preparing for your audit
TRANSCRIPT
Why do we have to have it
Provides confidence for stakeholders in a government
Provides assurance of a true and fair view of government’s financial performance and position
Provided by independent CPA firm with necessary knowledge and experience of government accounting and auditing
What Is It?
Financial Statement Audit (GAAS)
Audit of Internal Control over Financial Reporting and on Compliance and Other Matters (Yellow Book)
Audit on Compliance for Each Major Program and on Internal Control over Compliance (Single Audit)
What Is It?
Auditing Standards:
◦ Auditing Standards Generally Accepted in the United States of America (AICPA)
◦ Standards Applicable to Financial Audits contained in Government Auditing Standards (Comptroller General of U.S.)
◦ Single Audit Act and OMB Circular A-133
Requirements and guidance on how to conduct an audit, including CPE for governmental audits.
Financial Statement Audit
Opinion◦ Unmodified (“clean”)◦ Modified
Scope limitation Presentation
Reasonable Assurance
Financial statements free from material misstatement
Financial Statement Audit
Procedures performed depend on auditor’s judgment
Assess risk of material misstatement due to:◦ Fraud◦ Error
Evaluate accounting policies and presentation
Financial Statement Audit
Plan audit to obtain low control risk
Consider and test internal control design, implementation and effectiveness, but do not opine
Report if any material weaknesses or significant deficiencies are identified
Report on any instances of noncompliance or other matters
Audit of Internal Control
Opinion on compliance for each major program
Reasonable assurance
Direct and material effect on major federal program
Audit of Compliance
Report if any material weaknesses or significant deficiencies over compliance are identified
Follow up on prior audit findings
Audit of Compliance
Threshold
◦ Current threshold: $500,000 of expenditures of Federal awards
◦ Under “Supercircular”: Effective for fiscal years beginning 12/26/14 (one
year after issuance of Supercircular) $750,000 of expenditures of Federal awards
Single Audit
Determine Major Federal Award Programs
◦ Determine Type A vs. Type B
◦ Complete risk assessment
Low risk Type A
High risk Type B
◦ Percentage of coverage
Single Audit
Knowledge of government and its environment
Identify and assess risks
Professional judgment
Develop audit strategy and plan to address risks of material misstatement and noncompliance
Risk-Based Approach
Not a guarantee of an outcome
◦ Professional judgment
Not absolute assurance
◦ Reasonable assurance
◦ Accounting estimates
◦ Sampling
What Isn’t It?
Not a fraud examination
◦ Management and board’s responsibility to prevent and detect fraud
◦ AU-C Section 240 (SAS 122)
◦ Auditor responsible to obtain reasonable assurance financial statements are free from material misstatement, whether caused by fraud or error.
What Isn’t It?
Not a fraud examination
◦ Maintain professional skepticism
◦ Consider potential for management override of controls
◦ Communicate to Management and Board
What Isn’t It?
Engagement letter
◦ Read it
◦ Overall description of services
◦ Responsibilities of management and audit firm
How Can I Make this as Painless as Possible?
Engagement letter
◦ Communicate the agreed-upon timeline for audit to your staff as soon as possible to avoid scheduling conflicts
◦ Presumption in most engagement letters that the auditors will have access to all staff and all relevant financial documentation
How Can I Make this as Painless as Possible?
Engagement letter
◦ Maintain clean, orderly records that can be obtained in a timely manner
◦ Lack of access to documentation may result in a scope limitation and modified audit report
How Can I Make this as Painless as Possible?
Planning phase
Fieldwork
Financial Statements
Engagement wrap-up
Reporting to those with governance
How Can I Make this as Painless as Possible?
Planning phase:◦ Trial balance - ASAP◦ Analytical procedures◦ Materiality◦ Confirmations◦ Evaluating your industry
Economy Competitors Vendors Customers
How Can I Make this as Painless as Possible?
Single Audit
◦ SEFA
Prepared by management
Includes all forms of Federal assistance (grants, loans, insurance, cash and non-cash, etc.)
Review for completeness
Used by auditor for risk assessment
How Can I Make this as Painless as Possible?
