GAQC Alert No. 212 


    GAQC Alert
     
    GAQC Releases Updated Illustrative Yellow Book and A-133 Illustrative Reports
           
      AICPA  
    February 5, 2013
    GAQC Alert #212
     
     
    In This Alert
       
    Background and Process
    Yellow Book Report Illustrations
    Circular A-133 Report Illustrations
    Status of Remaining Illustrative Reports
    Upcoming GAQC Web Event to Cover Updated Report Illustrations
    Access Information for OMB 2-8-13 Webcast
       
    As noted in GAQC Alert #211, OMB will be hosting a Webcast this Friday, February 8th from 11:00AM - 12:00PM (Eastern Time) to discuss recently issued proposed changes to the requirements for single audits, as well as other key grant related documents. There has been some confusion about how to gain access to the Webcast. There is no advance registration.
    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 this 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
    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 illustrative reports for audits performed under Government Auditing Standards (also referred to as the Yellow Book), as well as under Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (Circular A-133). We know that many members have been anxiously awaiting these reports and apologize that it has taken so much time to issue them. 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 Yellow Book reports and an understanding that such reports include an example financial statement report for both a state or local government and a not-for-profit (NFP) entity;
    A summary of the key changes in the updated Circular A-133 reports;
    The status of the remaining illustrative reports to be released in the upcoming weeks; and
    A reminder to mark your calendars for a March 13, 2013, GAQC Web event titled, 2013 AICPA Guides for State and Local Governments, Not-for-Profits, and Yellow Book/Circular A-133 Audits: What to Expect for Clarity, Auditor Report Changes, and More, which will cover the revisions to the auditor's reports in more detail.
    Background and Process
    The GAQC is closely involved with two key AICPA Guides—the Audit Guide, Government Auditing Standards and Circular A-133 Audits (GAS-A133 Guide), and the Audit and Accounting Guide, State and Local Governments (the SLG Guide). There are close to 30 report illustrations contained in these two guides. Two recent events caused a need to update the illustrative reports. The first is that the AICPA clarity auditing standards became effective for audits of periods ending on or after December 15, 2012. The second is that the Government Accountability Office issued a new 2011 edition of Government Auditing Standards that became effective for financial audits at the same time as the clarity standards. Both sets of standards revised certain aspects of the reporting that is issued for both Yellow Book and Circular A-133 audits.

    The GAQC has spent considerable time working with our relevant volunteer committees to develop 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, staff at the Government Accountability Office, and various federal agency representatives. 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 to be released in the upcoming weeks, 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 will be stored. Alternatively, use the direct links included in each section below.
    Yellow Book Report Illustrations (Including Two Financial Statement Report Illustrations)

    These illustrative audit reports are excerpts from Appendix A of chapter 4 of the GAS-A133 Guide and they will be incorporated into the 2013 edition of that Guide to be released in late Spring 2013.

    The illustrations include a financial statement audit report for a state or local government and one for a NFP entity. Both of these illustrations are similar to soon-to-be released illustrative reports that will appear in the SLG Guide and the Audit and Accounting Guide, Not-for-Profit Entities, but show auditors the modifications that would be made to the reports when the audit is being performed under both AICPA generally accepted auditing standards and Government Auditing Standards. Additionally, the illustrations released today include various examples of the reports issued to meet the reporting requirements of Government Auditing Standards for internal control over financial reporting and compliance and other matters.

    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).

    Key changes/information regarding the financial statement reports include:

    Revised wording to adhere to new requirements in both the clarity auditing standards and Government Auditing Standards;
    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); and
    The addition of a new subheading describing the linkage to the reporting required by Government Auditing Standards.
    Key changes/information regarding the Yellow Book reports include:
    Revised wording to adhere to new requirements in both the clarity auditing standards and Government Auditing Standards;
    Maintained the existing report subheadings of "Internal Control Over Financial Reporting" and "Compliance and Other Matters"; and
    Replaced the previous "restricted use alert" with a new "purpose alert" as required by AU-C 905, Alert that Restricts the Use of the Auditor's Written Communication, for certain engagements performed under Government Auditing Standards.
    Access the clarified illustrative Government Auditing Standards reports.
    Circular A-133 Report Illustrations
    These illustrative audit reports are excerpts from Appendix A of chapter 13 of the GAS-A133 Guide and they will also be incorporated into the 2013 edition of the GAS-A133 Guide to be released in late Spring 2013. Once issued, that Guide will also include several additional examples (i.e., examples 13-4 - 13-6).

