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State and Local Governments--Audit and Accounting Guide

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Description

This Audit and Accounting Guide provides the latest information on accounting and auditing issues affecting State and Local Governments. Updated with conforming changes as of March 1, 2008, it includes guidance in planning and performing audits under the risk assessment standards (SAS Nos. 104-111). This edition of the guide has also been conformed to reflect the Defining Professional Requirements standard (SAS No. 102). Furthermore, it provides additional guidance on the auditor’s responsibilities as set forth in SAS Nos. 112-114, including identifying and reporting internal control deficiencies, understanding the link between the auditor’s consideration of fraud and the auditor’s assessment of risk, dating of the management representation letter, and the auditor’s communications with those charged with governance.

The guide summarizes applicable requirements and practices, and delivers "how-to" advice for handling audit and accounting issues common to State and Local Governments. It describes accounting requirements for revenues and receivables, capital assets, and special purpose governments, and includes discussion of other relevant financial statement considerations. The appendices include an entire re-print of SOP 98-2, Accounting for Costs of Activities of Not-For-Profit Organizations and State and Local Governmental Entities That Include Fund Raising.

The guide covers the following new accounting pronouncements:

  • GASB Statement No. 52, Land and Other Real Estate Held as Investments by Endowments
  • GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets
  • GASB Statement No. 50, Pension Disclosures—an amendment of GASB Statements No. 25 and No. 27
For a topical listing of subject matter by chapter, click on the Table of Contents tab.

