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Preface

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For guidance regarding performing audits under OMB Circular A-133, the AICPA is continuing to offer the 2015 edition of the Audit Guide Government Auditing Standards and Single Audits.

(Updated as of March 1, 2017)

About AICPA Guides

This AICPA Guide presents guidance for the audits of financial statements conducted in accordance with Government Auditing Standards, December 2011 Revision (also referred to as the Yellow Book), issued by the Comptroller General of the United States of the U.S. Government Accountability Office. It also presents the recommendations of the AICPA Single Audit Working Group for the conduct of audits in accordance with the Single Audit Act and Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).

AICPA Guides may include certain content presented as "Supplement," "Appendix," or "Exhibit." A supplement is a reproduction, in whole or in part, of authoritative guidance originally issued by a standard setting body (including regulatory bodies) and applicable to entities or engagements within the purview of that standard setter, independent of the authoritative status of the applicable AICPA Guide. Both appendixes and exhibits are included for informational purposes and have no authoritative status.

An AICPA guide containing auditing guidance related to generally accepted auditing standards (GAAS) is recognized as an interpretive publication as defined in AU-C section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards (AICPA, Professional Standards). Interpretive publications are recommendations on the application of GAAS in specific circumstances, including engagements for entities in specialized industries.

Interpretive publication are issued under the authority of the AICPA Auditing Standards Board (ASB) after all ASB members have been provided an opportunity to consider and comment on whether the proposed interpretive publication is consistent with GAAS. The members of the ASB have found the auditing guidance in this guide to be consistent with existing GAAS.

Although interpretive publications are not auditing standards, AU-C section 200 requires the auditor to consider applicable interpretive publications in planning and performing the audit because interpretive publications are relevant to the proper application of GAAS in specific circumstances. If the auditor does not apply the auditing guidance in an applicable interpretive publication, the auditor should document how the requirements of GAAS were complied with in the circumstances addressed by such auditing guidance.

The ASB is the designated senior committee of the AICPA authorized to speak for the AICPA on all matters related to auditing. Conforming changes made to the auditing guidance contained in this guide are approved by the ASB chair (or his or her designee) and the Director of the AICPA Audit and Attest Standards staff. Updates made to the auditing guidance in this guide exceeding that of conforming changes are issued after all ASB members have been provided an opportunity to consider and comment on whether the guide is consistent with the Statements on Auditing Standards (SASs).

Any auditing guidance in a guide appendix or chapter appendix in a guide, or in an exhibit, while not authoritative, is considered an "other auditing publication." In applying such guidance, the auditor should, exercising professional judgment, assess the relevance and appropriateness of such guidance to the circumstances of the audit. Although the auditor determines the relevance of other auditing guidance, auditing guidance in a guide appendix or exhibit has been reviewed by the AICPA Audit and Attest Standards staff and the auditor may presume that it is appropriate.

An AICPA Guide containing attestation guidance is recognized as an interpretive publication as defined in AT-C section 105, Concepts Common to All Attestation Engagements (AICPA, Professional Standards). Interpretive publications are recommendations on the application of the Statements on Standards for Attestation Engagements (SSAEs) in specific circumstances, including engagements for entities in specialized industries. Interpretive publications are issued under the authority of the ASB. The members of the ASB have found the attestation guidance in this guide to be consistent with existing SSAEs.

A practitioner should be aware of and consider the guidance in this AICPA Guide applicable to his or her attestation engagement. If the practitioner does not apply the attestation guidance included in an applicable AICPA Guide, the practitioner should be prepared to explain how he or she complied with the SSAE provisions addressed by such attestation guidance.

Any attestation guidance in a guide appendix or chapter appendix in a guide, or in an exhibit, while not authoritative, is considered an "other attestation publication." In applying such guidance, the practitioner should, exercising professional judgment, assess the relevance and appropriateness of such guidance to the circumstances of the engagement. Although the practitioner determines the relevance of other attestation guidance, such guidance in a guide appendix or exhibit has been reviewed by the AICPA Audit and Attest Standards staff and the practitioner may presume that it is appropriate.

The ASB is the designated senior committee of the AICPA authorized to speak for the AICPA on all matters related to attestation. Conforming changes made to the attestation guidance contained in this guide are approved by the ASB chair (or his or her designee) and the Director of the AICPA Audit and Attest Standards staff. Updates made to the attestation guidance in this guide exceeding that of conforming changes are issued after all ASB members have been provided an opportunity to consider and comment on whether the guide is consistent with the SSAEs.

Purpose and Applicability

This guide provides guidance (chapters 1–4) on the auditor’s responsibilities when conducting an audit of financial statements in accordance with Government Auditing Standards. This guide has been prepared using the Government Auditing Standards, December 2011 Revision.

