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Government Auditing Standards and Circular A-133 Audits - AICPA Audit Guide

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Description

This guide has been updated as of May 1, 2007 to reflect new relevant auditing standards and other guidance issued over the past year. Key clarifications have been added to the Guide to address practice issues that have arisen recently, including:

  • Overview of the new audit documentation requirements imposed by SAS 103
  • How internal control deficiencies have been re-defined by SAS 112

Table of Contents

  • Chapter 1: Introduction
    • Purpose and Applicability
    • Definitions
    • Adherence to Professional Standards and Requirements
  • Part 1: Government Auditing Standards Audits
  • Chapter 2: Planning Considerations of Government Auditing Standards
    • Applicability
    • Relationship of GAAS and Government Auditing Standards
      • Additional Responsibilities Under Government Auditing Standards
    • Government Auditing Standards Requirements for Audits of Financial Statements
      • General Standards
      • Fieldwork Standards
    • Additional Planning Considerations
      • Establishing an Understanding With the Auditee
      • Audit Materiality Considerations
      • Determining Compliance Requirements
      • Joint Audits
      • The Internal Audit Function
      • Communications With Other Entities
      • Exit Conference
  • Chapter 3: Financial Statement Audit Considerations of Government Auditing Standards
    • Introduction
    • Consideration of Internal Control Over Financial Reporting
      • GAAS Requirements
      • Additional Government Auditing Standards Requirements
    • Consideration of Financial Statement Misstatements, Including Compliance
      • GAAS Requirements
      • Additional Government Auditing Standards Requirements
    • Consideration of Abuse
    • Written Representations From Management
    • Reasonable Assurance
  • Chapter 4: Auditor Reporting Requirements and Other Communication Considerations of Government Auditing Standards
    • Overview
    • Reporting Requirements
      • GAAS Requirements
      • Government Auditing Standards Requirements
    • Internal Control Over Financial Reporting
      • GAAS Requirements
      • Government Auditing Standards Requirements
    • Fraud, Illegal Acts, Violations of Provisions of Contracts or Grant Agreements, and Abuse
      • GAAS Requirements
      • Government Auditing Standards Requirements
    • Report on the Financial Statements
    • Report on Internal Control Over Financial Reporting and Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards
    • Other Reporting and Communication Considerations
      • Findings Relating to the Financial Statements
      • Reporting Views of Responsible Officials and Planned Corrective Action
      • Management Letter
      • Portions of the Entity Not Audited in Accordance With Government Auditing Standards
      • Other Auditors
      • Other Communications With Audit Committees
    • Freedom of Information Act and Similar Laws and Regulations
    • Assurance to Regulators and Oversight Agencies
    • Appendix A - Illustrative Auditor's Reports Under Government Auditing Standards
  • Part II - Circular A-133 Audits
  • Chapter 5: Overview of the Single Audit Act, Circular A-133, and the Compliance Supplement
    • Introduction
    • Single Audit Act and Circular A-133 Requirements
      • Objectives of a Single Audit
      • General Audit Requirements
      • Reporting Matters
      • Auditor Selection and Audit Costs
      • Basis for Determining When Federal Awards Are Expended
      • Subrecipient and Vendor Determinations
      • Major Program Determination
      • Auditee Responsibilities
      • Federal Awarding Agency Responsibilities
      • Pass-Through Entity Responsibilities
      • Cognizant Agency for Audit
      • Oversight Agency for Audit
      • Program-Specific Audits
    • OMB Circular A-133 Compliance Supplement
  • Chapter 6: Planning Considerations of Circular A-133
    • Introduction
    • Satisfying Circular A-133 Requirements
    • Establishing an Understanding With the Auditee
    • Additional Requirements of the Single Audit Act and Circular A-133 Regarding Audit Documentation and Audit Follow-Up
      • Audit Documentation Access and Retention
      • Audit Follow-Up
    • Financial Statement Audit Considerations
    • Defining the Entity to Be Audited
    • Determining the Audit Period
      • Fiscal Year and Program Period May Differ
      • Stub Periods
    • Initial-Year Audit Considerations
      • Preceding Period Audited by Another Auditor
      • Factors to Consider Under the Risk-Based Approach