    The illustrations released include various examples of the reports issued to meet the reporting requirements of Circular A-133 for compliance and 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 935, Compliance Audits (AICPA, Professional Standards).

    Key changes/information regarding the Circular A-133 reports include:
    Revised wording to adhere to new requirements in both the clarity auditing standards and Government Auditing Standards;
    Use of major headings to clarify fact that the Circular A-133 reporting actually includes several distinct reports—that is, a Report on Compliance for Each Major Program (opinion-level assurance), a Report on Internal Control over Compliance (byproduct reporting on internal control over compliance), and a Report on the Schedule of Expenditures of Federal Awards (only if such in-relation-to reporting is included in the Circular A-133 report);
    Use of subheads within the Report on Compliance for Each Major 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 reporting other noncompliance findings and informing users that the auditee's response to any findings reported is not opined on by the auditor);
    The changes that would be made when the auditor has opinion modification(s) on one or more major federal programs and unmodified opinion(s) on the other major federal programs;
    Replaced the previous "restricted use alert" with a new "purpose alert" as required by AU-C 905 for certain engagements performed under Government Auditing Standards and clarified that such an alert only relates to the reporting on internal control over compliance;
    The addition of an example of how an auditor might include a table within the report to more clearly articulate findings that modify an opinion on a major federal program or relate to material weaknesses, significant deficiencies, or other noncompliance findings (this change was unrelated to the clarity standards); and
    How a paragraph relating to management's response to findings is placed in both the Report on Compliance for Each Major Program and the Report on Internal Control over Compliance when there are findings noted in each area.
    Access the clarified illustrative Circular A-133 reports.
    Status of Remaining Illustrative Reports (State and Local Governments and HUD)
    As noted in GAQC Alert #210, the U.S. Department of Housing and Urban Development (HUD) recently updated the reporting guidance for for-profit entities in Chapter 2, Reporting Requirements and Sample Reports, of the Consolidated Audit Guide for Audits of HUD Programs (HUD Guide). That chapter did not include updated report illustrations. HUD asked the AICPA to provide it with updated clarified illustrations that are in line with those that will appear in the GAS-A133 Guide for use in the HUD Guide. Now that the Yellow Book and Circular A-133 reports have been issued, the GAQC is currently working to modify the illustrations described above for use in a HUD audit. As soon as those reports are sent over to HUD in draft form (no later than mid-February), the GAQC will post them to its Web site and notify members via a GAQC Alert. If you need to issue HUD reports prior to the posting of these drafts, you can use the reports issued today to assist you in developing your reports.

    The GAQC is also finishing up 5 illustrative audit reports which are excerpts from chapter 14 of the SLG Guide and will be incorporated into the 2013 edition of that Guide to be released in late Spring 2013. The illustrations include various examples of financial statement audit reports for a state or local government when the audit is being performed only under AICPA generally accepted auditing standards. Upon their completion, the GAQC will post them to its Web site and notify members via a GAQC Alert.
    Upcoming GAQC Web Event to Cover Updated Report Illustrations
    Please remember to mark your calendars for the upcoming March 13, 2013, GAQC Web event titled, 2013 AICPA Guides for State and Local Governments, Not-for-Profits, and Yellow Book/Circular A-133 Audits: What to Expect for Clarity, Auditor Report Changes, and More. The event will be held from 1:00PM - 3:00PM (Eastern Time) and will cover the revisions to all of the auditor's report in more detail, as well as other significant changes you can expect to see in the Guides. A future GAQC Alert will provide you with registration instructions.
     
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    Sincerely,

    AICPA Governmental Audit Quality Center

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