Governmental Final Ch 11

All auditor's reports for the single audit must be submitted electronically to the federal clearinghouse designated by the OMB within

the earlier of 30 days after receipt of the auditor's report or nine months after the end of the audit period

What color is the GAGAS book

yella

Each audit organization should undergo an external peer review at least once every ___ years.

3

Nonfederal Entity

A state or local government, Indian Tribe, institution of higher education, or a NFP

What does abuse indicate misuse of?

Authority or position for personal financial interest or those of an immediate or close family member or business associate

What is not an opinion unit?

Blended units

State and Local Government audits may be performed by ______ or by ___________.

CPAs, State/Federal agencies

Program Specific Audit

Elected when an auditee expends federal awards under only one program or cluster of related programs

Reasonable Assurance

Free from material misstatements

Federal awards excluded from the calculation of awards expended

Medicare and medicaid

Low Risk Auditee

Needs only 20 percent of sufficient number of major programs to be audited

Who must perform a single audit?

Nonfederal entities that expend $750,000 or more in a year in federal awards

How many opinions should an auditor issue for a governmental entity?

One for each of the component units

Other Matters section of the auditor's report

Only required if its the audit of a government entity, required because GASB requires the basic financial statements to be accompanied by RSI

Nonaudit Work

Performed solely for the benefit of the entity requesting the work and does not provide a basis for conclusions, recommendations, or opinions

AU-C Section 725

Provides guidance for auditors engaged to opine on supplementary information in relation to the financial statements as a whole

Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards

Provides streamlined guidelines for grants accounting and reporting and incorporates material previously issues in OMB "circulars"

Five Ethical Principles

Public interest Integrity Objectivity Proper use of government information, resources, and position Professional Behavior

Auditor's Objective in performing a financial audit

Render a report expressing his opinion on the fairness of the presentation of the financial statements

Percentage of coverage rule

Requires auditing of as many major programs as necessary to ensure that at least 40 percent of total federal awards expended are audited

What does the AICPA Audits and Accounting Guides State and Local Governments emphasize?

The importance of testing for compliance with laws and regulations that may have a material affect

Single Audit Act Amendments of 1996

To reduce audit burdens on state and local governments, Indian tribes, and NFPs Also extended the statutory requirement for single audit coverage to NFPs, established a risk-based approach for selecting programs for audit testing, ad increased administrative flexibility by give OMB the authority to revise certain audit requirements periodically without seeking further amendments

The _______ standard requires that the highest degree of integrity and objectivity be maintained by any auditor.

independence

Known questioned costs exceeding _______ should be reported in a schedule of findings and questioned costs

$25,000

GAGAS practical consideration of independence

*A conceptual framework for making independence determinations *Requirements and guidance for audit organizations structurally located within the governments they audit *Requirements and guidance when performing nonaudit services *Requirements and guidance on documentation to support consideration of auditor independence

Additional Standards for performing financial audits under GAGAS

*Emphasizes importance of communication *Follow-up on prior findings and recommendations *Detection of material misstatements *Development of the elements of a deficiency findings *Documentation

Opinion Units

*Governmental Units *Business-type activities *Aggregate discretely presented component units *each major governmental and enterprise fund *Aggregate remaining fund information

GAGAS General Stanadards

*Independence *Professional Judgement *Competence *Quality control and assurance

When is report wording modified for RSI?

*Omission of RSI *Material departure from prescribed guidelines *An inability to complete required audit procedures *Unresolved doubts about whether the RSI adheres to the prescribed guidelines

Basic Elements of the standard GAAS report

*Title that includes the world independent *Address *Introduction paragraph *Section with the heading "Managements Responsibility for the Financial Statements *section with the heading "Auditor's Responsibility *Section with the heading "Opinion *signature of auditor *Date of auditor's report

Purpose of the Single Audit Act of 1984

1. Improve the financial management of state and local governments with respect to federal financial assistance programs 2. Establish uniform requirements for audits of federal financial assistance provided to state and local governments 3. Promote the efficient and effective use of audit resources 4. Ensure the federal departments and agencies rely upon and use audit work done pursuant to the Single Audit Act

How long should audit workpapers be kept?

