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State Board Report

November 2014

The Department of Labor’s concern with the quality of audits of Employee Benefit Plans (EBP) being performed by CPA firms (see SBR 3/14) was brought to the attention of the State Boards’ Executive Directors at their March 2014 meeting, but it had been brought to the attention of the AICPA before that, NASBA Compliance Assurance Committee Chair Janice Gray reported. She assured the NASBA Annual Meeting: “The AICPA is just as concerned as we are, as regulators,that the firms perform according to standards.” Ms. Gray called on AICPA Vice President of Ethics and Practice Quality James W. Brackens, Jr., to tell the Boards what the AICPA has been doing to correct the situation and on Mississippi State Board of Public Accountancy Associate Director Andy L. Wright to report on how his state is handling those firms that were not peer reviewed for performing EBP audits.

Mr. Brackens said in January 2014 the AICPA Peer Review Board issued guidance for peer reviewers covering those firms that failed to inform their peer reviewers that they were engaged in must-report services (such as EBP audits). This guidance on “noncooperation” tells the peer reviewers when they can report firm partners to the AICPA’s Ethics Division for omitting or misrepresenting information about an accounting and auditing practice. A new representation letter was also issued that requires the partner to sign that all engagements were properly reported to the reviewer, and if the engagements are not reported properly then the partner could be turned over to the Ethics Division. These letters would be retained until the next review. Firms that are not performing accounting and auditing engagements but that are peer reviewed must also have their partners sign a letter stating they are not performing such service and they can be held accountable for misrepresentation if they do.

Then in May 2014 the AICPA released new guidance that says if the AICPA becomes aware of information that would tell them the peer review report was materially misstated, they can take immediate action and recall the peer review report without having to go through the State Society for review of the case. More guidance was issued by the AICPA in September 2014 on how firms can be terminated from the peer review program.

Mr. Brackens said of the Department of Labor’s list of 4,918 firms that were performing EBP audits, 491 were completely not in compliance with the DOL. Of those, 109 firms were referred to the Ethics Division, 251 had their peer review reports recalled and replacement reports were required, and 131 were not recalled because they were in the process of being peer reviewed.

Approximately 100 firms were identified as performing over 300 EBP audits of Mississippi-based plans, Mr. Wright reported. Preliminary investigation found 12 firms were not registered with the Board, which requires firm permits for firms performing audit or attest engagements for Mississippi-based entities. Five of those were subsequently found either to have performed work for out-of-state plans, to have had their name incorrectly listed or to have not done an EBP audit in the peer reviewed period. Of the remaining firms, most were “dabblers” Mr. Wright stated, performing only a small number of EBP audits.

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