The Latest on Audit Quality: Governmental and NPO Audits

What We Will Cover

Common Audit Quality Issues Federal Statistical Sample Project on Audit

Quality Firm Audit Tools and Resources The AICPA’s Governmental Audit Quality

Center

Common Audit Quality Issues

Quality Continues to be a Concern

AICPA peer reviews and ethics investigations continue to show problems

Federal quality control reviews reaffirm that problems exist

Governmental audits have a strong public interest component

Common Audit Quality Issues – F/S Audit

Engagement team did not meet Yellow Book CPE requirements

Auditor used inadequate or outdated reference material

Audit documentation does not evidence the work performed in many areas

Engagement and representation letter problems

Common Audit Quality Issues – F/S Audit

Auditor did not update legal inquiries to the date of the audit report

Auditor did not modify report appropriately when should have

Audit report did not appropriately reference applicable auditing standards, financial statements, or opinion units

Auditor did not issue Yellow Book report when required

Common Audit Quality Issues – Single Audits

Not auditing major programs covered by auditor’s report

Not adequately addressing internal control

• 5 elements of COSO

• Identifying tests of controls versus tests of compliance

Lack of information in findings Lack of separate audit program for SEFA

Common Audit Quality Issues – Single Audits

Client only listing prior year’s finding on the Summary Schedule of Prior Audit Findings

• See A-133 section .315 (b) Type A Program Determination Two—year lookback Clusters Percentage of Coverage Rule

Common Audit Quality Issues – Single Audits

The audit documentation does not evidence the work performed

Sampling Required findings should not be put in

management letter Data collection form problems

Single Audit Data Collection Form (SF-SAC) Problems

Signatures Lacking Part III, Item 10b, "Research and Development" is invalid

(either blank or more than one box is checked). Part III, Item 10e, "Direct award", is invalid (either blank or

more than one box is checked). Part III, Item 8, "Was a Summary Schedule of Prior Audit

Findings prepared?" is invalid (either blank or both checked). Part III, Item 2, Multiple EINs in Financial Statements, none or

both checked.

Federal Statistical Sample Project on Audit Quality

What is this project?

 A project to accurately assess the quality of Single Audits government-wide, and provide a baseline for monitoring Single Audit quality in the future by performing quality control reviews (QCRs) of a statistical sample of single audits.

Sampling Project Objectives

• To determine quality of single audits being performed

• Provide baseline for monitoring quality

• Recommend changes where needed Generally using 2002/2003 engagements Using a standard checklist Contractors will do about 50% of the reviews

Status

Sample of 208 audits has been drawn

About 30% of reviews completed by April 2005

Timetable Award of Contracts / Task Orders

September 30, 2004 QCR Teams Trained in October 2004 Conduct QCRs – November 2004 - October

2005 Compile Results/ Draft Report November

2005-February 2006 Issue Final Report by May 2006

Firm Audit Tools and Resources

Firm Audit Tools and Resources

There are a number of mechanisms to assist practitioners in enhancing audit quality:

• AICPA Audit Guide Government Auditing Standards and Circular A-133 Audits (product no. 012745)

• AICPA Audit Risk Alert, Government Auditing Standards and Circular A-133 Audits (product no. 022454)

• AICPA A&A Guides for SLGs, NPOs, and Healthcare (HC) Organizations

• AICPA Audit Risk Alerts for SLG, NPOs and HC Organizations

Firm Audit Tools and Resources There are a number of mechanisms to assist practitioners

in enhancing audit quality:

• Practice Aid, Auditing Recipients of Federal Awards: Practical Guidance for Applying OMB Circular A-133 (product no. 006621)

• Practice Aid, Auditing Governmental Financial Statements: Programs and Other Practice Aids (product no. 006602)

• Practice Aid: Applying OCBOA in State and Local Government Financial Statements (product no. 006614)

Firm Audit Tools and Resources Disclosure checklists Audit programs Governmental or NPO conferences/CPE AICPA Governmental Audit Quality Center Web

site (www.aicpa.org/GAQC) FASB, GASB, and/or FASAB Standards AICPA

• Technical Practice Aids• Statements on Auditing Standards• Statements of Position

New Quality Center

AICPA Governmental Audit Quality Center

Council authorized in October 2003 (also established EBP Audit Quality Center)

Governmental audit practice is pervasive

• > 6,300 AICPA firms involved

• Thousands of single audits and other governmental audits annually

Public interest high - federal $$$

What is a Governmental Audit for Purposes of the Center?

All audits and attestation engagements performed under Government Auditing Standards• Yellow Book-only audits (for example, audit of local

government that gets no federal funds but state requires Yellow Book audit)

• Single and program-specific audits

• Audits and attestation engagements performed under various federal audit guides (for example, HUD Consolidated Audit Guide, Education SFA Guide, etc.)

Audit may be of a federal, state, or local government, not-for-profit organization, or certain for-profit organizations

AICPA and Firm Commitment

AICPA helps firms achieve the highest standards in performing quality governmental audits

Firm demonstrates its commitment to governmental audit quality (must adhere to membership requirements which can be found in detail on the GAQC Web site)

GAQC Status Center launched at end of September 2004 and

membership is growing Executive committee oversees Center and

establishes membership requirements Center provides members with Web site, tools

(including monthly newsletters, regular news alerts, best practices) and ability to interact with other members)

Center undertaking outreach activities with stakeholder organizations to increase public awareness of the Center among members of the governmental audit community

GAQC Web Site: www.aicpa.org/GAQC

Comprehensive resource to Center members which includes:• The latest news and spotlight items regarding governmental

audits• Resources regarding the performance of audits under

Government Auditing Standards, Circular A-133, and other compliance audit rules

• A listing of firms that belong to the Center sorted by firm name and state

• Member forum so that firm members can interact with other members

Some portions of the site are available to the general public and provide useful information

Membership Requirements - Highlights

Effective at admission date: Designate audit partner to have firm-wide responsibility

for quality of firm’s governmental audit practice Require designated government audit quality partner to:

• Meet GAS CPE requirements• Participate in an annual Center-sponsored webcast on

recent developments in governmental auditing Make publicly available information about most recently

accepted peer review

Membership Requirements - Highlights

Other Membership Requirements: Establish annual internal inspection procedures within 3

months of admission date Establish policies and procedures specific to the firm’s

governmental audit practice to comply with professional standards and GAQC membership requirements (within 6 months of admission date)

Have governmental audits selected as part of firm’s peer review reviewed by a peer review team member who is employed by a Center member firm (Effective for 2006 peer reviews)

For More Information or to Join

Check out the Center Web Site at: www.aicpa.org/GAQC or E-Mail: GAQC@aicpa.org

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