3 years

Where are auditing procedures published for audits of state and local governments and NFPs by independent CPAs?

AICPA Audits and Accounting Guides: State and Local Governments, Health Care Entities, and NFP Entities.

Financial Audits

All audits covered under GAAS, such as financial statement audits, special reports, reviews of interim financial information, letters to underwriters, compliance audits, and service organization audits

AU-C Section 720

Allows auditors the option of providing a paragraph including no assurance on that other information

Federal Awards

Federal financial assistance and federal cost-reimbursement contracts that nonfederal entities receive directly from federal awarding agencies or indirectly from pass through agencies

Federal Fund Audits

Are organization wide rather than grant by grant, also called A Single Audit

Questioned Cost

Arises usually from an audit finding related to noncompliance with a law, regulation, or agreement whose costs are either not supported by adequate documentation or appear unreasonable

Compliance Audits

Auditor tests whether each major program as administered in conformity with administrative requirements contained in thee Uniform Guidance

Additional Standards for reporting on Financial Audits under GAGAS

Cover reporting on compliance, internal controls, report requirements, and distribution

Four components of deficency

Criteria, condition, cause, effect

Oversight Agencies

Designated for nonfederal entities expending less than $50 million in federal awards

The primary purpose of an attestation engagement is to provide a _____, a _____, or an _____ procedure report on a subject matter or on an assertion about a subject matter.

Examination, review, agreed-upon

Reporting Package Contents

Financial statements and schedule of expenditures of federal awards Summary schedule of prior audits Auditor's report Corrective action plan

How should the primary auditor handle other auditors opinions on specific component units?

He can either take responsibility for their opinion or refer to them and the percentage of the overall audit that they conducted by doing that opinion unit

Introductory paragraph of auditor's report

Identify the financial statements being audited and refer to the audit of the financial statements of each opinion unit

What are the responsibilities for the auditee under the Uniform Guidance?

Identifying all federal awards received and expended, and the federal programs under which they were received Responsible for maintaining appropriate internal controls and systems to ensure compliance with laws, regulations, and contract or grant provisions applicable to federal awards Must prepare appropriate financial statements and the schedule of expenditures of federal awards, ensure the audits are properly performed and submitted when due, and follow up and take appropriate corrective action on audit findings

Performance Audits

Independent assessments of the performance and the management of the entity, program, service, or activity against objective criteria.

Performance audits are often performed by _______ auditors and _______ audit agencies.

Internal, state

Abuse

Involves behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given

Significant Deficiency

Less severe than a material weakness, yet important enough to merit attention by those charged with governance

Auditors are prohibited from assuming a ____________ __________ for an audited entity.

Management resposibilty

Audit Findings

Provide detail on matters such as internal control significant deficiencies or material weaknesses, instances of noncompliance, questioned costs, fraud and illegal acts, material violations of contract and grant agreements and material abuse

_______ are controls designed to eliminate ore reduce threats to independence.

Safegaurds

Attestation Engagements

Services related to providing various levels of control, compliance, MD&A presentation, allowability and reasonableness of proposed contract information, final contract costs, and reliability of performance measures.

Documentation of Independence

Should include discussion of threats identified and safeguards put into place or applied to eliminate/reduce the threat, safeguards required if an audit organization is structurally located within a government entity and is considered independent based on those safeguards, consideration of the audited entity management's ability to effectively oversee a nonaudit service to be provided by the auditor, and the auditor's understanding with an audited entity for which the auditor will perform a nonaudit service

Auditor's Responsibility section of the auditors report

Should specify whether the audit was conducted under GAAS or GAGAS

Cognizant Agency for Audit Responsibilities

Will be designated for each nonfederal entity expending more than $50 million a year in federal awards

Engagement Letter

Written memo of the engagement specifying the scope of the work to be done and the auditing standards applied to the engagement. Should be prepared in advance and copies retained by both the auditor and the auditee.

Can entities engage in more than one audit firm to conduct an annual audit?

Yes, some component units may be large enough they need an entirely different team to look at their financial statements

Material Weakness

deficiency in internal control "such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis

Auditors determine that RSI is presented ________________ the financial statements

fairly in relation to No modifications are made to the opinion paragraph