A6 (4) - GOVERNMENT AUDITING Flashcards
SOURCES OF GOVERNMENT AUDITING STANDARDS
A GAAS: Generally Accepted Auditing Standards
B.GAGAS: Government Auditing Standards (Yellow Book)
C. Audit Requirements for Federal Financial Assistance
SOURCES OF GOVERNMENT AUDITING STANDARDS- GAGAS contain standards for audits
1- Government bodies ,programs ,activities, & functions
2- Government assistance received by contractors
3- Not-for-profit organizations
4- Other non-governmental organizations
SOURCES OF GOVERNMENT AUDITING STANDARDS- Audit Requirements for Federal Financial Assistance
1- Expanded internal control documentation and testing requirements
2- Expanded reporting to include formal written reports on the consideration of internal control and the assessment of control risk.
3- Expanded reporting to include whether the federal financial assistance has been administered in accordance with applicable laws and regulations
4- Application of single audit standards to federal financial assistance
PURPOSES AND TYPES OF GOVERNMENT AUDITS
A. Financial Audits
B. Attestation Engagements
C. Performance Audits
EFFECTS OF LAWS ON FINANCIAL STATEMENTS - Management Responsibilities Identified by GAGAS
1- Identify applicable laws with compliance requirements
2- Establishment of internal controls to provide reasonable assurance that the entity complies with those laws and regulations.
3-Preparation of supplementary financial reports, including a Schedule of Expenditures of Federal Awards.
4- Obtaining an audit that satisfies relevant legal, regulatory, or contractual requirements.
EFFECTS OF LAWS ON FINANCIAL STATEMENTS - Auditor Responsibilities Identified by GAGAS
Obtain Reasonable assurance that the financial statements are free of material misstatements resulting from violations of laws and regulations that have a direct
and material effect on the determination of financial statement amounts
Auditor is not Responsible
Provide reasonable assurance of detecting
abuse since it is subjective
GAAS REQUIREMENTS FOR COMPLIANCE AUDITS - Objectives of Compliance Audits
1- Obtain sufficient evidence to form an opinion on whether the entity complied, in all material respects, with the compliance requirements applicable to its programs
2- Report at the level specified in the governmental audit requirement
3- Identify audit & reporting requirements supplementary to GAAS and GAGAS and address those requirements
GAAS REQUIREMENTS FOR COMPLIANCE AUDITS - management assumptions
1- Identify government programs
2- understand & comply with compliance requirements
3- Maintain effective controls
4-Conduct evaluation&monitoring compliance requires
5- Take appropriate corrective action on audit findings.
GAAS REQUIREMENTS FOR COMPLIANCE AUDITS - Overall Standards for Compliance Audits
1- Perform a risk assessment
- Design responses to the risk assessment.
- Determine if supplementary audit requirements exist.
- Obtain written representations from management.
- Prepare reports.
- Prepare required documentation
GAAS REQUIREMENTS FOR COMPLIANCE AUDITS - Audit Risk of Noncompliance Model
1- AR (should be low) = Risk of material noncompliance(Assess by auditor) X Detection Risk (control by auditor)
2- Same as Audit risk model
GAAS REQUIREMENTS FOR COMPLIANCE AUDITS - Design Responses to Risk Assessment
1- Auditor should consider in design audit procedures if risks of material noncompliance due to fraud or error.
2- The auditor should perform further audit procedures
3-Tests of controls required if risk assessment includes effective controls or Substantive procedures do not provide enough evidence and governmental requirements
GAAS REQUIREMENTS FOR COMPLIANCE AUDITS - Determine if Supplementary Audit Requirements Exist
A common example of supplementary audit requirements is the Single Audit requirements related to federal financial assistance described below.
