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Lessons Learned From the Past

The AICPA has conducted an oversight program of peer reviews of government audits that uncovered a host of common deficiencies and stumbling blocks. One particular common theme was insufficient audit evidence. Items of note are summarized below and you may also visit p. 3 of the April 2016 AICPA Reviewer Alert at> http://www.aicpa.org/InterestAreas/PeerReview/NewsAndPublications/DownloadableDocuments/ReviewerAlert0416.pdf

Governmental, A-133, and HUD Reporting – Failure to:

  • Document the required elements of professional standards in the Independent Auditor’s Report
  • Document standards, identification of the governmental entity’s major funds and opinion units presented, addressing supplemental information and required supplemental information, reference to prior year financial statements when comparative years are presented, reference to the Yellow Book Internal Control report
  • Include the required elements of professional standards in the Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters including: omitted “Independent” from report title, omitted or incorrect reference to material weaknesses or significant deficiencies included in the Schedule of Findings and Questioned Costs, indication that there were no significant deficiencies identified, omitted a clause stating that the entity's responses were not audited and that the auditor expresses no opinion on those responses, and omitted purpose alert
  • Follow the Uniform Reporting Standards and current reporting format for HUD financial statements in accordance with the HUD Consolidated Audit Guide
  • Prepare an engagement letter or issue an agreed upon procedures report related to REAC submissions
  • Properly and consistently report the results of the single audit between the auditor’s reports, the Schedule of Findings and Questioned Costs, and the Data Collection Form, including major program determination and threshold, low-risk auditee status, and evaluation of findings. Disclosure and Presentation
  • Present the financial statements in accordance with professional standards including Fund Balance and Net Position presentation and reconciliations, presentation of funds, missing significant policy footnotes, missing disclosures related to fair value, debt, impairment of fixed assets and improper financial statement titles
  • Properly implement GASB 65, properly present deferred inflows and outflows, or modify accountant’s report for failure to write off unamortized bond issuance cost
  • Use proper terminology required by GASB standards including net position, classifications of fund balance, and deferred inflows/outflows
  • Include the REAC financial data templates as supplemental information as required by HUD Documentation and Performance
  • Properly document independence considerations required by Yellow Book including the evaluation of management’s skills, knowledge, and experience to effectively oversee nonaudit services performed by the auditor, evaluation of significant threats, and safeguards applied to reduce threats to an acceptable level
  • Meet the Yellow Book CPE requirements including 80 hours of A&A and 24 hours of CPE that directly relates to government auditing, the government environment, or the specific or unique environment in which the auditee operates
  • Document required communications with those charged with governance, including proper communication of internal control findings
  • Ensure that the written representations from the audited entity contained all applicable elements including the following: representations tailored to the entity and governmental audit regarding federal awards, and representations covering both years when comparative financial statements are presented. Also improper consideration of the date of the representations in relation to the audit report

 

Single Audit Act – Failure to:  

 

  • Identify and test sufficient and appropriate major programs. These errors were the result of using preliminary expenditures when the final expenditures resulted in a high risk Type A program, failure to cluster, failure to properly perform Type A and Type B program risk assessments, failure to group programs with the same CFDA number, and incorrect determination of the auditee as low-risk resulting in insufficient coverage
  • Properly conclude and document either that an applicable compliance requirement does not apply to the particular auditee or that noncompliance with the requirements could not have a direct and material effect on a major program
  • Document an understanding of internal control over compliance of federal awards sufficient to plan the audit to support low assessed level of control risk for major programs, including consideration of risk of material noncompliance (materiality) related to each applicable compliance requirement and major program
  • Document the adequacy of the planned sample size for test of controls over compliance to achieve a low level of control risk
  • Document the testing of controls and compliance for the relevant assertions related to each applicable compliance requirement with a direct and material effect for the major program, including insufficient documentation and usage of dual-purpose testing;
  • Document internal controls over the preparation of the Schedule of Federal Awards (SEFA)