GAQC Alert No. 214 


    GAQC Alert
     
    GAQC Releases Updated Illustrative HUD Reports
           
      AICPA  
    February 20, 2013
    GAQC Alert #214
     
     
    In This Alert
       
    Background and Process
    Key Changes in the HUD Report Illustrations
    Using the Reports for Both Versions of Chapter 2
    The HUD Process Going Forward
    Still Time to Register!
       
    Read GAQC Alert #209 for more details about how to register for the second of a GAQC two-part series of Web events on the new Governmental Accounting Standards Board (GASB) pension standards. The event, The New GASB Pension Standards - An Auditor's Perspective: Part II, will be held on February 27, 2013, from 1:00PM - 3:00PM (Eastern Time). This event is open to the public so that GAQC members can invite their clients. If you did not participate in Part I of the series you are encouraged to do so before attending Part II. See below.
    Part I of GAQC Web Series on Pension Standards Now Archived
       
    The first part of the above described GAQC Web event series, An Overview of the New GASB Pension Accounting Standards:
    Part I,
    is now available in a no-CPE archive format for you to listen to. Access the archive.
       
    Additional Resources
       
    GAQC Alerts

    Archived GAQC Web Events

    Audit Practice Aids and Tools

    HUD Information
     
    Dear Center Members
     
    The Governmental Audit Quality Center (GAQC) has been working for the last several months to develop updated illustrative auditor reports that reflect the AICPA new clarity auditing standards. The purpose of this GAQC Alert is to announce today’s release of updated reports for audits performed under the Consolidated Audit Guide for Audits of HUD Programs (HUD Guide). After reading this GAQC Alert, you will be aware of the following:
    The background and process for the development and issuance of the report illustrations;
    A summary of the key changes in the updated HUD reports and an understanding that such reports include an illustrative financial statement report, illustrative reports to meet the requirements of Government Auditing Standards, and illustrative reports for reporting on compliance and internal control over compliance relating to HUD programs;
    An understanding that the reports may be used both by auditors using the previous version of Chapter 2 Reporting Requirements and Sample Reports, of the HUD Guide and also those that have early implemented the recently issued update to Chapter 2 of the HUD Guide; and
    The HUD process going forward.
    Background and Process

    As noted in GAQC Alert #210, HUD recently updated the reporting guidance in Chapter 2 of the HUD Guide. It is effective for audits of entities with fiscal years ending on or after March 31, 2013. However, early application is encouraged. HUD did not include report illustrations in the updated Chapter 2. Instead, HUD asked the AICPA to provide it with updated “clarified” illustrations that are in line with those that will appear in the AICPA Audit Guide, Government Auditing Standards and Circular A-133 Audits (GAS-A133 Guide), for future inclusion in the HUD Guide. The GAQC has been working to develop the HUD report illustrations and submitted them to HUD for its consideration today. The GAQC recommends that you use these clarified reports for your HUD audits until such time that HUD formally issues the report illustrations as an addendum to Chapter 2.

    The revised Chapter 2, among other things, reformats the reporting structure and aligns HUD's reporting guidance with the 2011 Government Auditing Standards (also referred to as the Yellow Book) issued by the U.S. Government Accountability Office and generally accepted auditing standards, issued by the AICPA. The format of the suggested auditor's reporting on internal control and compliance has been aligned to be consistent with the GAS-A133 Guide. That is, in addition to the report on the financial statements, HUD is suggesting one report to meet the requirements of Government Auditing Standards and a separate report that provides an opinion on compliance for each major HUD program and the related reporting on internal control over compliance.

    The GAQC has spent considerable time working with our relevant volunteer committees to develop these updated reports and to gain the appropriate feedback and clearance on them. All of the reports issued today have been reviewed by members of the AICPA Auditing Standards Board. Auditors are reminded that they should exercise professional judgment in any situation not specifically addressed in the illustrative reports.

    To access the reports issued today and those previously released by the GAQC, go to the GAQC Illustrative Reports Web page and click on the link at the top of the page. This will take you to a new page where all of the clarity reports are stored. Alternatively, use the direct links included below.

    Key Changes in the HUD Report Illustrations

    The illustrations include a financial statement audit report for a HUD recipient; several illustrations of 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 several illustrations of the opinion on compliance for each major HUD program and the related reporting on internal control over compliance.

    All reports reflect the requirements of the 2011 edition of Government Auditing Standards and various clarity auditing standards including AU-C section 700, Forming an Opinion and Reporting on Financial Statements (AICPA, Professional Standards) and AU-C section 265, Communicating Internal Control Related Matters Identified in an Audit (AICPA, Professional Standards), and AU-C section 935, Compliance Audits (AICPA, Professional Standards).

