Financial Reporting - Auditing

Render a report by independent auditors expressing an opinion that financial statements present fairly, the financial position, change in financial position and cash flows of the organization.

Conformity with appropriate GAAP

Material misstatements (error or fraud)

Assurance

Generally Accepted Auditing Standards (GAAS)

Statements of Auditing Standards (SAS)

Standards Board of the American Institute of Certified Public Accountants

10 standards

• General Standards
• Field Work Standards
• Reporting Standards

Adequate technical training and proficiency as a auditor

Independence in mental attitude

Due professional care

Adequate planning and proper supervision

Study and evaluation of internal control and understanding entity and it's environment to assess risk of material misstatement

Sufficient compentent evidential matter/basis of opinion

State if financial statements are in accordance with GAAP

GAAP consistently observed within current and preceding period

Informative disclosures resonably adequate

Expression of opinions or reasons why not

• Opening: identifies the financial statement being audited
• Scope: describes the nature of the audit
• Opinion: expresses the auditor's opinion regards fairness of the financial statement

Explanatory: auditor's role in reviewing supplementary information

Unqualified (clean): financial statement presents financials position and changes in position and cash flows according to GAAP.

Qualified Opinion: financial statement contains material departure from GAAP or there is a material change between periods in GAAP.

Adverse Opinion: financial statement do not present fairly in accordance with GAAP.

Disclaimer of Opinion: Often due to inability to examine records.

In the auditor's judgement, the level at which the quantitative or qualitative effects of misstatements will have a significant impact on users' evaluations.

Auditors make seperate materiality determinations for each opinion unit (i.e. government activities, business activities).

SAS 114 communicates with those charged with governance. It provides those in charge with:

-An understanding of the auditor's responsibilities under GAAS

-Overview of planned scope and timing of the audit

-Significant findings of the audit

SAS 115: Communicates internal control related matters

-Requires written communication of significant deficiencies and material weakness to management

-Common terms used are control deficiency, significant deficiency, material weakness.

Financial: opinion as to whether financial statements are presented fairly in conformity with GAAP & all material facts are disclosed.

• Attestation Engagement: Examination/procedures that lead to a report & assertion about subject matter that is the responsibility of another party:
• -Internal Controls
• -Compliance
• -MD&A
• -Contract Amounts
• -Performance Measures

Performance: Determination of whether managers are using resources efficiency and effectively in accomplishing organizational goals.

US General Accountability Office (GAO)

GAGAS is intended to supplement GAAS.

For Single Audit of organizations that expend more than $500k of federal financial assistance in a year.

Required by all governments in FL.

• Compliance
• Ethics

Auditors should not perform management functions or make management decisions.

Auditors should not audit their own work or provide nonaudit services when the nonaudit services are significant to the audit subject matter.

• Single
• Entity
• Audit

Single

• Places greater audit coverage on high risk programs
• Improves content and timeliness of single audit reporting

OMB can administratively revise single audit standards without requiring additional legislation - Circular A-133

Those that expend more than $500k in federal financial assistance within a single year.

When the federal assistance is expended for one federal program or program cluster.

Type A: Any federal program within a recipient which expends either: (1) $300,000 or more of federal assistance for recipients with $10 million or less of expended federal assistance during the audit period, or (2) 3% of the total federal assistance expended during the year for those who exceed $10 million, whichever is greater.

Type B: Any single program which does not meet the Type A requirements. Example 1 – The City of Example operates a Section 8 program, and expended $450,000 in Section 8 funds and $5,000,000 of total federal assistance during the year. Since this amount does not exceed $10,000,000, the Section 8 program is considered a Type A program because $450,000 exceeds the $300,000 threshold.

• -Internal control weaknesses
• -Instances of noncompliance
• -Questioned costs
• -Fraud
• -Material missrepresentations by the auditee

• Instances noncompliance with a law/regulation where costs are:
• -Unallowable
• -Unreasonable
• -Not supported by adequate documentation

Must be reported in schedule if the known questioned costs are greater than $10k; likely costs greater than $10k