Financial statement audits of state and local governments are often required to be performed in accordance with Government Auditing Standards because they are subject to the Uniform Guidance, or because state and local laws and regulations require it. Because an audit of a government’s financial statements under the provisions of the AICPA Audit and Accounting Guide State and Local Governments is based on opinion units, the auditor’s consideration of items, such as materiality and internal control over financial reporting, in planning, performing, evaluating the results of, and reporting on the audit of a government’s basic financial statements, should address each opinion unit. This guide does not provide specific guidance related to auditing state and local governmental entities in accordance with GAAS; however, the concept of opinion units should be considered when applying the guidance in chapters 1–4 of this guide to the financial statement audit of an entity subject to the provisions of Audit and Accounting Guide State and Local Governments. See that guide for information on performing a GAAS audit of a governmental entity.

Concerning an audit of financial statements in accordance with Government Auditing Standards, this guide

It also provides guidance (chapters 1 and chapters 5–14) on the auditor’s responsibilities when conducting a single audit or program-specific audit in accordance with the Single Audit Act and the Uniform Guidance. This guide was originally issued as Statement of Position (SOP) 98-3, Audits of States, Local Governments, and Not-for-Profit Organizations Receiving Federal Awards, in March 1998 and updated annually for conforming changes for relevant guidance contained in authoritative auditing standards and other requirements. The AICPA converted SOP 98-3 into an audit guide in 2003. That conversion did not supersede the guidance that appeared in SOP 98-3 but only changed its format.

Concerning an audit of federal awards in accordance with the Uniform Guidance,1 this guide

Recognition

2017 Guide Edition

AICPA Senior Committee

Auditing Standards Board

Gerry Boaz, ASB Member
Mike Santay, Chair

The AICPA gratefully acknowledges those members of the AICPA Governmental Audit Quality Center (GAQC) Executive Committee, who reviewed or otherwise contributed to the development of this edition of the guide: Ronald A. Conrad, Brittney Williams, Jeff Winter, and the chair of the Executive Committee, Erica Forhan. In addition, the AICPA gratefully acknowledges others who have contributed to the development of this edition: Ralph DeAcetis, John Good, Terry Ramsey, and George A. Rippey.

AICPA Staff

Susan Reed
Technical Manager
Accounting and Auditing Content Development

Teresa Bordeaux
Lead Technical Manager
Governmental Auditing and Accounting

Guidance Considered in This Edition

This edition of the guide has been modified by AICPA staff to include certain changes necessary due to the issuance of authoritative guidance since the guide was originally issued and other revisions as deemed appropriate. Relevant guidance issued through March 1, 2017, has been considered in the development of this edition of the guide. However, this guide does not include all audit, reporting, and other requirements applicable to an entity or a particular engagement. This guide is intended to be used in conjunction with all applicable sources of relevant guidance.

Relevant guidance that is issued and effective on or before March 1, 2017, is incorporated directly in the text of this guide. Relevant guidance issued but becoming effective on or before June 30, 2017, is also presented directly in the text of the guide, but shaded gray and accompanied by a footnote indicating the effective date of the new guidance. The distinct presentation of this content is intended to aid the reader in differentiating content that may not be effective for the reader’s purposes (as part of the guide’s "dual guidance" treatment of applicable new guidance).

Relevant guidance issued but not yet effective as of the date of the guide and not becoming effective until after June 30, 2017, is referenced in a "guidance update" box; that is, a box that contains summary information on the guidance issued but not yet effective.

In updating this guide, all guidance issued up to and including the following was considered, but not necessarily incorporated, as determined based on applicability:

Users of this guide should consider guidance issued subsequent to those items listed previously to determine their effect, if any, on entities covered by this guide. In determining the applicability of recently issued guidance, its effective date should also be considered.

The changes made to this edition of the guide are identified in the Schedule of Changes appendix. The changes do not include all those that might be considered necessary if the guide was subjected to a comprehensive review and revision.

Terms Used to Define Professional Requirements in This AICPA Guide

Any requirements described in this guide are normally referenced to the applicable standards or regulations from which they are derived. Generally the terms used in this guide describing the professional requirements of the referenced standard setter (for example, the ASB) are the same as those used in the applicable standards or regulations (for example, must or should).

