State and Local Governments: Checklists and Illustrative Financial Statements

This financial accounting and reporting practice aid is invaluable to anyone who prepares financial statements and reports for state and local governments. The checklists have been updated to reflect AICPA, GAO, and GASB standards and interpretations issued as of April 30, 2008. These checklists can be used by preparers of state and local governmental financial statements prepared in conformity with generally accepted accounting principles. These checklists can also be used by practitioners who perform audits of financial statements under generally accepted auditing standards or Government Auditing Standards and for audits performed in accordance with OMB Circular A-133 as they evaluate the adequacy of disclosures made in the basic financial statements, notes to the financial statements, and required supplementary information. Illustrative financial statements and auditor’s reports are included in this practice aid.

This nonauthoritative practice aid has been prepared by the AICPA staff and has not been reviewed, approved, disapproved, or otherwise acted on by any senior technical committee of the AICPA and do not represent official positions or pronouncements of the AICPA.

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Content refers to 2007 edition

FSP Section 13,000
Checklists and Illustrative Financial Statements for State and Local Governments

Introduction

.01 This publication includes the following information, extracted from sections 13,000–13,400 of the Financial Statement Preparation Manual (FSP):

• Financial Statements and Notes Checklist (FSP section 13,100) — This checklist can be used by preparers of governmental financial statements prepared in conformity with generally accepted accounting principles (GAAP) and by practitioners who audit, review, or compile those financial statements as they evaluate the adequacy of disclosures made in the basic financial statements, notes to the financial statements, and required supplementary information (RSI).
• Auditors’ Reports Checklist for Audits Performed in Accordance with Generally Accepted Auditing Standards (FSP section 13,200) — This checklist can be used by auditors in reporting on audits of financial statements in accordance with generally accepted auditing standards (GAAS).
• Auditors’ Reports on Audits Performed Under Government Auditing Standards and OMB Circular A-133 Checklist (FSP section 13,300) — This checklist can be used by auditors in reporting on financial audits of financial statements in accordance with the Government Accountability Office’s (GAO’s) Government Auditing Standards (also referred to as the Yellow Book), issued by the Comptroller General of the United States, and on audits performed under the Single Audit Act Amendments of 1996 and Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations.
• Illustrative Financial Statements (FSP section 13,400) — These illustrative financial statements demonstrate financial statement formats and disclosures appropriate for state and local governments.

.02 These checklists consider relevant standards through those in the following listing. Users should modify the checklists, as appropriate, for subsequent standards. In determining the applicability of a standard, its effective date also should be considered.

The checklists have been updated to include relevant accounting and auditing pronouncements through:

• Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS or statement) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.
• Revised FASB statements issued through June 30, 2007, including FASB Statement No. 123 (revised 2004), Share-Based Payment.
• FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.
• FASB Technical Bulletin (FTB) No. 01-1, Effective Date for Certain Financial Institutions of Certain Provisions of Statement 140 Related to the Isolation of Transferred Financial Assets.
• Governmental Accounting Standards Board (GASB) Statement No. 50, Pension Disclosures.
• GASB Interpretation (GASBI) No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements.
• GASB Technical Bulletin (GTB) No. 2006-1, Accounting and Financial Reporting by Employers and OPEB Plans for Payments from the Federal Government Pursuant to The Retiree Drug Subsidy Provisions of Medicare Part D.
• GASB staff’s 2006–2007 Comprehensive Implementation Guide.
• 2003 revision to Government Auditing Standards.
• OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, as revised on June 27, 2003.
• AICPA Practice Bulletin (PB) No. 15, Accounting by the Issuer of Surplus Notes (AICPA, Technical Practice Aids, PB sec. 12,150).
• AICPA Statement on Auditing Standards (SAS) No. 114, The Auditor’s Communication With Those Charged With Governance (AICPA, Professional Standards, vol. 1, AU sec. 380).
• AICPA Statement of Position (SOP) 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies (AICPA, Technical Practice Aids, ACC sec. 10,930).
• Auditing Interpretation No. 1, “Use of Electronic Confirmations” (AICPA, Professional Standards, vol. 1, AU sec. 9330.01–.06), which interprets AU section 330, The Confirmation Process (AICPA, Professional Standards, vol. 1).
• AICPA Statement on Standards for Accounting and Review Services (SSARS) No. 14, Compilation of Pro Forma Financial Information (AICPA, Professional Standards, vol. 2, AR sec. 120).
• AICPA Audit and Accounting Guide State and Local Governments (with conforming changes as of May 1, 2007).
• AICPA Audit Guide Government Auditing Standards and Circular A-133 Audits (with conforming changes as of May 1, 2007).
• The checklists and illustrative financial statements should be modified, as appropriate, for pronouncements issued subsequent to the above. In determining the applicability of a pronouncement, its effective date should also be considered.

.03 The AICPA Accounting and Auditing Publications Staff has prepared these checklists as practice aids for preparers and auditors to use for the financial statements of and federal financial assistance received by state and local governments. The Audit and Accounting Guide State and Local Governments defines those entities that are state and local governments. This publication is an Other Auditing Publication as defined in AU section 150, Generally Accepted Auditing Standards (AICPA, Professional Standards, vol. 1). Other Auditing Publications have no authoritative status; however, they may help the auditor understand and apply SASs.