Planning phase
◦ Major programs
◦ Materiality
◦ www.omb.gov
◦ Planning test
How Can I Make this as Painless as Possible?
Planning phase
◦ Independence – we must maintain
◦ Who prepares the financial statements?
If the auditor prepares, is this a matter of convenience or necessity?
We can help with a goal in mind
How Can I Make this as Painless as Possible?
Fieldwork
◦ Walkthrough
◦ Documentation
◦ Communicate
◦ Repeat periodically
How Can I Make this as Painless as Possible?
Preparing for fieldwork
◦ # of auditors used
◦ What do they want when they get here
How Can I Make this as Painless as Possible?
Balance Sheet◦ Cash/Investments◦ Accounts Receivable◦ Inventory◦ Fixed Assets◦ Deferred Inflows◦ Other Assets
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Balance Sheet◦ Accounts Payable◦ Accrued expenses◦ Payroll liabilities◦ Deferred Outflows◦ Long-term liabilities◦ Notes payable
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Equity Fund Balance
◦ Non-spendable◦ Restricted◦ Committed◦ Assigned◦ Unassigned
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Balance Sheet◦ The point is to support the numbers that you are
reporting. Third party confirmations Supporting/convincing documentation
Be prepared to prove your numbers
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Statement of Revenues, Expenditures, and Changes in Fund Balances
◦ Revenues Contracts, federal awards, grants, bonds and taxes
◦ Expenditures Contracts, federal awards, grants, bonds and general
operations
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After the fund financial statements are supported we will look at your reconciliation that converted your statements to the government-wide financial statements.
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Fieldwork is the meat and potatoes that support:◦ MD&A◦ Notes to the financial statements◦ SEFA◦ Supplemental schedules◦ CAFR – to some extent
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Internal Controls over Financial Reporting and Compliance
◦ Internal controls are a means to an end, not an end in itself
◦ Detect and Correct Issues Fraud Error
◦ Communicate Corrective Actions to Auditor
How Can I Make this as Painless as Possible?
Internal Controls over Financial Reporting and Compliance
◦GFOA puts it this way:
◦ “Prudence in the management of public funds requires that there be adequate control procedures in place to protect those funds.”
◦ “A sound framework of internal control is necessary to afford a reasonable basis for finance officers to assert that the information they provide can be relied upon.”
How Can I Make this as Painless as Possible?
Single Audit
◦ Auditors do not look at all compliance requirements
◦ “Direct and material”
◦ Auditees must comply with all compliance requirements
How Can I Make this as Painless as Possible?
Single Audit
◦ Grant manager:
Summarize and communicate information
Maintain clean and orderly documentation
Document policies and procedures
How Can I Make this as Painless as Possible?
Single Audit
◦ Grant manager:
Identify all sub-recipients and pass-throughs for Notes to SEFA
Document monitoring process for sub-recipients
Document and communicate to auditor any other internal or external audits or reviews, along with findings relevant to audit
How Can I Make this as Painless as Possible?
Single Audit
◦ Grant manager:
Ensure time records are kept for each Federal award where payroll is charged
File grant financial reports timely
Keep an inventory of equipment purchased with Federal dollars (update once every two years)
How Can I Make this as Painless as Possible?
Financial Reporting and Note Disclosures
◦ Ensure reconciliations and detailed agings have been prepared for all significant financial statement areas and that reconciliations agree to financial statements
◦ Prepare a budget-to-actual comparison and current year to prior year comparison and identify significant variances. Know where to find reliable documentation to verify your explanations.
How Can I Make this as Painless as Possible?
Financial Reporting and Note Disclosures
◦ 2014 Governmental Accounting Auditing Financial Reporting (“GAAFR”) book by Stephen Gauthier
◦ Use GFOA’s updated disclosure checklist (or can even ask for a copy of your auditor’s disclosure checklist)
Resources
CPE
◦ GFOASC
◦ 2013 COSO Framework (Start with 20 page Executive Summary on www.coso.org)
◦ Supercircular (GFOA has a Best Practice for Implementing OMB Uniform Guidance)
◦ GASB Updates (they issued five new GASBs during this presentation)
Resources