The Uniform Guidance use of terms to define professional requirements is somewhat different than the use of these terms in GAAS and Government Auditing Standards. The use of the term must in the Uniform Guidance indicates a requirement. This is consistent with the use of the term must in GAAS and Government Auditing Standards. The use of the term should in the Uniform Guidance indicates a best practice or recommended approach. However, GAAS and Government Auditing Standards use the term should to indicate a presumptively mandatory requirement. An auditor must comply with a presumptively mandatory requirement in all cases in which such a requirement is relevant, except in rare circumstances. In this guide, the term should, when italicized and bolded, indicates a best practice or recommended approach in the Uniform Guidance. This is intended to differentiate it from the term "should" used throughout the guide to refer to presumptively mandatory requirements in GAAS and Government Auditing Standards.

Readers should refer to the applicable standards and regulations for more information on the requirements imposed by the use of the various terms used to define professional requirements in the context of the standards and regulations in which they appear.

Certain exceptions apply to these general rules, particularly in those circumstances when the guide describes prevailing and/or preferred industry practices for the application of a standard or regulation. In these circumstances, the applicable senior committee responsible for reviewing the guide’s content believes the guidance contained herein is appropriate for the circumstances.

Applicability of Quality Control Standards

QC section 10, A Firm’s System of Quality Control (AICPA, Professional Standards), addresses a CPA firm’s responsibilities for its system of quality control for its accounting and auditing practice. A system of quality control consists of policies that a firm establishes and maintains to provide it with reasonable assurance that the firm and its personnel comply with professional standards, as well as applicable legal and regulatory requirements. The policies also provide the firm with reasonable assurance that reports issued by the firm are appropriate in the circumstances.

QC section 10 applies to all CPA firms with respect to engagements in their accounting and auditing practice. In paragraph .13 of QC section 10, an accounting and auditing practice is defined as "a practice that performs engagements covered by this section, which are audit, attestation, compilation, review, and any other services for which standards have been promulgated by the AICPA Auditing Standards Board (ASB) or the AICPA Accounting and Review Services Committee (ARSC) under the "General Standards Rule" (ET sec. 1.300.001) or the "Compliance With Standards Rule" (ET sec. 1.310.001) of the AICPA Code of Professional Conduct. Although standards for other engagements may be promulgated by other AICPA technical committees, engagements performed in accordance with those standards are not encompassed in the definition of an accounting and auditing practice.”

In addition to the provisions of QC section 10, readers should be aware of other sections within AICPA Professional Standards that address quality control considerations, including the following provisions that address engagement level quality control matters for various types of engagements that an accounting and auditing practice might perform:

Because of the importance of engagement quality, this guide includes appendix B, “Overview of Statements on Quality Control Standards.” This appendix summarizes key aspects of the quality control standard. This summarization should be read in conjunction with QC section 10, AU-C section 220, AT-C section 105, AR-C section 60, and the quality control standards issued by the PCAOB, as applicable.

AICPA.org Website

The AICPA encourages you to visit its website at www.aicpa.org and the Financial Reporting Center at www.aicpa.org/FRC. The Financial Reporting Center supports members in the execution of high-quality financial reporting. Whether you are a financial statement preparer or a member in public practice, this center provides exclusive member-only resources for the entire financial reporting process, and provides timely and relevant news, guidance, and examples supporting the financial reporting process. Another important focus of the Financial Reporting Center is keeping those in public practice up to date on issues pertaining to preparation, compilation, review, audit, attestation, assurance and advisory engagements. Certain content on the AICPA’s website referenced in this guide may be restricted to AICPA members only.

Governmental Audit Quality Center

The GAQC is a voluntary membership center for CPA firms and state audit organizations designed to improve the quality and value of governmental audits. For the purposes of the GAQC, governmental audits are performed under Government Auditing Standards and are audits and attestation engagements of federal, state, or local governments; not-for-profit entities; and certain for-profit organizations, such as housing projects and colleges and universities that participate in governmental programs or receive governmental financial assistance. The GAQC keeps members informed about the latest developments and provides them with tools and information to help them better manage their audit practice. Certain content on the GAQC’s website referenced in this guide may be restricted to GAQC members only.

An Auditee Resource Center, open to the public, is also available on the GAQC website and provides information, practice aids, tools, and other resources that is of interest and benefit to auditees undergoing an audit performed under Government Auditing Standards.

For more information about the GAQC, visit the GAQC website at www.aicpa.org/GAQC.

Select Recent Developments Significant to This Guide

Attestation Clarity Project

To address concerns over the clarity, length, and complexity of its standards, the ASB established clarity drafting conventions and undertook a project to redraft all the standards it issues in clarity format. The redrafting of SSAEs, or attestation standards, in SSAE No. 18, Attestation Standards: Clarification and Recodification (AICPA, Professional Standards), represents the culmination of that process.

