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2013 AICPA Guides for Yellow Book/Circular A-133, State and Local Governments, and Not- for-Profit Entities: What to Expect for Clarity, Auditor Report.

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Presentation on theme: "2013 AICPA Guides for Yellow Book/Circular A-133, State and Local Governments, and Not- for-Profit Entities: What to Expect for Clarity, Auditor Report."— Presentation transcript:

1 2013 AICPA Guides for Yellow Book/Circular A-133, State and Local Governments, and Not- for-Profit Entities: What to Expect for Clarity, Auditor Report Changes, and More A Governmental Audit Quality Center Web Event March 13, 2013

2 Governmental Audit Quality Center Administrative Notes Troubleshooting Tips No Audio? Ensure that your computer speakers are turned on and that the volume is turned up. Check to ensure that audio streaming is enabled on your computer. If the presentation slides stop advancing during the presentation you should: Hit the red “Exit” button located to the right of the main screen; this will close out of the presentation and re-launch the webcast If you are still having audio or other technical difficulty Check with your organizational IT personnel to ensure that this event is not being blocked by a firewall. Call the AICPA Service Center at 888.777.7077. 2

3 Governmental Audit Quality Center Administrative Notes We encourage you to submit your technical questions – please limit your questions to the content of today’s program. You can submit your questions at any time during this Web event by clicking on the “Q &A” tab on the bottom of your screen. You can also download slides in PDF or PowerPoint format by clicking on “Handouts” tab. This event is being recorded and will be posted in an archived format to the GAQC Web site. 3

4 Governmental Audit Quality Center Continuing Professional Education To document your participation and obtain CPE, you must click “OK” on 75% of pop-up markers. To track your progress on the pop-up markers, click on the Participation tab on lower portion of screen. At the end of today’s presentation we will provide steps for obtaining your CPE certificate. Please note that it may take up to 24 hours for your certificate to be placed into your account. Contact the Service Center for help with obtaining CPE at 888.777.7077 or service@aicpa.org.service@aicpa.org If you are not receiving CPE for this event, ignore the pop-up markers if they appear. 4

5 Governmental Audit Quality Center Erica Forhan, CPA Partner Moss Adams LLP Joe Heffernan, CPA Partner Plante & Moran PLLC Susan Stewart, CPA Director McGladrey LLP Moderating: Mary Foelster, CPA Director AICPA Presenters 5

6 Governmental Audit Quality Center What we will cover Background on the AICPA Guides Being Covered Today Government Auditing Standards and Circular A-133 Audits – Audit Guide (GAS-A133 Guide) State and Local Governments – Audit and Accounting Guide (SLG Guide) Not-for-Profit Entities – Audit and Accounting Guide (NFP Guide) Overarching Changes Affecting all Guides What you Should Expect for Updates to Guide Content and Illustrative Reports Clarity and GAAS Resources to Assist You 6

7 Governmental Audit Quality Center Background on the AICPA Guides Being Covered Today 7

8 Governmental Audit Quality Center AICPA Guides Focusing on Today 8

9 Governmental Audit Quality Center Authoritative Status of AICPA Guides Auditing guidance considered interpretive publication under AU-C section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Generally Accepted Auditing Standards Auditor required to consider interpretive publications in planning and performing the audit If the auditor does not apply the auditing guidance, the auditor should document how requirements of GAAS were complied with Basis of accounting content is from GAAP standard- setters, but Guides provide additional explanation SLG Guide includes “level b” GAAP 9

10 Governmental Audit Quality Center Status of 2013 Editions of the Guides GAS-A133 Guide Guide content in final review stage (Auditing Standards Board (ASB), GAO, OMB, federal agency representatives) eBook available on May 24 and print version on June 24 SLG Guide Guide content in final review stage (ASB, GASB) eBook available on May 3 and print version on June 3 NFP Entities Guide eBook available now; online Professional Library subscription available late March; print version will be available April 12 2013 editions of the Guides can be ordered through www.cpa2biz.com www.cpa2biz.com 10