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Table of Contents

  • Chapter 1 - Overview and Introduction
    • Scope and Purpose
    • GAAP for State and Local Governments
    • Applicable Auditing Standards and Requirements
    • Guidance in Other AICPA Audit Guides and Statements of Position
    • Other Sources of Guidance
    • Organization of This Guide
  • Chapter 2 - Financial Reporting
    • Introduction and Overview
      • Historical Perspective
    • Governmental Financial Statements
      • Management's Discussion and Analysis
      • Government-Wide Financial Statements
      • Fund Financial Statements
      • Notes to the Financial Statements
      • Required Supplementary Information Other Than MD&A
      • Special-Purpose Governments
    • Other Financial Reporting Issues
      • Supplementary Information
      • Prior-Period Comparative Financial Information
    • Auditing Considerations
      • Compliance Requirements
      • Fund and Activity Classifications
      • Major Funds
      • Restricted Assets
      • Notes to the Financial Statements
      • Required Supplementary Information and Supplementary Information
      • Other Financial Reporting Considerations
      • Accounting and Financial Reporting Alternatives
    • Appendix A--Accounting and Financial Reporting Alternatives in GASB Statement No. 34, as Amended
  • Chapter 3 - The Financial Reporting Entity
    • Introduction
    • GASB's Financial Reporting Entity Standards
      • Definition of the Financial Reporting Entity
      • Financial Statement Presentation
      • Disclosures
      • Other Financial Reporting Requirements
    • Auditing Considerations
      • Presentation of Less Than a Complete Financial Reporting Entity
      • Departures of Component Unit Information From GAAP
      • Nongovernmental Component Unit Use of Private-Sector Standards
      • Separate Component Unit Auditor
      • Changes in the Financial Reporting Entity
      • Other Component Unit Auditing Considerations
  • Chapter 4 - General Auditing Considerations
    • Introduction
    • Planning and Other Auditing Considerations
      • Audit Planning
      • Audit Approach and Program
      • Communicating With the Auditee
      • Engagement Reporting Objectives
      • Principal Auditor Status and Independence
      • The Internal Audit Function
      • Audit Risk
      • Materiality
      • Related Parties and Transactions
    • Use of Assertions in Obtaining Audit Evidence
    • Understanding the Entity, Its Environment, and Its Internal Control
      • Risk Assessment Procedures
      • Discussion Among the Audit Team
      • Understanding the Entity and Its Environment
      • Understanding of Internal Control
    • Assessment of Risks of Material Misstatement and the Design of Further Audit Procedures
      • Assessing the Risks of Material Misstatement
      • Designing and Performing Further Audit Procedures
    • Financial Statement Misstatements
    • Financial Statement Compliance Requirements
    • Required Supplementary Information and Supplementary Information
      • Audit Scope Includes Required Supplementary Information or Supplementary Information
      • Required Supplementary Information
      • Supplementary Information
      • Effect of SAS No. 29, as Amended, on Procedures Relating to Required Supplementary Information and Supplementary Information
    • Other Matters
    • Appendix A-- Consideration of Fraud in a Financial Statement Audit
  • Chapter 5 - Cash, Investments, and Investment-Related Activity
    • Nature of Transactions
      • Deposit and Investment Risk
      • Compliance Requirements and Deposit and Investment Policies
      • Internal Investment Pools
      • Reverse Repurchase Agreements and Securities Lending Transactions
      • Investment Arrangements, Including External Investment Pools
      • Records and Supporting Documentation
      • Additional Information About Investments and Investment Risks
    • Accounting and Financial Reporting Considerations
      • Accounting
      • Financial Statement Presentation
      • Disclosures
      • Governmental External Investment Pools
      • Defined Benefit Pension Plans and OPEB Plans Subject to GASB Statement No. 43
      • Reverse Repurchase Agreements
      • Securities Lending Transactions
    • Auditing Considerations
  • Chapter 6 - Revenues and Receivables
    • Introduction
    • Nature of Transactions
    • Accounting and Financial Reporting Considerations
      • Accounting
      • Activity Statement Classifications
      • Financial Position Statement Classifications
      • Disclosures
    • Auditing Considerations
      • Confirmations
      • Estimates
      • Confidential Records
      • Other Auditing Procedures
  • Chapter 7 - Capital Assets
    • Nature of Transactions
      • Capital Asset Management
      • Compliance Considerations
    • Accounting and Financial Reporting Considerations
      • Accounting and Financial Statement Presentation-- Government-Wide Financial Statements
      • Accounting and Financial Statement Presentation-- Governmental Funds
      • Accounting and Financial Statement Presentation-- Proprietary Funds
      • Accounting and Financial Statement Presentation-- Fiduciary Funds
      • Capital Leases
      • Capital Asset Impairment
      • Modified Approach for Infrastructure Assets
      • Interfund Movements and Intra-Entity Transfers of Capital Assets
      • Capital Assets Used in Landfills
      • Disclosures
      • Management's Discussion and Analysis
    • Auditing Considerations
      • Capital Asset Records
      • Ownership of Infrastructure Assets
      • Useful Lives of Infrastructure Assets
      • Modified Approach for Infrastructure Assets
  • Chapter 8 - Expenses or Expenditures and Liabilities
    • Introduction
    • Nature of Transactions
    • Accounting and Financial Reporting Considerations
      • General Recognition Standards
      • Specific Recognition and Financial Reporting Standards
      • GASB Statement No. 45
      • Activity Statement Classifications
      • Financial Position Statement Classifications
      • Disclosures
      • Management's Discussion and Analysis
    • Auditing Considerations
  • Chapter 9 - Interfund, Internal, and Intra-Entity Activity and Balances
    • Introduction
    • Nature of Transactions
      • Nature of Interfund Activity and Balances
      • Nature of Internal Activity and Balances
      • Nature of Intra-Entity Activity and Balances
    • Accounting and Financial Reporting Considerations
      • Reporting Interfund Activity and Balances
      • Reporting Internal Balances and Activity
      • Reporting Intra-Entity Activity and Balances
      • Differing Year Ends
    • Auditing Considerations
  • Chapter 10 - Equity and Financial Statement Reconciliations
    • Nature of Transactions
    • Financial Reporting Considerations
      • Government-Wide Net Assets
      • Proprietary Fund Net Assets (or Fund Equity)
      • Governmental Fund Balances
      • Reconciliations--Equity and Changes in Equity
      • Fiduciary Fund Net Assets
      • Disclosures
    • Auditing Considerations
  • Chapter 11 - The Budget
    • Introduction
    • Budgetary Processes
      • Types of Budgets
      • Legal Level of Budgetary Control
      • Encumbrances
      • Budgetary Basis
    • Financial Reporting Considerations
      • Budgetary Comparison Schedules or Statements
      • Disclosures
    • Auditing Considerations
      • Internal Control Considerations
      • Presentation of Budgetary Comparison Information
      • Audit Support for Financial Statement Assertions
      • Budgetary Compliance Considerations
  • Chapter 12 - Special Purpose and State Governments
    • Introduction
    • Financial Reporting Requirements for Special-Purpose Governments
    • Compliance Requirements
    • Specific Guidance for Special-Purpose Governments
      • Hospitals and Other Health Care Providers
      • School Districts
      • Airports
      • Public Housing Authorities
      • Financing Authorities
      • Transportation Systems
      • Utilities
      • Postemployment Benefit Plans
      • Public Entity Risk Pools
      • External Investment Pools
      • Colleges and Universities
    • Specific Guidance for Recognized Indian Tribes
    • Specific Guidance for State Governments
      • Nature and Organization of State Governments
      • Specialized Reporting Requirements
      • Reporting Entity Definition
      • Separate Fund, Departmental, Agency, and Program
      • Audits
      • Medicaid
      • Food Stamps
      • Unemployment Compensation Benefit Plans
      • Lotteries
      • Escheat Property
      • State Tuition Programs
      • Multi-State Legal Settlements, Including Tobacco
      • Settlement Resources
  • Chapter 13 - Concluding the Audit
    • Introduction
    • Misstatements and Audit Adjustments
    • Lawyer Letters
    • Management Representations
    • Related-Party Disclosures
    • Going Concern Considerations
    • Subsequent Events
    • Analytical Procedures
    • Communicating With Those Charged With Governance
    • Audit Documentation
  • Chapter 14 - Audit Reporting
    • Introduction
    • Materiality
    • Specific Issues in Reporting on the Audits of Governmental Financial Statements
      • Basic Financial Statements
      • Special Situations
    • Required Supplementary Information and Supplementary Information
      • Audit Scope Includes Required Supplementary
      • Information or Supplementary Information
      • Required Supplementary Information
      • Supplementary Information
      • Reporting on Required Supplementary Information
      • and Supplementary Information Using SAS No. 29, as Amended
    • Other Financial Presentations
      • Individual Fund Financial Statements
      • Departmental, Agency, and Program Financial
      • Statements
      • Special-Purpose Regulatory Presentations
      • Summary Financial Information
    • Appendix A-- Illustrative Auditor's Reports
  • Chapter 15 - Comprehensive Bases of Accounting Other Than Generally
    • Accepted Accounting Principles
    • Accounting and Financial Reporting Considerations
    • Auditing Considerations
      • Auditor's Reports
    • Appendix A--Illustrative Auditor's Reports
  • 16 Auditor Association With Municipal Securities Filings
    • Introduction
    • Auditor Association
      • Conditions Affecting Auditor Association
    • Using Government Auditing Standards Reports and References in the Official Statement
    • Letters for Underwriters
    • Auditing Interpretations Regarding Governmental Official Statements
    • Attestation Engagements Related to Municipal Securities Issuances
  • Appendix
    • Appendix A Acronyms and Abbreviations
    • Appendix B Category B Guidance
    • Appendix C Statement of Position 98-2, Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund Raising
    • Appendix D - Statement of Position 98-3, Audits of States, Local Governments, and Not-for-Profit Organizations Receiving Federal Awards
    • Appendix E - Comparison of Key Provisions of the Risk Assessment Standards to Previous Standards
    • Appendix F - Schedule of Changes Made to the Text From the Previous Edition

