During the 2011 conforming change review of the
AICPA Audit and Accounting Guide, State and Local Governments (the SLG Guide), guidance related to supplementary information in financial statements prepared in conformity with an other comprehensive basis of accounting (OCBOA) has changed. The previous edition of the SLG Guide indicated in chapter 15, “Comprehensive Bases of Accounting Other Than GAAP,” paragraph 15.05, that OCBOA financial statements should be accompanied by RSI applicable to the presentation (e.g., management’s discussion and analysis or budgetary comparison information). Further, the guidance indicated that the auditor’s responsibility for and reporting on that information is the same as for required supplementary information that accompanies financial statement prepared in conformity with generally accepted accounting principles (GAAP).
Given the recent issuance of
SAS No. 120, Required Supplementary Information and its definition of required supplementary information as information that a designated accounting standard setter requires to accompany an entity’s basic financial statements, attention was focused on the guidance in paragraph 15.05 of the SLG Guide. After consultation with the Audit Issues Task Force of the
AICPA’s Auditing Standards Board it was determined that the guidance in 15.05 needed modification since there is no designated accounting standard setter for OCBOA presentations. Therefore, RSI cannot technically exist in OCBOA reports.
As a result of the above, paragraph 15.05 of the 2011 SLG Guide states that OCBOA financial statements may be accompanied by information that a designated accounting standard setter requires to accompany an entity’s basic financial statements in a GAAP presentation (i.e. management’s discussion and analysis and budgetary comparison information). However, it goes on to say that such information should be considered other information for the purposes of OCBOA financial statements.
The bottom line effect of this change for auditors is that, going forward, auditors should no longer consider and report on information such as MD&A or budgetary comparison information as RSI when it is included in an OCBOA presentation. Instead, the auditor would consider the information to be other information and refer to
AU section 550A, Other Information in Documents Containing the Audited Financial Statement or
AU section 551A, Reporting on Information in Auditor-Submitted Documents, as appropriate, or to
SAS Nos. 118, Other Information in Documents Containing Audited Financial Statements or
119, Supplementary Information in Relation to the Financial Statements as a Whole, once implemented and/or effective. This will change the auditor’s consideration of the information and related reporting. Because this change came about as a result of the issuance of SAS No. 120, it can be implemented on a prospective basis.
For additional guidance on preparing financial statements for governmental entities under OCBOA, please refer to the
AICPA Practice Aid, Applying OCBOA in State and Local Governmental Financial Statements. The professional guidance on OCBOA financial statements is limited and sometimes confusing and this practice aid makes sense of the applicable professional standards and provides practical guidance. Please note that this Practice Aid has not been updated to reflect the changes to treatment of supplementary information described in this article, but is still a good resource to utilize in preparing and reporting on OCBOA financial statements.