11 Governmental Audit Quality Center Overarching Changes Affecting all Guides 11

12 Governmental Audit Quality Center Overarching Changes Affecting all Guides Terminology Changes (AU-C section 200) General, Field Work and Reporting Standards (10 General Standards) have been replaced If an auditor fulfills the overall objective of the audit and meets applicable ethical requirements the ASB believes that the auditor will have fulfilled the requirements currently stated in the 10 standards 12

13 Governmental Audit Quality Center Overarching Changes Affecting all Guides Terms of Engagement (AU-C section 210) Requires the auditor to determine if preconditions for an audit are present Acceptable financial reporting framework in the preparation and presentation of the financial statements and management acknowledgement of responsibility The auditor is required to obtain the agreement of management that it: acknowledges and understands its responsibility for selecting the appropriate financial reporting framework, establishing and maintaining internal control, and providing access and information to the auditor. Auditor generally should not accept engagement with management-imposed scope limitation 13

14 Governmental Audit Quality Center Overarching Changes Affecting all Guides Considerations of Laws and Regulations (AU-C section 250) requires the performance of procedures to identify instances of noncompliance with those laws and regulations that may have a material effect on the financial statements Opening Balances in Initial Audits (AU-C section 510) Strengthens existing standards by making clear that reviewing a predecessor auditor’s audit documentation cannot be the only procedure performed to obtain sufficient appropriate audit evidence regarding opening balances. 14

15 Governmental Audit Quality Center Overarching Changes Affecting all Guides Group Audits (AU-C section 600) Definitions Responsibilities of the Group Engagement Partner Making Reference Involvement With, and Understanding of, Component Auditors Materiality Communication with Others and Documentation Archived GAQC Web event, New Group Audits Standard and Its Effect on Your Governmental and Not-For-Profit AuditsNew Group Audits Standard and Its Effect on Your Governmental and Not-For-Profit Audits Using the Work of an Auditor’s Specialist (AU-C 620) Incremental documentation requirements for in-firm specialists 15

16 Governmental Audit Quality Center Overarching Changes Affecting all Guides (Reporting) Forming an Opinion and Reporting on Financial Statements (AU-C 700) Description of management’s responsibility in more detail than AU section 508 Use of headings to clearly distinguish each section of the report Report on the Financial Statements Management's Responsibility for the F/S More robust wording Auditor’s Responsibility Opinion(s) Other Matters Report on Other Legal and Regulatory Requirements 16

17 Governmental Audit Quality Center Overarching Changes Affecting all Guides (Reporting) Emphasis of Matter (AU-C section 706) Refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s professional judgment, is of such importance that it is fundamental to users’ understanding of the financial statements. Other Matter (AU-C section 706) Refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s professional judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report 17

18 Governmental Audit Quality Center Overarching Changes Affecting all Guides (Reporting) Terminology Changes 18 Extant TermClarified Term Standard ReportTerm not used because we refer to the opinion and not the report Clean opinion/Qualified OpinionUnmodified Opinion/Modified Opinion Explanatory ParagraphEmphasis-of-matter paragraph or other-matter paragraph (as applicable) Explanatory LanguageAdditional communication

19 Governmental Audit Quality Center What you Should Expect for Updates to Guide Content and Illustrative Reports 19

20 Governmental Audit Quality Center GAS-A133 Guide 20

21 Governmental Audit Quality Center Part I: Financial Statement Audits Under Government Auditing Standards Major changes in 2013 edition relate to 2011 edition of Government Auditing Standards (Yellow Book or YB) and clarity auditing standards Relevant professional standards and applicable Audit and Accounting Guides (SLG and NFP Guides) are primary source of information on GAAS financial statement audit requirements Describes GAAS to the extent necessary to explain the related requirements of the YB 21

