As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Washington Society of CPAs, Mr. Magee, with the firm of Pete Magee, CPA & Associates, Inc. entered into a settlement agreement under the Joint Ethics Enforcement Program, effective December 5, 2017.
Information came to the attention of the Ethics Charging Authority (ECA) (comprised of the AICPA Professional Ethics Executive Committee and the Washington Society of CPAs’ Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Magee’s performance of professional services on the audit of the financial statements of a government entity as of and for the year ended December 31, 2012.
The ECA reviewed the auditor’s report, financial statements and certain workpapers as well as other relevant documents Mr. Magee submitted to support his responses. Based on this information, the ECA charged Mr. Magee with violations of the AICPA and the Washington Society of CPAs’ codes of professional conduct as follows:
Rule 202 – Compliance with Standards
1. The introductory and opinion paragraphs of the auditor’s report were misleading. They failed to clarify that “governmental funds” was the name of a department of the Tribe as well as to indicate that each opinion unit of that department was audited. Use of the generic term governmental funds was misleading to the users of the financial statements due to its alternative meaning related to governmental financials statements. (AICPA Audit and Accounting Guide – State and Local Governments (“AAG-SLV”) par. 14.78 (2012 guide) and par. 14.91 (2013 guide))
2. The auditor failed to modify his opinion when the Department’s basic financial statements did not present a Statement of Net Assets and a Statement of Activities over governmental activities (as applied to the Department) as required by GAAP. (AAG-SLV par. 14.78 (2012 guide), par. 14.91 (2013 guide))
3. The auditor failed to document in the workpapers the Tribe’s election, and the firm’s evaluation of the impact on the auditor’s report of that election, to report only certain funds as part of a Department. The engagement letter and the management representation letter were not appropriately modified to reflect the desired reporting. (AU-C 210, 230 & 580)
4. The auditor failed to properly assess and audit the Bureau of Indian Affairs ARRA Incidental Construction Fund as a major fund. Furthermore, the entity inappropriately reported the fund as part of the aggregate remaining fund information opinion unit in the departmental financial statements. (GASB Cod. §2200.152-.153)
5. The Schedule of Expenditures of Federal Awards did not present all individual federal programs by federal agency when a Department of Transportation grant was inappropriately listed as being initially funded by the Department of the Interior. (OMB Circular A-133 §__.310, AICPA Audit Guide – Government Auditing Standards and Circular A-133 Audits (“AAG-SLA”) par. 7.20)
Rule 203 – Accounting Principles
1. The statement of net assets for the internal service fund inappropriately reported unassigned net assets, rather than reporting net assets as unrestricted, restricted or invested in capital assets net of related debt. (GASB Cod. §2200.167)
2. Management’s Discussion and Analysis was omitted from the financial reporting package. (AAG-SLV par. 14.70 and 14.71, GASB Cod. §2200.106)
In consideration of the ECA forgoing further investigation of Peter J. Magee’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Magee agreed as follows:
a. To waive his rights to a hearing under AICPA bylaws section 7.4 and the Washington Society of CPAs bylaws Article XI, Section 11.2.
b. To neither admit nor deny the above specified charges.
c. To his suspension for a period of two years by the AICPA and the .
d. That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.
e. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
f. To complete 21 hours of continuing professional education (CPE) courses (Governmental Accounting and Reporting: How to Put It All Together; Understanding the Clarified Auditing Standards: The Changes You Need to Know) within six months of the effective date of this agreement and to provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
g. To comply with directive e. above, he agrees to hire an outside party, acceptable to the ECA to perform a pre-issuance review of the reports, financial statements, and working papers on five engagements performed by him and selected by the ECA. He must submit the names of the chosen reviewers to the ECA for approval no later than 30 days after the date the agreement is executed. Also, no later than 30 days after the date the agreement is executed, he must submit a list to the ECA of the highest level of engagements (audits, reviews and compilations with note disclosures) on which he expects to issue reports in the upcoming 12 months. The ECA will select five of these engagements for review and communicate them to him.
He agrees 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 first such report is due to the Subcommittee 120 days after the ECA has approved his pre-issuance reviewer with subsequent reports due every 90 days thereafter. He agrees 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 agrees to inform the ECA of any changes in the composition of his practice or changes in his role during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with performing audits, reviews, or compilations with note disclosures, or no longer acts in a supervisory capacity on such engagements, 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. If there are deficiencies in the pre-issuance reviews directed in g. above, the ECA may direct him to submit a workproduct for review. In which case, to further comply with directive e. above, he agrees to submit six months after the completion of the CPE and pre-issuance reviews prescribed above, a list of the highest level (audits, reviews, and compilations with note disclosures) of engagements that he performed in the period between the date of completion of the CPE and pre-issuance reviews and the end of the six-month period following the date of completion of the CPE and pre-issuance reviews.
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.
If the ECA has decided to review his workproduct, he agrees to inform the ECA of any changes in the composition of his practice or changes in his role until a suitable work product is selected for review. If his practice changes and he is no longer involved with performing audits, reviews and/or compilations with note disclosures, and/or audits subject to Government Auditing Standards and/or OMB Circular A-133, or no longer acts in a supervisory capacity on such engagements, 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 trial board for a hearing or take such other action as it deems appropriate.
i. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the until he has completed all directives in this letter. This restriction will be communicated to those responsible for appointments to such committees. In addition, if he applies to join any committee of the AICPA or the , he must inform those responsible for such appointments of the results of this ethics investigation. This requirement shall remain in effect until the ECA determines that the work product submitted to comply with directive h. above substantially complies with professional standards.
j. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in governmental auditing and accounting until he has completed all of the directives included in this letter. This restriction will be communicated to those responsible for engaging CPE instructors at the AICPA and the . This requirement shall remain in effect until the ECA determines that the work product submitted to comply with directive h. above substantially complies with professional standards.
k. To be prohibited from performing peer reviews in any capacity until the 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 restriction will be communicated to his peer review oversight agency.
l. That the ECA shall provide a copy of this settlement agreement to the AICPA’s Peer Review Division staff, his peer review administering entities and his firm’s peer reviewer.
m. 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.