After completing this chapter, you should be able to do the following:
Identify the guidance and requirements found in the Uniform Guidance.
Recognize how the effective dates of the guidance will affect various stakeholders.
Identify key changes for auditors in a single audit.
Identify key revisions regarding determining major programs.
Identify key revisions to reporting requirements.
INTRODUCTION
This chapter discusses recent and ongoing developments relating to audits of entities expending federal financial assistance. Included in this discussion are the revisions based on the Uniform Guidance and an update on the U.S. Department of Housing and Urban Development (HUD) consolidated audit guide.
KNOWLEDGE CHECK
Which is NOT a subpart within the Uniform Guidance?
Subpart B — General Provisions.
Subpart D — Post Federal Award Requirements.
Subpart G — Hospital Cost Principles.
Subpart E — Cost Principles.
KNOWLEDGE CHECK
What is the dollar threshold at which the Uniform Guidance requires a nonfederal entity to have a single audit?
$500,000.
$1,000,000.
$750,000.
$300,000.
Which is accurate regarding internal controls over federal awards?
They should be in compliance with the COSO internal control framework.
They should be in compliance with the Green Book or the COSO internal control framework.
They must be in compliance with the COSO internal control framework.
They must be in compliance with the Green Book if a government entity, and the COSO internal control framework of a nonprofit entity.
QUALITY STUDY
The Uniform Guidance provides for a government-wide audit quality project to be performed every six years beginning in 2018. The result of this study must be made public. The stated purpose of this project is to determine the quality of single audits by providing a statistically reliable estimate of the extent that single audits conform to applicable requirements, standards, and procedures, and to make recommendations to address noted audit quality issues, which may include changes to the requirements.
The FAQ document that was last updated in September 2015 states that the study will examine single audit engagements under the Uniform Guidance that are submitted to the FAC no earlier than 2018. Therefore, it is anticipated that the quality study will occur in 2019 or 2020, as determined by the Office of Management and Budget (OMB). Watch for more information on this.
Now is the time to prepare for this. What are things that auditors can do?
Education is key. Know the requirements needed to perform high quality single audits, including GAGAS, the Uniform Guidance and audit requirements under GAAS. Some sources of information are as follows:
— AICPA Audit Guide, Government Auditing Standards and Single Audits, updated yearly.
— GAQC website has many resources regarding single audits, some of which are available to both members and nonmembers. These include archived web events on the Uniform Guidance.
The Compliance Supplement, updated yearly, is one of the most important sources of guidance for the auditor performing single audits. The supplement identifies the compliance requirements that OMB and federal agencies expect to be considered as part of a single audit. It provides information for auditors to understand federal program objectives, procedures and compliance requirements as well as audit objectives and suggested audit procedures for the compliance requirements included in the supplement In addition, it includes information regarding how to make these determinations for federal programs not included in the supplement.
When this chapter was updated the 2017 Compliance Supplement was not available. Therefore, this information is based on the 2016 Compliance Supplement.
The Compliance Supplement contains 12 types of compliance requirements. As part of the 2015 update to the supplement, two types of compliance requirements were removed — “Davis-Bacon” and “Real Property Acquisition and Relocation Assistance.” Also, the “Period of Availability of Federal Funds” type of compliance requirement was renamed “Period of Performance.”
In addition, part 3.2 was added to reflect changes resulting from issuance of 2 CFR part 200 (Uniform Guidance). Therefore, part 3 of the Compliance Supplement contains the following:
Part 3.1 applies to testing federal awards that are not subject to the Uniform Guidance (that is, federal awards made prior to December 26, 2014)
Part 3.2 applies to testing federal awards subject to the Uniform Guidance (that is, new federal awards and funding increments with modified award terms and conditions made on or after December 26, 2014)
As noted previously, a major program may include expenditures from both federal awards subject to the pre-Uniform Guidance circulars, as well as federal awards subject to the Uniform Guidance requirements. In these situations, the auditor will use both parts 3.1 and 3.2, as applicable to the award, to perform compliance testing.
AICPA GAQC COMPLIANCE SUPPLEMENT PRACTICE TIPS
The AICPA GAQC (www.aicpa.org/gaqc) has assembled a list of tips for using the compliance supplement. The following information is derived from that list.
Practice Tips for Using the Compliance Supplement
1
Be sure you are using the version of the supplement that is effective for the year under audit.
2
As part of your single audit engagement team preparation, hold a planning meeting to review the current compliance supplement with your audit team. Focus the review on the programs to be audited and any significant changes made to the supplement from the prior year. Appendix V of the supplement is particularly useful in identifying the changes made each year. Appendix VII should be a key part of the discussion this year as well.
3
The matrix of compliance requirements in part 2 identifies the compliance requirements that are applicable to the programs included in the supplement. Many issues with using this part of the supplement have been noted in single audit quality reviews. It is important that you use it correctly.
Remember that even though a “Y” within the matrix indicates that a compliance requirement applies to a federal program, it may not apply at a particular entity, because either that entity does not have activity subject to that type of compliance requirement or the activity could not have a material effect on a major program. Therefore, you need to exercise professional judgment when determining which compliance requirements marked “Y” need to be tested at a particular nonfederal entity. Use part 2 appropriately by
using professional judgment;
assessing each compliance requirement individually;
considering both quantitative and qualitative materiality when deciding whether an “applicable” compliance requirement is material to a major program; and
documenting the determination of why an applicable requirement is not deemed direct and material. Just using an “n/a” or “not direct and material” tick mark is not enough. You need to document your logic for making the decision.
4
Because parts 4 and 5 of the supplement do not include guidance for all types of compliance requirements that pertain to a program (see introduction to part 4 for additional information), you should use those parts in conjunction with parts 2 and 3.
5
Refrain from using the supplement as a de facto audit program. Remember that the supplement includes “suggested” audit procedures. Auditor judgment is necessary to determine whether the suggested audit procedures are sufficient to achieve the stated audit objectives or whether additional or alternative audit procedures are needed. Therefore, you should not consider the supplement to be a “safe harbor” for identifying the audit procedures to apply in a particular engagement. A good understanding of your client is necessary to be sure you are performing the correct procedures for your client's facts and circumstances. Also, you should understand the various federal programs that your client receives to determine whether modifications to the audit approach are necessary.
UPDATE ON REVISIONS TO GOVERNMENT AUDITING STANDARDS
In April 2017 GAO issued an exposure draft containing proposed changes to Government Auditing Standards, December 2011 Revision. When issued in final form the revision will supersede the December 2011 revision of the standards. The revision to Government Auditing Standards is not expected to be final until late 2017 or in 2018.
The proposed changes update the Yellow Book to reflect major developments since the last revision and to emphasize specific considerations applicable to the government environment. Among the changes are the following:
Format of the standards is revised to differentiate the requirements from the application guidance.
Chapters are reorganized and realigned (for example, “Ethics, Independence, and Professional Judgement” is a separate chapter from “Competence and Continuing Professional Education.”
Supplemental guidance previously found in the appendix to the document is either incorporated into individual chapters or removed.
Internal control requirements and guidance have been revised to align with the Standards for Internal Control in the Federal Government (Green Book) and the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Revisions are made to guidance related to CPE, peer review, internal control, independence, quality control, financial audits, and more.