22 Governmental Audit Quality Center Chapter 1 – Introduction and Overview of Government Auditing Standards 2011 Yellow Book now incorporates all AICPA auditing standards Previous Yellow Book did not adopt AICPA general standards (pre-clarity) As per AU-C 200 this means that all auditors performing Government Auditing Standards audits are subject to all AICPA auditing standards Compliance with AICPA Code of Professional Conduct Geography Changes Overview material updated and moved into chapter 1 Applicability of the Yellow Book Use of terminology to define Yellow Book requirements 22

23 Governmental Audit Quality Center Chapter 2 - The Ethical Principles and General Standards in Government Auditing Standards Chapters 2 - 4 have been realigned with the revised chapters 1 - 4 of the YB Greatly expanded independence content Conceptual Framework for independence Independence of mind and in appearance Emphasis on the importance of considering individual threats to independence both individually and in aggregate Focus on nonaudit services requirements Comparison of AICPA and YB independence requirements added 23

24 Governmental Audit Quality Center Chapter 2 - The Ethical Principles and General Standards in Government Auditing Standards Expanded Independence Documentation Discussion Auditors required to assess and document whether management possesses suitable skills, knowledge or experience (SKE) to oversee nonaudit services Documentation also required when threats are significant and safeguards are applied 24

25 Governmental Audit Quality Center Chapter 2 - The Ethical Principles and General Standards in Government Auditing Standards Updated all YB general standard material – for example: Peer Review – changes to align YB with AICPA Peer Review Standards Peer review report terminology Continuing Professional Education Distinction made between internal and external specialists External specialists are not required to meet the YB CPE requirements (audit team should determine that external specialists are qualified and competent) 25

26 Governmental Audit Quality Center Chapter 3 - Planning and Performing a Financial Statement Audit in Accordance with Government Auditing Standards GAAS content modified due to restructure of the YB All AICPA standards adopted; YB does not repeat GAAS emphasis areas like it used to Very few additional YB requirements remain Auditor communication Previous audits and attestation engagements Fraud, noncompliance with provisions of laws, regulations, contracts, and grant agreements, and abuse Developing elements of a finding Audit documentation 26

27 Governmental Audit Quality Center Chapter 3 - Planning and Performing a Financial Statement Audit in Accordance with Government Auditing Standards Terms of Engagement (AU-C section 210) Already covered the basics earlier in the presentation – chapter emphasizes the preconditions, etc. Chapter provides updated list of items to be considered for the engagement letter that specifically relate to the YB Auditor responsibilities and the reports the auditor is expected to issue and prepare Management’s responsibilities – See YB Appendix I, section A1.08 Considerations when nonaudit services performed 27

28 Governmental Audit Quality Center Chapter 3 - Planning and Performing a Financial Statement Audit in Accordance with Government Auditing Standards Consideration for Laws and Regulations in an Audit of Financial Statements (AU-C section 250) Specific procedures to detect illegal acts, including inspecting correspondence Emphasis that YB adds “provisions of contracts and grants” Written Representations (AU-C section 580) Chapter provides updated list of items that may be relevant in representation letter for a YB audit Primarily just tinkered with wording to ensure matched clarity standards and YB Group Audits (AU-C section 600) Guidance just points to the SLG and NFP guides for details of affect of AU-C section 600 on financial statement audits and Chapter 4 for reporting illustrations 28

29 Governmental Audit Quality Center Chapter 4 - Auditor Reporting Requirements and Other Communication Considerations of Government Auditing Standards Chapter and illustrations reflect new YB and many AU-C sections as follows: AU-C 265, Communicating Internal Control Related Matters Identified in an Audit AU-C 700, Forming an Opinion and Reporting on Financial Statements AU-C 705, Modifications to the Opinion in the Independent Auditor's Report AU-C 720, Other Information in Documents Containing Audited Financial Statements AU-C 725, Supplementary Information In Relation to the Financial Statements as a Whole AU-C 730, Required Supplementary Information AU-C 905, Alert that Restricts the Use of the Auditor's Written Communication 29

