investigate and discipline fellow CPAs, doing so effectively is a critical function necessary to maintain the public trust in the accounting profession and thereby protect our special status in society as accounting professionals.

SCACPA’s bylaws require each member, whether in public or private practice and regardless of membership in the AICPA, to conduct himself or herself in accordance with the Principles and Rules of the AICPA’s Code of Professional Conduct. Members are automatically suspended or expelled from membership without further investigation when certain authorities such as the state Board of Accountancy, the Securities & Exchange Commission, the Public Company Accounting Oversight Board, or the Internal Revenue Service have found a member guilty of certain types of misconduct.

Otherwise, when information is received by SCACPA of a member’s potential violation of the Code, an investigation is begun pursuant to SCACPA’s agreement with the AICPA under the Joint Ethics Enforcement Program. Essentially, SCACPA, as is the case with most other state societies, refers all such information to the AICPA professional ethics division for investigation and, if necessary, discipline.

Within 90 days of becoming aware of potential misconduct, AICPA’s professional ethics division will determine whether or not to open a formal investigation. If opened, an investigator will send an inquiry letter to any firm or member indicated as being involved in the matter. Although an inquiry letter may be sent to a firm, ultimate findings are made only with respect to an individual member and not the member’s firm.

A member under investigation by the professional ethics division is sent an opening letter at his or her last-known address shown on the membership records of the AICPA or SCACPA. This letter reminds the member of his or her obligation under AICPA’s bylaw 7.4.6 to cooperate during the investigation. The opening letter also describes the subject matter under investigation and requests the member submit relevant documents and other information for consideration. Unless it is clear from the information obtained that the member has not violated the Code, the member will be offered an opportunity to meet or have a telephone interview to discuss and respond to the issues in the investigation prior to an ultimate finding being made.

If a substantive response from the member is not received within 30 days of mailing the opening letter, a follow-up request, known as a letter of noncooperation, is sent. If a substantive response is not received within 30 days of the letter of noncooperation, the matter is acted upon for the failure to cooperate, which should and usually does result in expulsion of the member by the AICPA’s Joint Trial Board.

At the conclusion of each investigation, a written summary of the investigation is provided to either the AICPA’s Technical Standards Subcommittee or Independence/Behavioral Standards Subcommittee (depending on the nature of the violation) along with specific recommendations as to findings. Except for situations where an investigation is deferred pending the completion of related litigation, the professional ethics division attempts to complete its investigation, reach a finding, and obtain the subject member’s concurrence within 15 months. This may vary depending on the complexity of the case and responsiveness of the member.

The subcommittee may find: (a) no prima facie evidence of a violation of the Code; (b) prima facie evidence of a violation; or (c) that the member has failed to cooperate in the investigation. In the first instance, the member under investigation is advised that the investigation has been closed but may be reopened if new information becomes available that warrants such action.

When there is a finding of a violation and depending on its gravity, the subcommittee may: (a) issue a letter of required corrective action with directives; (b) offer an opportunity of a settlement of the charges; or (c) refer the case to a hearing panel of the Joint Trial Board.

A letter of required corrective action is the least severe sanction as it only directs a member toward additional action such as completion of specific continuing education courses or special supervision over similar services in the future. Of particular note about letters of corrective action is that they are not required to be published as are all other sanctions.

Settlement offers include either admonishment, suspension or expulsion and are non-negotiable; all cases involving settlement offers are referred to the AICPA Professional Ethics Executive Committee (PEEC) for concurrence prior to being sent to a member. If not accepted by a member, the matter is automatically referred to the Joint Trial Board. Where the findings in a settlement agreement involve deficiencies in a compilation or attest engagement or other matters that could indicate deficiencies in the design of, or compliance with, the firm’s quality control policies and procedures and the member’s firm is enrolled in either the AICPA Peer Review Program or Center for Public Company Audit Firms Peer Review Program, the settlement agreement will usually be forwarded to the administering entity responsible for supervision of the firm’s peer review.

When a matter is of such a nature that a letter of corrective action is deemed an inadequate response and settlement cannot be agreed, it is referred to a hearing panel of the Joint Trial Board. After a hearing and if the member is found guilty, a hearing panel must decide whether to expel or suspend the member from the AICPA and SCACPA or admonish the member. If the decision is to suspend or admonish, the panel may require some additional action similar to that contained in a letter of required corrective action. All guilty findings and the resulting sanctions of the Joint Trial Board are published.

In deciding which sanction to impose after a finding of guilty, a hearing panel will take all of the facts and circumstances presented into consideration, including the attitude of the guilty member, the extent of actual or potential damage to third parties, actions taken by the member since the infraction, etc. However, in the absence of unusual extenuating circumstances, expulsion is most likely for the most serious matters such as a violation of the independence rules or reckless disregard of the confidentiality rule and lack of integrity as those matters are hallmarks of the accounting profession.

Furthermore, when a member has been found guilty of willfully refusing to cooperate with the professional ethics division, the sanction is ordinarily expulsion. Lack of cooperation in the critical function of self-policing the profession through investigation of potential misconduct is a serious offense that threatens the existence of the profession and violates a specific promise each member makes before being granted membership in the AICPA and SCACPA.

George DuRant, CPA/ABV, CFF, ASA is a member of DuRant, Schraibman & Lindsay, LLC. He has been a member of SCACPA and AICPA since 1975 and is currently serving as a member of the AICPA’s Joint Trial Board.

Published in CPA Report, Second Edition, 2014. CPA Report is a quarterly magazine published by the South Carolina Association of Certified Public Accountants.