GAAS REQUIREMENTS FOR COMPLIANCE AUDITS - Management Representation Letter
1- Management takes responsibility for understanding
2- Management takes responsibility for maintain. controls
3-Management asserts it has disclosed all programs
4-Management has made all contracts and agreements available
5-Management has disclosed any known noncompliance
6-Management believes entity complied with requirem
7- Identifies management’s interpretation of any applicable compliance
8- Management disclosed communications from grantors
9-Any events occurring between the balance sheet date and the last date of the report have been disclosed
10 -Management responsible correcting noncompliance
GAAS REQUIREMENTS FOR COMPLIANCE AUDITS - Prepare Reports
1- Opinion on compliance
2-Report on internal control over compliance
3-Combined report on compliance &internal control over compliance
GAAS REQUIREMENTS FOR COMPLIANCE AUDITS - Prepare Reports
Ref to W/P A6-1
Documentation
1- The assessed risk of material noncompliance
2- Responses to the risk assessment
3- The basis or rationale for materiality levels
4- Compliance with supplemental requirements
GOVERNMENT AUDITING STANDARDS (GAGAS) - Quality Control Considerations
CPA firms conducting audits in accordance with government auditing standards should have an external quality control review at least once every three years by an organization not affiliated with them
GOVERNMENT AUDITING STANDARDS (GAGAS) Independence categories
- Personal Impairments to Independence - relationships
2- External Impairments to Independence
3- Organizational Impairments to Independence such as government inspectors
GOVERNMENT AUDITING STANDARDS (GAGAS) - Fieldwork & Audit Documentation
1- Document an understanding of internal control
2-Document basis for assessing control risk at maximum
3-Document the planned audit procedures
4- Written Representations from Management
GOVERNMENT AUDITING STANDARDS (GAGAS)- Reporting main characteristics
1- Include Statement of Compliance with GAGAS
2- Describe the Scope of Testing
3- Describe Omitted Information
4- Describe the Distribution of the Report
5- Opinion on Financial Statements and Supplementary Schedule of Expenditures of Federal Awards
GOVERNMENT AUDITING STANDARDS (GAGAS) - Reporting Fraud and Illegal Acts
1- Like GAAS
2- Reporting Illegal Acts is Required to
a) Top official of entity
b). regulatory bodies
c). Officials of the entity audit organization
d) federal inspector if management fail to disclose or take a proper action
GOVERNMENT AUDITING STANDARDS (GAGAS) - Reporting Internal control
1- Like GAAS
However :-
2- GAGAS requires a written report on the auditors understanding of internal control and the assessment of control risk in all audits.
and
3- GAAS requires written communication only when significant deficiencies are noted.
SINGLE AUDITS: OMS CIRCULAR A-133
Entities that expend total federal assistance equal to or in excess of $500,000 in a fiscal year to have an audit performed in accordance with the Act.
SINGLE AUDITS - Objectives
1- Audit of the entity’s financial statements and reporting on a separate schedule of expenditures of federal awards in relation to those financial statements
2- Compliance audit of federal awards expended during the year as a basis for issuing additional reports on compliance related to major programs and on internal control over compliance
SINGLE AUDITS - Materiality
1- GAAS Like GAGAS materiality considered in relation to the financial statements being audited taken as whole
However
2-Materiality of transaction or other compliance finding considered separately relation to each major program
3-Threshold for classification of a program as a major program is expenditures in of excess of $300,000.
SINGLE AUDITS - Specific Audits not Single
1- The auditor must contact the Inspector General of the applicable federal agency and obtain a current program-specific audit guide.
2- Follow GAGAS and specific audit guide
3-If a program-specific audit guide is not available, the auditor has basically the same responsibilities as in an audit of a major program for a singie audit
SINGLE AUDITS - Internal Control
1- For Major Programs :- Auditor must perform procedures to obtain an understanding of internal control pertaining to the compliance requirements for federal programs sufficient to plan an audit and to support a low assessed level of control risk
However
2- For Non- Major Programs - No responsibility
SINGLE AUDITS - Reporting Noncompliance
1 - For Material Instances auditor should modify the report
2- For Immaterial - should be reported but not identified
SINGLE AUDITS - Reporting of compliance
1- Introductory Paragraph
2- Scope Paragraph
3- Opinion Paragraph
SINGLE AUDITS - Reporting internal control over compliance paragraph.
1- Introductory Paragraph
2- Opinion Paragraph
3- Ending Paragraph
All Audit - reporting requirements
please see W/P A6/2
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
1- Summary of Auditor’s Results
2- Financial Statement Findings
3- Federal Award Findings and Questioned Costs