30 Governmental Audit Quality Center Chapter 4 - SLG and NFP Financial Statement Report Changes Revised wording to adhere to new requirements in both the clarity auditing standards and Government Auditing Standards Subheadings added Management's Responsibility Auditor's Responsibility Other Matters (e.g., reporting required supplementary information or other information) Other Reporting Required by Government Auditing Standards- new subheading describing the linkage to the reporting required by YB Minor change - standards indicate report should be addressed to “appropriate addressee” and city and state added 30

31 Governmental Audit Quality Center Chapter 4 - Yellow Book Reporting Changes Wording changes for clarity standards and YB Reports now assume governmental entity; footnotes provide revisions needed for NFPs Added the title, “Independent Auditor’s Report” Maintained the existing report subheadings of "Internal Control Over Financial Reporting" and "Compliance and Other Matters" Reference to management letter no longer required in YB report Replaced the "restricted use alert" with a "purpose alert" as required by AU-C 905 Access the clarified illustrative Government Auditing Standards reportsAccess the clarified illustrative Government Auditing Standards reports. 31

32 Governmental Audit Quality Center Part II: Circular A-133 Audits Changes relate primarily to the clarity auditing standards Most changes not considered significant Chapters 6 (planning) and13 (reporting) had the most changes Significant changes for Part II in future edition of this Guides once current single audit reform efforts becomes effective 32

33 Governmental Audit Quality Center Chapter 6 - Planning Considerations of Circular A-133 Updated many standards references and wording due to clarity No significant changes to practice as a result of these changes Group Audits (AU-C section 600) Expected guidance will likely indicate a limited impact on GAS-A133 audits since each major program opined on separately (limited aggregation risk) Other considerations when program administered by multiple organizational units, locations, or branches (already have sampling guidance for these situations) 33

34 Governmental Audit Quality Center Chapter 13 - Auditor Reporting Requirements and Other Communication Considerations in a Single Audit Chapter and illustrations reflect new YB and many AU-C sections as follows: AU-C 265, Communicating Internal Control Related Matters Identified in an Audit AU-C 700, Forming an Opinion and Reporting on Financial Statements AU-C 705, Modifications to the Opinion in the Independent Auditor's Report AU-C 725, Supplementary Information In Relation to the Financial Statements as a Whole AU-C 905, Alert that Restricts the Use of the Auditor's Written Communication AU-C 935, Compliance Audits 34

35 Governmental Audit Quality Center Chapter 13 - Auditor Reporting Requirements and Other Communication Considerations in a Single Audit Wording changes for both clarity standards and YB Used major headings to clarify that the reporting includes several distinct reports Report on Compliance for Each Major Program (opinion-level assurance) Report on Internal Control over Compliance (byproduct reporting on internal control over compliance); Report on the Schedule of Expenditures of Federal Awards (SEFA) - only if such in-relation-to reporting is included here Report examples now illustrate in body of the report how to report on the SEFA within the A-133 report; not implying that this is a best practice 35

36 Governmental Audit Quality Center Chapter 13 - Circular A-133 Report Changes Use of subheads within the Report on Compliance for Each Major Program similar to that used in a financial statement audit report No subheads used within the Report on Internal Control Over Compliance How opinion modification(s) on one or more major federal programs modify the report wording and how the use of subheads should be applied in this context Replaced the "restricted use alert" with a new "purpose alert" and clarified that such an alert only relates to the reporting on internal control over compliance 36

37 Governmental Audit Quality Center Chapter 13 - Circular A-133 Report Changes Added example of how an auditor might include a table within the report to more clearly articulate findings that modify an opinion on a major federal program or relate to material weaknesses, significant deficiencies, or other noncompliance findings (this change was unrelated to the clarity standards) How a paragraph relating to management's response to findings is placed in both the Report on Compliance for Each Major Program and the Report on Internal Control over Compliance when there are findings noted in each area Access the clarified illustrative Circular A-133 reportsAccess the clarified illustrative Circular A-133 reports. 37