    • Timing of the Completion of the Audit and Report Submission Deadlines
    • Determining the Major Programs to Be Audited
    • Preliminary Assessment of Audit Risk
    • Audit Materiality Considerations
      • Materiality Differences Between the Financial Statement Audit and the Single Audit
      • Materiality for Purposes of Reporting Audit Findings
    • Determining Compliance Requirements
    • Developing an Efficient Audit Approach
    • Joint Audits and Reliance on Others
    • Existence of an Internal Audit Function
    • Communications With the Cognizant Agency for Audit and Others
    • Understanding the Applicable State and Local Compliance and Reporting Requirements
      • Impact on Circular A-133 Audit
      • Compliance Audits of State or Local Grants
      • Compliance Audits Not Involving Governmental Assistance
    • Desk Reviews and On-Site Reviews
    • Restriction on the Auditor's Preparation of Indirect Cost Proposals
  • Chapter 7: Schedule of Expenditures of Federal Awards
    • Overview of Schedule Requirements
    • Identification of Federal Awards
      • Federal Agency and Pass-Through Entity Requirements
      • Auditee Requirements
      • Auditor Assessment of Auditee Identification of Federal Programs
    • General Presentation Requirements
      • Basis of Accounting
      • Required Schedule Contents
      • Providing Additional Information
      • Schedule Not in Agreement With Other Federal Award Reporting
      • Inclusion of Non-Federal Awards
      • CFDA Number Not Available
    • Pass-Through Awards
      • Treatment of Pass-Through Awards
      • Commingled Assistance
    • Noncash Awards
      • Treatment of Noncash Awards
      • Determining the Value of the Noncash Awards Expended
      • Loan and Loan Guarantee Continuing Compliance Requirements
    • Appendix A - Illustrative Schedules of Expenditures of Federal Awards
  • Chapter 8: Compliance Auditing Applicable to Major Programs
    • Single Audit Compliance Objectives
    • Responsibilities of Auditee
    • Use of Professional Judgment
    • Audit Risk Considerations
      • Components of Audit Risk
    • Materiality Considerations
      • Materiality Judgments About Compliance Applied to Each Major Program Taken as a Whole
      • Effect of Material Noncompliance on the Financial Statements
    • Performing a Compliance Audit
      • Identifying Major Programs to Be Tested
      • Identifying Applicable Compliance Requirements
      • Planning the Engagement
      • Consideration of Internal Control Over Compliance for Major Programs
      • Performing Compliance Testing
      • Consideration of Abuse
      • Consideration of Subsequent Events
      • Evaluation and Reporting of Noncompliance
      • Performing Follow-Up Procedures
    • Management Representations Related to Federal Awards
      • Suggested Representations
      • Refusal to Furnish Written Representations
    • State and Local Government Compliance Auditing Considerations
  • Chapter 9: Determination of Major Programs
    • Introduction
    • Applying the Risk-Based Approach
      • Step 1 - Determination of Type A and Type B Programs
      • Step 2 - Identification of Low-Risk Type A Programs
      • Step 3 - Identification of High-Risk Type B Programs
      • Step 4 - Determination of Programs to Be Audited as Major
      • Deviation From Use of Risk Criteria
    • Other Considerations Regarding the Risk-Based Approach
      • Federal Agency and Pass-Through Entity Requests for Additional Major Programs
      • Documentation of Risk Assessment
      • Auditor Judgment in the Risk Assessment Process
      • Percentage-of-Coverage Rule
      • Low-Risk Auditee Criteria
    • Criteria for Federal Program Risk
      • Current and Prior Audit Experience
      • Oversight Exercised by Federal Agencies and Pass-Through Entities
      • Inherent Risk of the Federal Programs
  • Chapter 10: Consideration of Internal Control Over Compliance for Major Programs
    • Summary of Circular A-133 Requirements Related to Internal Control Over Compliance for Federal Programs
      • Auditee Responsibilities
      • Auditor Responsibilities
    • Circular A-133 Definition of Internal Control Over Federal Programs
    • Control Objectives
    • Auditor's Consideration of Internal Control Over Compliance for Each Major Program
    • Obtaining an Understanding of Internal Control Over Compliance for Major Programs
      • Understanding Compliance Assertions and Identifying Relevant Controls
      • Compliance Supplement Internal Control Guidance
      • Multiple-Component Considerations
      • Subrecipient Considerations
