Peer Review Conference takeaways part No. 3: Engagements under Government Auditing Standards
October 14, 2022 | Faye Hayhurst, CPA
Editor’s note: Read parts No. 1: New standards
and No. 2: Audits of employee benefits plan.
This post shares highlights from the half-day workshop at the AICPA’s recent peer review conference related to the performance of engagements under Government Auditing Standards (GAS or Yellow Book). To the CPAs who work in this area: My hat is off to you. To any CPA tempted to dabble in this area, I question whether the fees or client relationships could possibly be worth the amount of work involved in being truly competent to perform this work. This is intense stuff.
Ongoing issues noted by peer reviewers
- Inadequate education. Peer reviewers continue to find issues with professionals working on engagements under GAS not having the ongoing education required under the Yellow Book. The education requirements are not optional; performing an engagement without adequate education makes the engagement nonconforming under the Yellow Book. Peer reviewers will ask to see the records, and firms should be able to clearly identify which courses taken qualify for the 24-hour requirement and the 56-hour requirement.
- Independence threats not appropriately addressed. Every Yellow Book engagement should identify any threats to auditor independence and document safeguards against them. Preparing the entity financial statements is one of the most common threats and preparing the statements in their entirety is a significant threat. Controls in place at the client entity, or management’s skills, knowledge and experience, cannot be the only safeguard for a significant threat.
- Disconnect between risk assessment and testing performed. Firms are getting better at audit risk assessment. But many haven’t mastered how to link that assessment to the actual procedures performed.
Pandemic relief funding
We’re all aware that there were many programs unleashed by the federal government to help a variety of entities deal with the COVID-19 pandemic. But auditing an entity that received funding under certain of these programs requires a whole other level of awareness.
As a CPA in business and industry, I don’t perform audits under Government Auditing Standards. But for fun, I downloaded the 2022 Compliance Supplement issued by the OMB. This document is 1,968 pages, with details about what is required for every federal program. If a CPA doesn’t know their way around this document — and know how it applies to their client — it might be advisable to steer clear of Yellow Book work and Single Audits in particular.
Some notes of interest:
- Appendix IV has important information about programs that carry a “higher risk” designation.
- Appendix VII relates to COVID-19 funding programs in particular.
- Although $750,000 in federal expenditures is typically the threshold for requiring a Single Audit, there’s an exception for funding received under CSLFRF, the Coronavirus State and Local Fiscal Recovery Funds program. Organizations meeting certain requirements can elect to have an alternative compliance examination engagement in lieu of a full single audit. The details are in Part 4 – Section IV, “Other Information” of assistance listing 21.027.
The AICPA has a Government Audit Quality Center (GAQC) — www.aicpa.org/GAQC
— that has many great resources for firms performing these audits. While a paid membership is required to access the full extent of GAQC resources, some are available for a limited time to nonmembers.
The MNCPA also has numerous educational opportunities. Search “government” or “Yellow Book” on our CPE catalog
Thanks to all of you who do a great job in auditing these entities!
Topics: Accounting & Auditing
Faye Hayhurst, CPA
Faye Hayhurst is the MNCPA director of finance and administration. She is committed to using numbers to tell relevant stories, although she also employs words, charts and occasionally clothing to communicate a message. While some have questioned her about the pressures of being the CPA for the MNCPA, Faye considers presenting financial information to fellow CPAs a dream job. Outside of storytelling with numbers, Faye enjoys directing her church's handbell choir, visiting national parks and other scenic places, and checking out the chocolate products at Trader Joe's. Faye can be reached at 952-885-5540 or email@example.com.
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