38 Governmental Audit Quality Center State and Local Governments – Audit and Accounting Guide 38

39 Governmental Audit Quality Center SLG Chapter 1 – Overview and Introduction AU-C 200 requires the auditor to express an opinion on whether the f/s are presented fairly, in all material respects, in accordance with an applicable financial reporting framework Take the opportunity to reinforce to your clients the proper reporting framework based upon definition of a government Refer to definition of a government in paragraph 1.01 of the SLG Guide 39

40 Governmental Audit Quality Center SLG Chapter 2 – Financial Reporting Incorporates Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position Note that Statement No. 65, Items Previously Reported as Assets and Liabilities, was not incorporated into the 2013 Guide Terminology changes Net assets is now net position Adds in elements ‘deferred outflows of resources’ (DOR) and ‘deferred inflows of resources’ (DIR) Describes the Statement of Net Position Separate reporting (DOR/DIR not combined with assets/liabilities) Cannot net DOR/DIR Presentation when there are multiple DOR/DIR 40

41 Governmental Audit Quality Center SLG Chapter 4 – General Auditing Considerations General Reorganization of the Chapter Much of the content is the same but the topics were reordered to align with the flow of clarity standards and wording updated Terms of Engagement (AU-C 210) Requires the auditor to determine if preconditions for an audit are present Preconditions for an audit include, among other things, the use by management of an acceptable financial reporting framework in the preparation and presentation of the financial statements. 41

42 Governmental Audit Quality Center SLG Chapter 4 – General Auditing Considerations Group Audits It can be analogized that each opinion unit is equivalent to its own group and likely there would be no additional requirements under AU-C section 600 if an opinion unit met the definition of a component (unless the component was audited by other auditors). Component versus component unit Making reference The GASB financial reporting framework allows certain nongovernmental component units that report under the FASB financial reporting framework, to be incorporated into the reporting entity’s financial statements. In these circumstances, the group auditor may make reference to the audit of a component auditor. 42

43 Governmental Audit Quality Center SLG Chapter 4 – General Auditing Considerations Group Audits Factors that auditors may consider in identifying components for state and local governments include: Portion of audit performed by other auditors Governance, legal, and management structures Equity method investments Decentralization of operations Outsourcing of operations Nature of activities and uniqueness of relationship to the entity Control environment Subsequent events GAQC Web event titled, Understanding the Potential Impacts of the New Group Audits SAS on Your Governmental and Not-For- Profit Audit EngagementsUnderstanding the Potential Impacts of the New Group Audits SAS on Your Governmental and Not-For- Profit Audit Engagements 43

44 Governmental Audit Quality Center SLG Chapter 4 – General Auditing Considerations 44 Group Audits

45 Governmental Audit Quality Center SLG Chapter 5 – Financial Instruments Derivative Terminations (very narrow issue) GASB Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions an amendment of GASB Statement No. 53 Provides guidance on ceasing hedge accounting when the hedging derivative instrument is terminated unless an effective hedging relationship continues. Provides the criteria for when an effective hedging relationship continues. 45

46 Governmental Audit Quality Center SLG Chapter 7 – Capital Assets SLG Chapter 8 – Expenses/Expenditures/Liabilities Guidance Added on GASB Statement No. 60, Service Concession Arrangements (SCAs) Accounting and Financial Reporting by the Gov. Transferor Existing facility - continues to report existing facility as capital asset. New facility or improvements to existing facility, transferor reports A new facility or improvements as capital asset at fair value when placed into operation, Any contractual obligations as liabilities, And a corresponding deferred inflow of resources equal to the difference between (1) and (2). Note chapter 9 also has a brief discussion of SCAs 46

47 Governmental Audit Quality Center SLG Chapter 7 – Capital Assets SLG Chapter 8 – Expenses/Expenditures/Liabilities Guidance Added on GASB Statement No. 60, Service Concession Arrangements Accounting and Financial Reporting by the Gov. Operator Intangible asset for the right to access the facility and collect 3 rd party fees form its operation Improvements to the facility by the operator should increase the intangible asset Amortize the intangible asset over the term of the arrangement in a systematic and rational manner Liabilities discussed in chapter 8 47

