GAQC Alert No. 211 

GAQC Alert
OMB Proposes Sweeping Revisions to Circular A-133 and Other Grants Management Requirements
January 31, 2013
GAQC Alert #211
In This Alert
Summary of the Proposed Guidance
Upcoming OMB Webcast Discussing the Proposed Guidance
GAQC Plans to Comment on the Proposed Guidance
Making Your Clients Aware
How to Find the Proposed Guidance
Looking Forward
Still Time to Register!
Read GAQC Alert #209 for more details about how to register for the upcoming GAQC two-part series of Web events on the new Governmental Accounting Standards Board pension standards. The first event, An Overview of the New GASB Pension Accounting Standards: Part I, will be held on Wednesday, February 6, 2013. The second event, The New GASB Pension Standards - An Auditor's Perspective: Part II, will be held on February 27, 2012. Each event will be held from 1:00PM - 3:00PM (Eastern Time). You can register for one or both of the events. Both events are open to the public so that GAQC members can invite their clients.
Additional Resources
GAQC Alerts

Archived GAQC Web Events

Audit Practice Aids and Tools

HUD Information
Dear Center Members
Today, the U. S. Office of Management and Budget (OMB) issued for comment, Proposed Guidance titled, Proposed OMB Uniform Guidance: Cost Principles, Audit, and Administrative Requirements for Federal Awards, which proposes broad revisions to OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, (Circular A-133), as well as a number of other key grant reforms. This proposal, which is a follow-up to a 2012 OMB Advance Notice, is the next step in the OMB's federal grants improvement initiative. A Federal Register notice is expected tomorrow that will detail out more of the background and how OMB came to some of the conclusions reached in developing the Proposed Guidance. OMB has posted an advance version of the Federal Register notice and has provided a link to where the Federal Register notice can be found tomorrow. After reading this GAQC Alert, you will be aware of the following:
A summary of the Proposed Guidance as it relates to revisions to Circular A-133, the cost principles, administrative requirements, and other areas; including a proposed increase of the threshold for a single audit to $750,000 in federal expenditures.
An opportunity to tune into a one hour OMB Webcast on Friday, February 8, 2013, from 11:00AM - 12:00PM (Eastern Time) to learn more about the changes;
The GAQC comment plans; a request that you submit any comments on the proposal that you would like for the GAQC to consider by March 8, 2013; a suggestion that you inform your clients of this proposal with an encouragement to provide feedback to OMB; and a request that your firm consider providing feedback to OMB on the proposal;
How to find the Proposed Guidance and other useful documents such as a side-by-side comparison of the provisions of the existing Circular A-133 to what is being proposed; and
The process looking forward.
Summary of the Proposed Guidance
The federal government spends more than $600 billion annually in the form of grants and cooperative agreements. OMB and the federal agencies have been talking for some time about how grant policies can be reformed to increase the efficiency and effectiveness of federal programs, as well as to eliminate unnecessary and duplicative requirements and focus in on areas that emphasize achieving better outcomes at a lower cost. OMB's issuance of the Proposed Guidance is the culmination of the information gathering process that began when OMB issued the Advance Notice on this topic area in early 2012.

The Proposed Guidance document is over 200 pages long and the GAQC will be analyzing it in much greater detail over the next several weeks. In the meantime, the following describes some of the key areas of change covered in the Proposed Guidance:

Single Audit Threshold for Audit Proposed to Increase to $750,000. Entities that expend less than $750,000 in federal awards would not be required to undergo a single audit. This would represent an increase from the current $500,000 threshold for single audits which was established in 2003. The Proposed Guidance states that any entity that falls below the $750,000 threshold must make records available for review or audit by appropriate officials of the Federal agency, pass-through entity, and the Government Accountability Office.

Changes to the Major Program Determination Process - Type A/B Threshold. The OMB is proposing to "tinker" with several key provisions of the major program determination process. For example, the minimum threshold for the Type A/B program determination would be revised from $300,000 to $500,000.

Changes to the Major Program Determination Process – High-Risk Type A Programs. The criteria for Type A programs to qualify as high-risk are being revised such that for a Type A program to be designated as high-risk it must have, in the most recent period, failed to receive an unqualified opinion; had a material weakness in internal control; or had questioned costs exceeding five percent of the program's expenditures.

Changes to the Major Program Determination Process - Type B Programs. The proposed guidance would reduce the number of high-risk Type B programs that must be tested as major programs from at least one-half to at least one-fourth of the number of low-risk type A programs. Additionally, small Type B programs would be considered those that are a flat 25% of the Type A/B program threshold.

Percentage of Coverage Changes. The percentage of coverage required in a single audit is proposed to be reduced from the current 50% (normal) and 25% (low-risk auditees) to 40% (normal) and 20% (low-risk auditees).

