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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:
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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:
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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