48 Governmental Audit Quality Center SLG Chapter 10 - Net Position and Financial Statement Reconciliations Government-Wide Net Position Discuss the impact of DOR/DIR on components of the statement Net investment in capital assets Restricted net position Unrestricted net position Proprietary Fund Net Position Paragraph 8 of GASB Statement No. 63 requires the residual amount of all other elements be reported as net position rather than net assets, proprietary fund balance or equity. Disclosures 48

49 Governmental Audit Quality Center SLG Chapter 11 – The Budget Budgetary Compliance Procedures - AU-C 250 expanded work regarding noncompliance Obtain sufficient appropriate audit evidence regarding material amounts and disclosures in the financial statements that are determined by the provisions of those laws and regulations generally recognized to have a direct effect on their determination Further, the auditor should perform the audit procedures that may identify instances of noncompliance with other laws and regulations that may have a material effect on the financial statements 49

50 Governmental Audit Quality Center SLG Chapter 13 – Concluding the Audit Considerations for an Emphasis of Matter Evaluate instances when there are indicators of substantial doubt of the government’s ability to continue as a going concern, but collectively the indicators do not meet the criteria under GASB Statement No. 56. If indicators could significantly curtail the government’s ability to continue to provide public services at the current level – Consider including an emphasis of matter paragraph to assist users in understanding the financial position of the government entity Other changes were to align to wording in AU-C but no major changes or expansion from the extant AUs 50

51 Governmental Audit Quality Center SLG Chapter 15 – Special Purpose Framework Revisions address special considerations in the application of professional standards to an audit of f/s prepared in accordance with a special purpose framework Cash, Tax, Regulatory, Contractual (similar to extant) Other Bases of Accounting: uses a definite set of logical, reasonable criteria that is applied to all material items appearing in financial statements. Report illustrations updated for Clarity Additional Resources: AICPA’s Practice Aid: Applying OCBOA in State and Local Governmental Financial StatementsApplying OCBOA in State and Local Governmental Financial Statements AICPA’s Practice Aid: Accounting and Financial Reporting Guidelines for Cash- and Tax- Basis Financial StatementsAccounting and Financial Reporting Guidelines for Cash- and Tax- Basis Financial Statements 51

52 Governmental Audit Quality Center SLG Chapter 16 - Auditor Involvement with Municipal Securities Filings Terminology changed from ‘association’ to ‘involvement’ Situations triggering involvement remain unchanged Assisting in preparing the financial information included in the official statement Reviewing a draft of the official statement at the government’s request Signing (either manually or electronically) the independent auditor’s report for inclusion in a specific official statement Providing written agreement (for example, through a consent letter or signed authorization form) for the use of the independent auditor’s report in a specific official statement Providing a revised independent auditor’s report for inclusion in a specific official statement Issuing a comfort letter, the letter described in paragraph.12 of AU-C section 920, Letters for Underwriters and Certain Other Requesting Parties, or an attestation engagement report in lieu of a comfort or similar letter on information included in the official statement Issuing a report on an attestation engagement relating to the debt offering 52

53 Governmental Audit Quality Center SLG Chapter 16 - Auditor Involvement with Municipal Securities Filings Using Government Auditing Standards Reports and References in the Official Statement Determine if auditor’s report is present in the official statement Advisable to use a report on the f/s that does not refer to Government Auditing Standards 53

54 Governmental Audit Quality Center SLG Chapter 14 – Reporting Terms to Highlight Basic Financial Statements Financial Statements Use of Terms ‘Opinion’ versus ‘Opinions’ Report Illustrations Reflect Many AU-C Sections Refer to AU-C to tailor your reports to specific scenarios AU-C 700, Forming an Opinion and Reporting on Financial Statements AU-C 705, Modifications to the Opinion in the Independent Auditor's Report AU-C 720, Other Information in Documents Containing Audited Financial Statements AU-C 725, Supplementary Information In Relation to the Financial Statements as a Whole AU-C 730, Required Supplementary Information 54

