GAQC Alert No. 198 

GAQC Alert
OMB Releases Final 2012 Compliance Supplement
July 24, 2012
GAQC Alert #198
In This Alert
Key Matters and Changes to the Supplement
Major Changes made to the Final Draft of the 2012 Supplement
How You Can Access the Supplement
Register for the July 27th Rebroadcast of the 2012 Supplement Web Event
GAQC Suggested Supplement Practice Tips
A Reminder About the Importance of the Supplement


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Dear Center Members
Today, the Office of Management and Budget (OMB) released the final 2012 OMB Circular A-133 Compliance Supplement (the Supplement). As you are aware from previous Governmental Audit Quality Center (GAQC) communications (see GAQC Alert #195), OMB previously released a draft of the Supplement for auditor planning purposes due to a delay in the OMB clearance process. Members should discontinue use of the draft Supplement at this time and begin using the final Supplement. After reading this GAQC Alert you will be aware of the following important information:

Key matters and changes to the Supplement that you should focus on;

A summary of the major changes made to the 2012 Supplement since the OMB released the draft of the Supplement;

How you can access the Supplement;

How to register for a July 27th rebroadcast of a GAQC Web event on the 2012 Supplement or access an archive of the Web event on the GAQC Web site;

GAQC suggested Supplement best practices; and

A final reminder on the importance of the Supplement

Key Matters and Changes to the Supplement

The first thing you should do is to review Appendix V, List of Changes for the 2012 Compliance Supplement, to identify what the major change areas are for this edition of the Supplement. Additionally, regardless of whether your auditees have expended funds relating to the American Recovery and Reinvestment Act of 2009 (Recovery Act), you should also review Appendix VII, Other OMB Circular A-133 Advisories, which includes critical matters related to the major program determination process due to the Recovery Act and other non-Recovery Act guidance.

Major Changes made to the Final Draft of the 2012 Supplement

As noted in GAQC Alert #195, in June the OMB provided a final draft of the Supplement to the GAQC (which the GAQC posted to its Web site) and other stakeholder organizations so that auditors could use it for planning purposes. If you have been using the final draft Supplement for planning purposes, or perhaps even to get started on actual testing, it is very important that you use the final Supplement for your 2012 single audits. Overall, there were very few substantive changes made to the draft version that was previously released. However, you should still closely review Appendix V to ascertain whether anything that you might have referred to in the draft document has changed or whether there were any related additions or deletions. The following summarizes a few of the more significant changes that were made by OMB to the previous draft:

The Federal Funding and Transparency Act (FFATA) discussion in Part 3, Compliance Requirements, Section L, Reporting, was revised to provide more clarity with respect to prime contracts and subcontracts.

The "Suggested Audit Procedures - Compliance" in Section L. Reporting, removed timeliness as an element of financial reporting. In prior year's editions of the Supplement, the audit procedure at step 3a.(1) required the auditor to "Ascertain if the financial reports are complete and accurate, were prepared in accordance with the required accounting basis, and were submitted timely to the pass-through entity or the Federal agency, as applicable." There has been a trend over time for OMB to remove auditor testing procedures relating to timeliness of reporting in that the federal agencies should already be aware whether such reports have either been filed or not. Therefore, the removal of this "timeliness" procedure is consistent with this trend.

The draft Supplement had added an addition in the "Other Information" section in Part 5, Clusters of Programs, clarifying that all National Science Foundation (NSF) awards should be treated as Research & Development (R & D) and audited as such. However, OMB has removed this clarifying guidance from the final 2012 Supplement. GAQC understands that the guidance was removed primarily due to industry concerns regarding transitional issues associated with the guidance. OMB and NSF will be working to resolve any transitional issues and will likely issue new clarifying guidance on the nature of NSF awards in a future Supplement. Auditors should continue to use professional judgment, as has been done in the past, to evaluate management's determination of the nature of NSF awards (i.e., whether they should be should be treated as R & D).

How You Can Access the Supplement

You can find the Supplement on the grants management section of the OMB's Web site (scroll down to the "Audit Requirements" section).

Register for the July 27th Rebroadcast of the 2012 Supplement Web Event or Access the Archived Event.

There is one last continuing professional education (CPE) rebroadcast opportunity for the GAQC Web event titled, The 2012 OMB Compliance Supplement and Related Best Practice Tips, on Friday, July 27, 2012, from 1:00 PM-3:00 PM (Eastern Time). This event, which was very well received by members that participated in the live event, is intended to provide participants with an overview of important information in the 2012 Supplement. It will also provide you with tips for ensuring that your firm is avoiding common pitfalls associated with using the Supplement. The Web event is presented by a panel of presenters that have first-hand experience with the Supplement and who have also been involved in related GAQC efforts. Register for the rebroadcast of this Web event for CPE. If you do not wish to receive CPE for the event, there is also a no-CPE archive of the Webcast available on the GAQC Web site. Access the No-CPE archive.

GAQC Suggested Supplement Practice Tips

Because the Supplement is one of the most important pieces of guidance that you use in performing single audits, it is important that you use it properly. The following are a few tips for you to consider as you begin your 2012 audit season. Many of these tips are discussed in more detail in the Web event discussed above.

It is important for your engagement teams to be using the correct version of the Supplement. Bookmark the 2012 Supplement to ensure that you are using the correct year. You can find the 2011 Supplement at the same link. If you previously referred to the final draft 2012 Supplement, it is very important to ensure that you ultimately use the final Supplement for your engagements.
As part of your single audit engagement preparation, hold a planning meeting to review the 2012 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.
Part 2, Matrix of Compliance Requirements, identifies the compliance requirements that are applicable to the programs included in this Supplement. Many issues with using this Part of the Supplement have been noted in single audit quality reviews and 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, either because 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 non-Federal 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;
  • DOCUMENTING the determination of why an applicable requirement is NOT deemed direct & material. Just using an "N/A" or "Not Direct and Material" tickmark is not enough. You need to document your logic for making the decision.
Because Part 4, Agency Program Requirements, and Part 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.
Pay particular attention to Appendix VII, which includes important guidance on the Recovery Act and its effect on your single audits, as well as other information on loans and loan guarantees, late filings and more.
Refrain from using the Supplement as a defacto 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.
A Reminder About the Importance of the Supplement

The Supplement identifies the existing important compliance requirements that the federal government expects to be considered as part of a single audit and is one of the most important pieces of guidance that you use in performing single audits. It provides a source of information for auditors to understand federal program objectives, procedures, and compliance requirements, as well as audit objectives and suggested audit procedures for determining compliance with these requirements. As the designated audit quality partner for your firm or designated audit quality leader for your State Audit Organization, you should give the 2012 Supplement your immediate attention and ensure that your staff has the information they need to help ensure single audit quality.

The GAQC will be monitoring implementation of the Supplement and to the extent we receive common questions on particular areas, we will communicate back to you any information that might be helpful in ensuring an appropriate understanding of the provisions of the Supplement. If you have any questions or clarifications that you think need to be addressed, please e-mail us at so that we are aware of any issues or problems that our members are facing.

We hope you find this information useful as you plan your 2012 audits and thank you for your commitment to governmental audit quality.

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AICPA Governmental Audit Quality Center

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