    Key changes/information regarding the HUD reports include:

    Revised wording in all reports to adhere to new requirements in both the clarity auditing standards and Government Auditing Standards;
    In the financial statement report, the addition of various subheadings describing the financial statement audit including "Management's Responsibility," the "Auditor's Responsibility," and "Other Matters" (e.g., reporting on other information or required supplementary information);
    In the financial statement report, the addition of a new subheading describing the linkage to the reporting required by Government Auditing Standards;
    In the Yellow Book reports, report subheadings of "Internal Control Over Financial Reporting" and "Compliance and Other Matters;"
    In the Yellow Book reports, a new "purpose alert" as required by AU-C 905, Alert that Restricts the Use of the Auditor's Written Communication (AICPA, Professional Standards), for certain engagements performed under Government Auditing Standards;
    In the HUD compliance reports, use of major headings to clarify fact that the HUD reporting actually includes several distinct reports—that is, a Report on Compliance for Each Major HUD Program (opinion-level assurance) and a Report on Internal Control over Compliance (byproduct reporting on internal control over compliance);.
    In the HUD compliance reports, use of subheads within the Report on Compliance for Each Major HUD Program similar to that used in a financial statement audit report such as "Management's Responsibility," "Auditor's Responsibility," and "Other Matters" (e.g., for referring to a separate written communication when certain immaterial findings are noted in the audit and for informing users that the auditee's response to any findings reported is not opined on by the auditor);
    In the HUD compliance reports, the changes that would be made when the auditor has opinion modification(s) on one or more major HUD programs and unmodified opinion(s) on the other major HUD programs;
    In the HUD compliance reports, a new "purpose alert" as required by AU-C 905 for certain engagements performed under Government Auditing Standards and clarification that such an alert only relates to the reporting on internal control over compliance;
    In the HUD compliance reports, use of major headings to clarify fact that the HUD reporting actually includes several distinct reports—that is, a Report on Compliance for Each Major HUD Program (opinion-level assurance) and a Report on Internal Control over Compliance (byproduct reporting on internal control over compliance);.
    In the HUD compliance reports, how a paragraph relating to management's response to findings is placed in both the Report on Compliance for Each Major HUD Program and the Report on Internal Control over Compliance when there are findings noted in each area.
    Access the illustrative financial statement report for HUD recipients.

    Access the illustrative HUD Government Auditing Standards report illustrations.

    Access the HUD compliance audit report illustrations.
    Using the Reports for Both Versions of Chapter 2
    As noted above, the recently issued Chapter 2 of the HUD Guide is effective for audits of entities with fiscal years ending on or after March 31, 2013; with early application encouraged. The previous version of Chapter 2 formatted the HUD-required reporting differently and also required separate reporting on nonmajor HUD programs and reporting applicable to fair housing and nondiscrimination. Because of the short timeframe that the “old” HUD reporting structure is to be applicable going forward, a decision was reached to provide HUD with updated and clarified report illustrations in the format that will be used going forward under the new Chapter 2. Therefore, the reports issued today comply with the new Chapter 2 requirements. For auditors that have not early implemented the new Chapter 2, the GAQC believes that the new reports can also be used to replace the following reports identified in the previous version of Chapter 2: the “Independent Auditor’s Report on Internal Control Combined Report Applicable to Internal Control Over Financial Reporting Based on an Audit of Financial Statements and Internal Control Over Compliance for HUD-Assisted Programs” and the “Independent Auditor’s Report on Compliance With Specific Program Requirements That Could Have a Direct and Material Effect on Each Major HUD-Assisted Program.” If the auditor is also reporting on nonmajor programs and fair housing and nondiscrimination, the report examples from the previous version of Chapter 2 can continue to be used.
    The HUD Process Going Forward
    HUD will review the reports submitted to it today and will undergo a clearance process to finalize them as an addendum to the recently issued Chapter 2. It will likely take HUD some time to formally issue the report illustrations. While it is possible that there could be changes to the illustrations as a result of the HUD review, as noted earlier, the GAQC recommends that you use these clarified reports for your HUD audits issued in the upcoming weeks and months until such time that HUD formally issues the report illustrations. When that occurs, the GAQC will inform you via a GAQC Alert and will update the links to the reports on the GAQC Web page to direct you to the HUD Web site. Finally, we have informed HUD Office of Inspector General (OIG) staff that due to the late timing of the issuance of these illustrative reports that HUD OIG should inform HUD program officials that many HUD audit reports have already been issued by auditors, using best efforts and professional judgment. The program officials will be notified to expect to see differences in the audit reports that have been previously issued by auditors and the AICPA illustrations for this reason. A similar communication will be made with the AICPA peer review staff.
     
    *   *   *   *   *
    Sincerely,

    AICPA Governmental Audit Quality Center

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