55 Governmental Audit Quality Center SLG Chapter 14 – Reporting Report Changes Fitting the state and local government opinion unit audit concept into the new clarity reporting structure Multiple Opinions Changes that would be made and additional subheadings that would be added when the auditor has opinion modifications on one or more opinion units and unmodified opinions on other opinion units The inclusion of an optional table within the report to more clearly communicate when more than one type of opinion is being issued and the nature of the opinions issued (e.g., unmodified, qualified, adverse) 55

56 Governmental Audit Quality Center SLG Chapter 14 – Reporting Report Changes Report on the Financial Statements Define what has been audited – dependent upon the engagement Wording diverges from AU-C 700 because of opinion units Management’s Responsibility for the Financial Statements Consistent across illustrations Auditor’s Responsibility Includes modifications for audits performed under Government Auditing Standards – but auditors need to look to the GAS A-133 Guide for more guidance Requires modification for opinion/opinions and reference to other auditors 56

57 Governmental Audit Quality Center SLG Chapter 14 – Reporting Report Changes Unmodified Opinion(s) Only One opinion paragraph Header “Opinion” or “Opinions” More than One Type of Opinion Issued Illustrative Table – “Summary of Opinions” Basis Paragraph to Precede Modified Opinion Suggest identifying the opinion unit (OU) to which the modification applies in the header Modified Opinion – refer to Basis paragraph and specific OU’s to which the modified opinion applies Illustrated structure with multiple modifications Basis / Modified Opinion Basis/Modified Opinion 57

58 Governmental Audit Quality Center SLG Chapter 14 – Reporting Report Changes Other Matters Required Supplementary Information Other Information (OI) Includes reporting on Supplementary Information (SI) when engaged to provide an in relation to opinion Reporting on OI when the auditor chooses to disclaim an opinion on the OI Emphasis of Matter Primary Government That Omits the Financial Data of Each Component Unit and That Issues Audited Financial Statements for the Reporting Entity Fund/Department/Program Statements Only Report on Other Legal and Regulatory Requirements 58

59 Governmental Audit Quality Center SLG Chapter 14 – Reporting Adverse Opinion Change made to AU-C 705.32 Illustration 3, An Auditor’s Report Containing an Adverse Opinion Due to a Material Misstatement of the Financial Statements – not in the GAQC’s early release of illustrations (Example A-10) In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion paragraph, the consolidated financial statements referred to above do not present fairly the financial position of ABC Company and its subsidiaries as of December 31, 20X1, or the results of their operations or their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Access the clarified illustrative state and local government financial reportsAccess the clarified illustrative state and local government financial reports. 59

60 Governmental Audit Quality Center Not-for-Profit Entities – Audit and Accounting Guide 60

61 Governmental Audit Quality Center NFP Guide Updates NFP Entities The Guide covers entities that meet the definition of a NFP included in the FASB ASC glossary. An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: a.Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return b.Operating purposes other than to provide goods or services at a profit c.Absence of ownership interests like those of business entities 61

62 Governmental Audit Quality Center NFP Guide Updates NFP Entities (Continued) The Guide also covers entities that clearly fall outside this definition: a.All investor-owned entities b.Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans. Caveats…there are NFPs that meet the definition of an NFP without possessing characteristics. For example, some NFPs, such as those that receive all their revenue from exchange transactions, receive no contributions. Ensure you are using the correct Guide for your client! 62

63 Governmental Audit Quality Center NFP Chapter 2 – General Auditing Considerations – Clarity Implications Terms of Engagement Audit Planning Group Audits Materiality Fraud and Errors Compliance (Laws and Regulations) 63

64 Governmental Audit Quality Center NFP Chapter 14 – Reporting – Clarity Implications Report Examples will be included in 2013 NFP Guide Report Example in AU-C section 700, Forming an Opinion and Reporting on Financial Statements Report Example 4-2 in GAS-A133 Audit Guide Generally based on the report in NFP guide; modified to show changes needed if audit also done under YB 64