Criteria for Low-Risk Auditee Status. The criteria for low-risk auditee status has been revised. For example, it would now more clearly include data collection form submission within required timeframes as a criteria and adds a criteria that the auditor did not report a substantial doubt about the auditee's ability to continue as a going concern. It also removes the previous options for waivers in this area.

Reduction in Types of Compliance Requirements to be Tested. The Federal Register notice indicates that OMB is also proposing that the number of types of compliance requirements to be tested in a single audit be reduced from the current 14 types of compliance requirements to 6 types of compliance requirements. Those requirements include: (1) Activities Allowed or Unallowed and Allowable Costs/Costs Principles (the Proposed Guidance does note that this requirement could include some testing of Period of Availability and Matching); (2) Cash Management; (3) Eligibility; (4) Reporting; (5) Subrecipient Monitoring; and (6) Special Tests & Provisions. The proposal would permit the federal agencies to request that certain of the deleted types of compliance requirements be added to the Special Tests & Provisions requirement for programs where they could be considered essential to the oversight of the program. The Federal Register notice states that this change is not reflected in the draft proposal but would be implemented through the first OMB Compliance Supplement to be issued after the proposed change becomes final.

Findings. More detail will be required to be reported in auditor findings. However, the questioned cost threshold for reporting will be increased from $10,000 to $25,000.

Streamlining of Related Circulars and Guidance. The proposal streamlines eight existing OMB Circulars into one document including Circular A-133 and the various Cost Principles. Additionally, the Proposed Guidance would consolidate the cost principles into a single document with limited variations by type of entity. OMB states that the Proposed Guidance will supersede the following OMB Circulars:
A-21, Cost Principles for Educational Institutions
A-87, Cost Principles for State, Local, and Indian Tribal Governments
A-89, Federal Domestic Assistance Program Information
A-102, Awards and Cooperative Agreements with State and Local Governments
A-110, Uniform Administrative Requirements for Awards and Other Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations
A-122, Cost Principles for Non-Profit Organizations
A-133, Audits of States, Local Governments and Non-Profit Organizations
It will also supersede those sections of A-50, Audit Follow-Up, related to Single Audits
Indirect Costs and Time and Effort Reporting. A number of changes are being proposed in these complex areas that the GAQC will be analyzing over the upcoming weeks to determine any impact on auditors performing single audits.

Administrative Requirements. A number of changes are being proposed in this area as well. The GAQC will be analyzing this area within the Proposed Guidance over the upcoming weeks to determine any impact on auditors performing single audits.
Upcoming OMB Webcast Discussing the Proposed Guidance

The Federal Register notice offers those interested in the proposal to register for a one-hour Webcast. This Webcast will bring the OMB Controller together with various stakeholder organizations, including a GAQC representative, to further explore the details of the proposal. The Webcast will be held on Friday, February 8th from 11:00am - 12:00PM (Eastern Time) and will be sponsored by OMB. We are told that you can learn more and register for the Webcast starting tomorrow at

GAQC Plans to Comment on the Proposed Guidance
OMB is providing a 90-day period for comments. The GAQC plans to comment, primarily on the sections of the Proposed Guidance concerning changes to the single audit process. If you have comments regarding the proposal that you believe would be helpful to the GAQC as it develops its comment letter, please send them to no later than Friday, March 8, 2013. Your feedback is very important to us. This timing will allow the GAQC to consider your feedback as part of developing our comment letter. We also encourage your firm or state audit organization to comment directly on the proposal.
Making Your Clients Aware
As a client service, you should also consider making your clients aware of the Proposed Guidance, particularly because some of the proposed revisions may affect the allowability of federal expenditures and the audit requirements to which your clients will be subject to. You might want to consider forwarding your clients this GAQC Alert with an encouragement for them to consider commenting as well. The GAQC believes that it is important for OMB to hear from the grantee community at large.
How to Find the Proposed Guidance
You can access the Proposed Guidance on OMB's Web site at: Additionally, there are several other documents available at this Web site that should be helpful to you as follows:

Advance version of the Federal Register notice
Crosswalk from existing to proposed guidance

Crosswalk from proposed guidance to predominant source in existing guidance

Administrative Requirements Text Comparison

Cost Principles Text Comparison

Audit Requirements Text Comparison

Definitions Text Comparison
Looking Forward

As noted above, the GAQC will be closely analyzing this very comprehensive Proposed Guidance document. We will keep you informed via GAQC Alerts going forward of the various nuances of the proposal we become aware of after further analysis. Finally, there is no stated effective date for the audit provisions contained within the Proposed Guidance. The document states that the effective date will be inserted once the final guidance is issued by OMB.

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AICPA Governmental Audit Quality Center

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