    • Planning and Performing Testing of Internal Control Over Compliance for Major Programs
      • Assessing Control Risk
      • Planning the Testing of Internal Control Over Compliance for Major Programs to Support a Low Assessed Level of Control Risk
      • Existence of Ineffective Internal Control in Preventing or Detecting Noncompliance
      • Performing Tests to Evaluate the Effectiveness of Controls
      • Evaluating the Results of Tests of Controls
      • Reportable Conditions and Material Weaknesses Related to Federal Programs
    • Documentation Requirements
    • Consideration of Abuse
  • Chapter 11: Audit Considerations of Federal Pass-Through Awards
    • Introduction
    • Definitions
    • Applicability of Circular A-133
    • Pass-Through Entities, Subrecipients, and Vendors
      • Subrecipient Status Versus Vendor Status
      • Description of Relationships
      • Vendor Compliance Considerations
    • Single Audit Considerations of Pass-Through Entities
      • Pass-Through Entity Responsibilities
      • Audit Planning Considerations
      • Consideration of Internal Control Over Compliance
        • Subrecipient Monitoring
        • Reporting Considerations
        • For-Profit Subrecipients
        • Non-U.S.-Based Entities
        • State Designation of a Cluster of Programs
      • Circular A-133 Audit Considerations of Subrecipients
        • Additional Compliance Requirements Established by Pass-Through Entities
        • Information Included in the Schedule of Expenditures of Federal Awards
        • Audit Findings
        • Submission of Report
  • Chapter 12: Auditor Reporting Requirements and Other Communication Considerations in a Single Audit
    • Overview
      • Circular A-133 Requirements
      • Reporting Package
      • Recommended Auditor's Reports
    • Reporting on the Financial Statements and Supplementary Schedule of Expenditures of Federal Awards in Accordance With GAAS and Government Auditing Standards
      • Basis of Accounting
      • Implementing Regulations of Federal Awarding Agencies May Define the Entity to Be Audited Differently Than Does GAAP
      • Report on the Financial Statements and on the Supplementary Schedule of Expenditures of Federal Awards
      • Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards
    • Reporting on a Compliance Audit of Major Federal Programs
      • Material Instances of Noncompliance
      • Report on Compliance With Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance With Circular A-133
    • Communicating Other Findings to Management
    • Other Reporting Considerations
      • Dating of Reports
      • Other Auditors
      • When the Audit of Federal Awards Does Not Encompass the Entirety of the Auditee's Operations
    • Schedule of Findings and Questioned Costs
      • What Should Be Reported
      • Findings Related to the Financial Statements
      • Findings Related to Federal Awards
      • Findings of Abuse
      • Detail of Audit Findings - Federal Awards
      • Other Preparation Guidance
    • Summary Schedule of Prior Audit Findings and Corrective Action Plan
    • Data Collection Form
    • Submission of Reporting Package and Data Collection Form
      • Submission to Clearinghouse
      • Submission by Subrecipients
      • Requests for Copies
      • Report Retention Requirements
      • Clearinghouse Address
    • Freedom of Information Act and Similar Laws and Regulations
    • Appendix A - Illustrative Auditor's Reports Under Circular A-133
  • Chapter 13: Program-Specific Audits
    • Use of a Program-Specific Audit to Satisfy Circular A-133 Audit Requirements
    • Program-Specific Audit Requirements
    • Availability of Program-Specific Audit Guides
    • Auditee's Responsibilities When a Program-Specific Audit Guide Is Not Available
    • Auditor's Responsibilities When a Program-Specific Audit Guide Is Not Available
      • Audit Scope and Requirements
      • Auditor's Reports
    • Evaluating and Reporting Abuse
    • Submission of Report
      • Timing of Submission
      • Submission When a Program-Specific Audit Guide Is Available
      • Submission When a Program-Specific Audit Guide Is Not Available
    • Appendix A - Illustrative Auditor's Reports for Program-Specific Audits
  • Appendix
    • Appendix A: Single Audit Act Amendments of 1996
    • Appendix B: OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations
    • Appendix C: Schedule of Changes Made to Government Auditing Standards and Circular A-133 Audits
    • Appendix D: Statement on Auditing Standards Cross-Referenced to Professional Standards AU Sections Transition Schedule
    • Appendix E: Schedule of Changes Made to Government Auditing Standards and Circular A-133 Audits