• The financial statements and notes checklist includes disclosures — whether in the basic financial statements, the notes to the financial statements, or RSI — that preparers and auditors should consider in governmental financial statements prepared in accordance with GAAP.1, *12 The provisions of accounting and financial reporting standards, including disclosure provisions, need not be applied to immaterial items. The checklist does not include recognition and measurement issues relating to preparing governmental financial statements. It also does not address additional disclosures applicable only to supplementary information other than RSI that accompanies a government’s basic financial statements (for example, in a Comprehensive Annual Financial Report [CAFR]),23 specialized disclosure requirements for governmental health care organizations and public entity risk pools contained in the Audit and Accounting Guides Health Care Organizations and Property and Liability Insurance Companies, or disclosures required by pronouncements that are deemed remote for governmental financial statements. The items (including Appendix A) in the checklist that are derived solely from private-sector standards (such as those promulgated by the FASB and the Accounting Principles Board [APB]) may have limited applicability for governmental financial statements. To determine the applicability of private-sector pronouncements to governmental financial statements, see AU section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles (AICPA, Professional Standards, vol. 1), and GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, as amended by GASB Statement No. 29, The Use of Not-for-Profit Accounting and Financial Reporting Principles by Governmental Entities, and No. 34, Basic Financial Statements — and Management’s Discussion and Analysis — for State and Local Governments.
  
• The auditors’ report checklist addresses those requirements most likely to be encountered when reporting on GAAS audits of governmental financial statements prepared in conformity with GAAP. It does not include reporting requirements relating to other matters, such as agreed-upon procedures.

.04 Additional guidance concerning governmental financial reporting is provided in the AICPA Practice Aid Applying OCBOA in State and Local Governmental Financial Statements (product no. 006614).

.05 These checklists sometimes uses the term financial position statements in a generic manner to refer to one or more of the following — the government-wide statement of net assets, the governmental funds balance sheet, the proprietary funds statement of fund net assets or balance sheet, and the fiduciary funds statement of fiduciary net assets. These checklists also sometimes uses the term activity statements in a generic manner to refer to one or more of the following — the government-wide statement of activities; the governmental funds statement of revenues, expenditures, and changes in fund balances; the proprietary funds statement of revenues, expenses, and changes in fund net assets or fund equity; and the fiduciary funds statement of changes in fiduciary net assets.

.06 These checklists contain references to authoritative accounting and auditing standards using the following abbreviations and acronyms:

GASB = Governmental Accounting Standards Board Statement
GASBI = Governmental Accounting Standards Board Interpretation
GASB Cod. Sec. = Codification of Governmental Accounting and Financial Reporting Standards by the Governmental Accounting Standards Board (as of June 30, 2004)
GTB = Technical Bulletin issued by the staff of the GASB
Q&A = GASB staff’s 2006–07 Comprehensive Implementation Guide
NCGA = National Council on Governmental Accounting Statement
NCGAI = National Council on Governmental Accounting Interpretation
SFAS = FASB Statement of Financial Accounting Standards
FIN = Financial Accounting Standards Board Interpretation
APB = Accounting Principles Board Opinion
ARB = Accounting Research Bulletin
AAG-SLA = AICPA Audit Guide Government Auditing Standards and Circular A-133 Audits (with conforming changes as of May 1, 2007)
AAG-SLV = AICPA Audit and Accounting Guide State and Local Governments (with conforming changes as of May 1, 2007)
ACC = Reference to a section number in AICPA Technical Practice Aids, Statements of Position — Accounting
AU = Reference to section number in AICPA Professional Standards (vol. 1)
A-133 = Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (June 2003 revision)
GAS = General Accounting Office 2003 revision to Government Auditing Standards, as amended through Amendment 3, Independence

.07 The checklists provide spaces for checking off or initialing each item to indicate that it has been considered. Users should check or initial —

• Yes—If the item is required and has been made appropriately.
• No—If the item is required but not made.
• N/A—If the item is not required.

.08 Users may find it helpful to include references to the location in the financial report where each item marked “Yes” can be found. It also may be helpful to include on the checklists or elsewhere the reasons that items marked “N/A” do not apply. It is important that any items in the financial statements and notes checklist marked “No” be considered in the auditor’s report on the financial statements. A “No” response to a required disclosure that is material may warrant the issuance of a qualified or adverse opinion on the financial statements of the affected opinion unit31 or an explanatory paragraph on RSI. For each item with a “No” response, users should consider noting why the disclosure was not made (for example, because the item was not considered material to the financial statements of the affected opinion unit) and the effect on the auditor’s report.

.09 The use of these or any other checklists requires the exercise of individual professional judgment and should be used by, or under the supervision of, persons having adequate technical training and proficiency in the application of GAAP, GAAS, and other applicable standards and requirements. These checklists are not substitutes for original authoritative standards and requirements. Users of these checklists are urged to refer directly to applicable standards and requirements when appropriate. The checklists are not all-inclusive and are not intended to present minimum requirements. Users of the checklists are encouraged to tailor them as required to meet specific circumstances of each particular engagement. Users who have further questions may call the AICPA Technical Hotline at 1-888-777-7077.

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