65 Governmental Audit Quality Center NFP Guide Updates - Overhaul Posted for comment in late 2012 Addresses many new accounting issues that have emerged over the years Includes guidance dedicated specifically to not-for- profit entities Some of the main areas addressed by overhaul Reporting relationships with other entities Reporting and measuring noncash gifts A new chapter on program-related investments and microfinance loans Reporting the expiration of donor-imposed restrictions Suggestions for audit procedures an auditor might consider as a supplement to the risk assessment procedures 65

66 Governmental Audit Quality Center NFP Guide – Overhaul Web Event AICPA Web Event Planned for May 1 on the 2013 NFP Guide. Stay tune for registration information 66

67 Governmental Audit Quality Center Clarity and Other Resources to Assist You 67

68 Governmental Audit Quality Center Clarity and Other GAAS Resources Financial Resource Center – Audit and Attest Services SectionAudit and Attest Services Section Section dedicated to ClarityClarity Standards Tracker Highlights of Hot Topics Guidance Summary of Differences Between Clarified SASs and Existing SASsSummary of Differences Between Clarified SASs and Existing SASs Summary of Clarified Auditing Reporting Standards 68

69 Governmental Audit Quality Center Clarity and Other GAAS Resources Publications Audit and Accounting Manual Audit Risk Alert: Understanding the New Clarified Auditing StandardsUnderstanding the New Clarified Auditing Standards Practice Aid: Understanding the New Clarified Auditing StandardsUnderstanding the New Clarified Auditing Standards Web Events and AICPA TV Offerings Archived GAQC Web event titled, Implementing the Clarified SASs in a Governmental and Not-For Profit Audit Environment: What, When, and How?Implementing the Clarified SASs in a Governmental and Not-For Profit Audit Environment: What, When, and How? Archived GAQC Web event titled, Understanding the Potential Impacts of the New Group Audits SAS on Your Governmental and Not-For-Profit Audit EngagementsUnderstanding the Potential Impacts of the New Group Audits SAS on Your Governmental and Not-For-Profit Audit Engagements AICPA TV 69

70 Governmental Audit Quality Center 2011 Yellow Book Resources 2011 Yellow Book AICPA 2011 Yellow Book Independence - Nonaudit Services Documentation Practice Aid2011 Yellow Book Independence - Nonaudit Services Documentation Practice Aid Free to AICPA members in PDF format For-sale version that can be used to input information and save as part of the audit documentation Archived GAQC Web events The New 2011 Yellow Book: What You Need to Know Now 2011 Yellow Book Independence Practice Aid AICPA – Government Auditing Standards Independence Rules Comparison 70

71 Governmental Audit Quality Center For Auditors Performing HUD For-Profit Audits GAQC Alert #214 – Draft Illustrative Reports Posted for HUD Audits Performed Under HUD Consolidated Audit Guide: a financial statement audit report for a HUD for-profit recipient; the reporting to meet the requirements of Government Auditing Standards as it relates to reporting on compliance and other matters at the financial statement level and internal control over financial reporting; and the opinion on compliance for each major HUD program and the related reporting on internal control over compliance. 71

72 Governmental Audit Quality Center Wrap Up and Questions 72

73 Governmental Audit Quality Center How do I get my CPE certificate? Just follow these steps: 1.Log on to CPA2Biz.comCPA2Biz.com 2.Click on “My Account” at the top of the page and enter your CPA2Biz/AICPA username and password 3.Click on “My Web Events” tab 4.Click on “AICPA Learning Center Transcripts and Certificates” link (a new window or tab will open) 5.On the AICPA Learning Center, click on “My Transcript” in the left-hand menu 6.Locate your completed course and click on “Go” to retrieve your certificate. Please note that it may take up to 24 hours for your certificate to be placed into your account. If you need assistance with locating your certificate, please contact the AICPA Service Center at 888.777.7077 or service@aicpa.org. service@aicpa.org 73

74 Governmental Audit Quality Center Evaluations Please take a few minutes to let us know what you thought about today’s Web event Click on the link below to begin a short evaluation https://www.surveymonkey.com/s/R32SM6G 74


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