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Excerpts

Note: In July 2007, the Government Accountability Office (GAO) issued the Government Auditing Standards, July 2007 Revision. This revision supersedes the 2003 version of these standards. The 2007 revision is effective for financial audits and attestation engagements for periods beginning on or after January 1, 2008. This guide does not include revisions necessary to comply with the Government Auditing Standards, July 2007 Revision as they are not yet effective. However, because certain AICPA Statements on Auditing Standards (SASs) that affect the Government Auditing Standards, July 2007 Revision have earlier implementation dates, the effective dates of these new AICPA standards apply to financial statement audits performed under Government Auditing Standards. (See the Notice to Readers section of this guide.)

Purpose and Applicability

1.01 This Audit Guide (guide) has a two-fold purpose.

  1. The first purpose is to provide auditors with a basic understanding of the procedures they should perform and of the reports they should issue for audits of financial statements conducted in accordance with Government Auditing Standards (also referred to as the Yellow Book), issued by the Comptroller General of the United States of the U.S. Government Accountability Office. Government Auditing Standards, which is periodically amended and codified, incorporates the fieldwork and reporting standards of generally accepted auditing standards (GAAS) and the related SASs issued by the AICPA unless the Comptroller General of the United States excludes them by formal announcement.
  2. The second purpose is to provide auditors of states, local governments, and not-for-profit organizations (NPOs) that receive federal awards with a basic understanding of the procedures they should perform and of the reports they should issue for single audits and program-specific audits conducted in accordance with the Single Audit Act Amendments of 1996 (the Single Audit Act),6 Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (Circular A-133), and the related OMB Circular A-133 Compliance Supplement (Compliance Supplement), which incorporate the procedures and reports required by Government Auditing Standards.

1.02 As discussed in Chapter 2, "Planning Considerations of Government Auditing Standards," of this guide, Government Auditing Standards applies to the audits of governmental entities, programs, activities, and functions, and of governmental assistance administered by contractors, NPOs, and other nongovernmental entities, when required by statute or other mandates or when auditors hold themselves out as following those standards. Entities for which an auditor may need to apply Government Auditing Standards when auditing financial statements include federal, state, and local governments, NPOs, health care organizations, and organizations with mortgage banking, real estate, or student lending and servicing activities. The Single Audit Act and Circular A-133 require the use of Government Auditing Standards. As discussed in Chapter 5, "Overview of the Single Audit Act, Circular A-133, and the Compliance Supplement," of this guide, the Single Audit Act and Circular A-133 apply to nonfederal entities that expend $500,000 or more of federal awards in a fiscal year.

1.03 Paragraph .05 of AU section 150, Generally Accepted Auditing Standards (AICPA, Professional Standards, vol. 1), states that the auditing guidance included in this guide is an interpretive publication. That is, that guidance provides recommendations on the applications of SASs to audits performed in accordance with Government Auditing Standards and to single and programspecific audits under Circular A-133. The OMB, GAO, and AICPA promulgate applicable standards and requirements; users of this guide should refer to those organizations' original standards and requirements.

1.04 This guide is organized into two parts that discuss important considerations for audits under Government Auditing Standards and for single and program-specific audits under Circular A-133. Each part presents chapters with topics relating to planning, performing, evaluating the results of, and reporting on those audits. See the table of contents for the specific topics addressed in each part and chapter.

1.05 This guide is not a complete manual of procedures, nor should it supplant the auditor's judgment about the auditing procedures required in particular situations. Because of the variety and complexity of the laws and regulations that govern audits performed under Government Auditing Standards and Circular A-133, the procedures included in this guide cannot cover all the circumstances or conditions that would be encountered in the audits of every entity. The auditor should use professional judgment to tailor procedures to meet the conditions of the particular engagement, so that the audit objectives may be achieved.

1.06 Certain states have imposed additional audit requirements related to state or local financial assistance. Further, pass-through entities may impose additional audit requirements on their subrecipients related to the financial assistance passed through. The guidance in this guide generally does not discuss or extend to those requirements.

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