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Excerpts

Auditing Guidance Included in This Guide

Risk Assessment Standards

In March 2006, the ASB issued SASs Nos. 104-111 (the "risk assessment standards"). Collectively, the risk assessment standards establish standards and provide guidance concerning the auditor's assessment of the risks of material misstatement (whether caused by fraud or error) in a nonissuer financial statement audit; design and performance of tailored audit procedures to address assessed risks; audit risk and materiality; planning and supervision; and audit evidence. The most significant changes to existing practice that the auditor will be required to perform are as follows:

  • Obtain a more in-depth understanding of the audited entity and its environment, including its internal control
  • Perform a more rigorous assessment of the risks of where and how the financial statements could be materially misstated (defaulting to a maximum control risk is not acceptable)
  • Provide a linkage between the auditor's assessed risks and the nature, timing, and extent of audit procedures performed in response to those risks

The statements are effective for audits of financial statements for periods beginning on or after December 15, 2006. Early adoption is permitted. See appendix E in this guide for a more detailed comparison between the risk assessment standards and the existing standards.

This guide has been conformed to the new risk assessment standards. For additional guidance on the risk assessment standards, please refer to the AICPA Audit Guide Assessing and Responding to Risk in a Financial Statement Audit (product no. 012456) and the AICPA Audit Risk Alert Understanding the New Auditing Standards Related to Risk Assessment (product no. 022526).

Defining Professional Requirements

As previously stated, this guide has been conformed, as applicable, to the standards found in AU section 120, AT section 20, and AR section 20, which were effective upon issuance (December 2005, except for AR section 20, which was issued in December 2007). These new standards define the terminology that the ASB and ARSC will use going forward to describe the degree of responsibility that the requirements impose on the auditor, practitioner, or accountant in engagements performed for nonissuers. Refer to the Schedule of Changes in appendix F for additional information.

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Paperback 2008
Product# 012668
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