The attestation standards are developed and issued in the form of SSAEs and are codified into sections. SSAE No. 18 recodifies the "AT" section numbers designated by SSAE Nos. 10–17 using the identifier "AT-C" to differentiate the sections of the clarified attestation standards (AT-C sections) from the attestation standards that are superseded by SSAE No. 18 (AT sections). The clarified attestation standards found in AT-C sections of AICPA Professional Standards are effective for practitioners’ reports dated on or after May 1, 2017.

Uniform Guidance

In December 2013, the Office of Management and Budget (OMB) issued the Uniform Guidance,4 which establishes uniform cost principles and audit requirements for federal awards to nonfederal entities and administrative requirements for all federal grants and cooperative agreements. Once the administrative requirements and cost principles of the Uniform Guidance are effective for all federal awards to nonfederal entities, the previous OMB guidance and requirements related to administrative requirements and cost principles will be superseded. Note that the cost principles for hospitals have not yet been incorporated into the Uniform Guidance.

The Uniform Guidance is effective for nonfederal entities for all federal awards and certain funding increments provided on or after December 26, 2014. The effective date provisions result in an auditor being required to test federal awards using the pre-Uniform Guidance administrative requirements and cost principles when testing awards awarded prior to December 26, 2014, and the Uniform Guidance administrative requirements and cost principles for federal awards and certain funding increments5 awarded on or after December 26, 2014. The effective date provisions of the Uniform Guidance administrative requirements and cost principles are not affected by the audit requirements used to perform the compliance audit.

The requirements in Subpart F, "Audit Requirements," of the Uniform Guidance are effective for audits of fiscal years beginning on or after December 26, 2014. See supplement B, "Uniform Guidance Audit Requirements," of this guide for a reprint of Subpart F. Single audits of periods prior to this effective date were required to be performed under Circular A-133.

The audit requirements applicable to an auditee that undergoes biennial audits is dependent on the beginning date of the biennial audit period. Similarly, the audit requirements for the audit of a short fiscal period is determined by the beginning date of the short fiscal period.

The COFAR website, https://cfo.gov/cofar/cofar-resources/, contains a number of documents to help nonfederal entities implement and transition to the Uniform Guidance, including links to the current Title 2, Part 200 of the Code of Federal Regulations (the Uniform Guidance), and a FAQ document. The following is some of the available guidance on the COFAR website:

The following documents were previously available on the COFAR website but have been moved. Currently they are available at https://obamawhitehouse.archives.gov/omb/grants_docs:

Note that some documents on the COFAR website are based on the original guidance issued, and do not reflect the most current guidance. However, they may provide information to assist in understanding what revisions were made and the source of those revisions.

It is important that auditors access the most current version of the Uniform Guidance to ensure that any technical corrections and other revisions are included. The most up-to-date version of the Uniform Guidance is available in the Electronic Code of Federal Regulations (e-CFR) located at Title 2—Grants and Agreements, Chapter II (Parts 200–299).

This guide contains guidance and requirements regarding the compliance audit part of a single audit as found in the Uniform Guidance. The guide includes technical corrections issued up through the date of this guide, that is, March 1, 2017. The chapters related to a Uniform Guidance compliance audit are located in part II of this guide. Certain chapters of part II of this guide contain a section titled "Transition Considerations Related to the Uniform Guidance," that provides information regarding significant areas of change, or things to consider, as it relates to that chapter’s content.

The 2017 OMB Compliance Supplement (Compliance Supplement) was not finalized at the publication date of this guide. Therefore, information regarding revisions to the Compliance Supplement in this guide are based on the draft version. Users of the guide should refer to the final 2017 Compliance Supplement for the relevant information needed in performing the compliance audit.

The data collection form (Form SF-SAC) and Federal Audit Clearinghouse requirements have been revised to reflect the requirements of the Uniform Guidance. The current data collection form is applicable for fiscal periods beginning on or after December 26, 2014, to align with the effective date of the Uniform Guidance.

The Uniform Guidance audit requirements have been fully effective for more than a year now. However, auditors are cautioned to be sure that any practice aids and other documents used as part of the Uniform Guidance compliance audit have been updated accordingly. The changes to compliance audit requirements are extensive and any outdated practice aids or other documents used as part of the audit may not provide appropriate audit evidence for the audit.

Audits Performed Under Circular A-133

This guide does not contain information regarding performing a compliance audit under Circular A-133. If an auditor is engaged to perform a compliance audit of a prior period when the audit requirements under Circular A-133 were effective, guidance can be found in the 2015 edition of the Audit Guide Government Auditing Standards and Single Audits. See also Circular A-133, which is still available on the OMB website.

Notes

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TABLE OF CONTENTS

Chapter 1
Introduction and Overview of Government Auditing Standards