GBW 8th ed., Ch. 193
TYPES OF AUDITINGObjective Audit Type Standards
Financial statement
Financial statement audit
AICPA: GAAS
Compliance FinancialPerformance
GAO: GASB
Internal Operational IIA: Internal Auditing Standards
GBW 8th ed., Ch. 194
COMPLIANCE AUDITS: Government Entities
Also recipients of governmental financial assistance (SAS 74)Audit must conform to GAAS GAO standards Single Audit Act
GBW 8th ed., Ch. 195
COMPLIANCE AUDITS: Other Examples
Compliance with:Minimum wage lawsEmployee benefits programsCommercial bank lending agreementsSpecial engagements Hazardous waste trust fund State-sponsored health insurance
program
GBW 8th ed., Ch. 196
RESPONSIBILITIES UNDER GAAS
Responsibility for detecting violations of laws, regulations identical to responsibility for client error, fraud Assess risk of violations creating
material misstatements Design procedures to detect
anticipated violations
GBW 8th ed., Ch. 197
EFFECTS OF LAWS, REGULATIONS
Management responsible for identifying laws, regulations having direct, material effect on financial statementAuditor designs procedures to detect violations
GBW 8th ed., Ch. 198
COMPLIANCE & INTERNAL CONTROL
Compliance audit requires auditor to Understand internal controls Assess control risk Obtain knowledge about design,
performance of internal control policies, procedures
GBW 8th ed., Ch. 199
GOVERNMENT AUDITING STANDARDS
Written by GAOGAGAS AICPA 10 GAAS Standards related to
Independence & Quality control Audit documentation Legal, regulatory requirements
GBW 8th ed., Ch. 1910
GOVERNMENT FINANCIAL AUDITS: Financial Statement Audits
Financial statement audits determine whether Financial statements fairly presented Entity complied with laws, regulations
GBW 8th ed., Ch. 1911
GOVERNMENT FINANCIAL AUDITS: Financial-Related Audits
Financial-related audits determine whether Financial reports, related items fairly
presented Financial information in accord with
established, stated criteria Entity adhered to financial
compliance requirements
GBW 8th ed., Ch. 1912
GOVERNMENT PERFORMANCE AUDITS
Economy & efficiency audits determine whether Entity acquires, protects, uses
resources economically & efficiently Causes of diseconomies, inefficiencies Compliance with laws, regulations
related to efficiency
GBW 8th ed., Ch. 1913
GOVERNMENT PROGRAM AUDITS
Program audits determine Extent to which program
achieves results, benefits Effectiveness of organization,
program, activity, function Compliance with laws,
regulations
GBW 8th ed., Ch. 1914
REPORTING ON COMPLIANCE
Positive assurance on tests for noncomplianceDescription of material instances of noncompliance, if any
GBW 8th ed., Ch. 1915
REPORTING ON INTERNAL CONTROL
Government auditing standards require report on internal control in all governmental financial audits to Describe costs, benefits, objectives,
limitations of internal control State that auditor assessed control risk Describe deficiencies in internal control
not considered reportable conditions
GBW 8th ed., Ch. 1916
SINGLE AUDIT ACT
Audit coverage All governmental units that
receive any federal assistance
Reporting requirements for governments receiving over $300,000
GBW 8th ed., Ch. 1917
SINGLE AUDIT ACT: Reports
5 additional reports required onCompliance with General RequirementsMajor Program compliance with specific requirementsNonmajor Program compliance with specific requirementsSchedule of Federal Financial AssistanceInternal controls over Federal Financial Assistance
GBW 8th ed., Ch. 1918
SINGLE AUDIT ACT: General Requirements 1
9 general requirements Involve significant national policy Could materially effect entity’s
financial statements
GBW 8th ed., Ch. 1919
SINGLE AUDIT ACT: General Requirements 2
Political activityDavis-Bacon Act: labor ratesCivil RightsCash ManagementRelocation assistance, real property acquisitionFederal Financial ReportsAllowable cost/cost principleDrug-free workplaceAdministrative requirements
GBW 8th ed., Ch. 1920
SINGLE AUDIT ACT: Specific Requirements 1
Major programs Types services allowed, not allowed Eligibility Matching, level of effort, earmarking Reporting Special tests & provisions
GBW 8th ed., Ch. 1921
SINGLE AUDIT ACT: Specific Requirements 2
When transactions from nonmajor programs are tested Compliance with applicable laws,
regulations Allowability program expenditures Eligibility
GBW 8th ed., Ch. 1922
INTERNAL AUDITING
Internal auditing is an independent, objective assurance, consulting activity designed to add value, improve organizations operations.
It helps organization accomplish objectives by bringing systematic, disciplined approach to evaluate, improve effectiveness of risk management, control, governance
Institute of Internal Auditors
GBW 8th ed., Ch. 1923
INTERNAL AUDITING: Independence, Objectivity
Independence achieved by reporting to board of directorsObjectivity achieved by appraising controls, not designing or implementing them
GBW 8th ed., Ch. 1924
OPERATIONAL AUDITING
Verification of dataAppraisal of controlsCompliance with policies, plans, proceduresProtection of assetsAppraisal of performanceRecommendations for operating improvements
GBW 8th ed., Ch. 1925
SCIENTIFIC METHOD & OPERATIONAL AUDITSScientific Method Operational Audit
FunctionRecognize problem Become familiar with activity to be reviewed
Formulate hypothesis
Hypothesis: control operating properly relevant to objective
Gather evidence to test hypothesis
Select procedures; gather evidence
Evaluate evidenceDevelop conclusions
Evaluate evidenceReport
GBW 8th ed., Ch. 1926
AUDITOR’S CONSIDERATION INTERNAL AUDIT FUNCTION
SAS 65 Guidance on
Considering work of internal auditors Using internal auditors to provide direct
assistance
GBW 8th ed., Ch. 1927
UNDERSTANDING CONTROLS: Internal Auditor
Auditor should obtain understanding of internal audit function as part of assessment of control risk Organizational status Adherence to professional standards Internal auditor’s audit plan Access to records; limitations on scope of
activities Charter or mission statement
GBW 8th ed., Ch. 1928
ASSESSING COMPETENCE, OBJECTIVITY: Internal Auditor
SAS 65 requires independent auditor to review competence, integrity of internal auditor Education, experience, certification,
continuing education Audit policies, programs, procedures Practices for assigning internal auditors Quality work paper documentation