G U I DEA U D I T

Government Auditing Standards and Single Audits

MARCH 1, 2017

G U I DEA u d i t

Government Auditing Standards and Single Audits

2097

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Copyright © 2017 by American Institute of Certified Public Accountants, Inc. New York, NY 10036-8775

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ISBN 978-1-94549-844-2

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Preface

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

(Updated as of March 1, 2017)

About AICPA GuidesThis AICPA Guide presents guidance for the audits of financial statementsconducted in accordance with Government Auditing Standards, December 2011Revision (also referred to as the Yellow Book), issued by the Comptroller Gen-eral of the United States of the U.S. Government Accountability Office. It alsopresents the recommendations of the AICPA Single Audit Working Group forthe conduct of audits in accordance with the Single Audit Act and Title 2 U.S.Code of Federal Regulations (CFR) Part 200, Uniform Administrative Require-ments, Cost Principles, and Audit Requirements for Federal Awards (UniformGuidance).

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

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

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ivInterpretive publication are issued under the authority of the AICPA AuditingStandards Board (ASB) after all ASB members have been provided an oppor-tunity to consider and comment on whether the proposed interpretive publica-tion is consistent with GAAS. The members of the ASB have found the auditingguidance in this guide to be consistent with existing GAAS.

Although interpretive publications are not auditing standards, AU-C section200 requires the auditor to consider applicable interpretive publications inplanning and performing the audit because interpretive publications are rele-vant to the proper application of GAAS in specific circumstances. If the auditordoes not apply the auditing guidance in an applicable interpretive publication,the auditor should document how the requirements of GAAS were compliedwith in the circumstances addressed by such auditing guidance.

The ASB is the designated senior committee of the AICPA authorized to speakfor the AICPA on all matters related to auditing. Conforming changes made tothe auditing guidance contained in this guide are approved by the ASB chair (orhis or her designee) and the Director of the AICPA Audit and Attest Standardsstaff. Updates made to the auditing guidance in this guide exceeding that ofconforming changes are issued after all ASB members have been provided anopportunity to consider and comment on whether the guide is consistent withthe Statements on Auditing Standards (SASs).

Any auditing guidance in a guide appendix or chapter appendix in a guide, orin an exhibit, while not authoritative, is considered an "other auditing publi-cation." In applying such guidance, the auditor should, exercising professionaljudgment, assess the relevance and appropriateness of such guidance to thecircumstances of the audit. Although the auditor determines the relevance ofother auditing guidance, auditing guidance in a guide appendix or exhibit hasbeen reviewed by the AICPA Audit and Attest Standards staff and the auditormay presume that it is appropriate.

An AICPA Guide containing attestation guidance is recognized as an interpre-tive publication as defined in AT-C section 105, Concepts Common to All At-testation Engagements (AICPA, Professional Standards). Interpretive publica-tions are recommendations on the application of the Statements on Standardsfor Attestation Engagements (SSAEs) in specific circumstances, including en-gagements for entities in specialized industries. Interpretive publications areissued under the authority of the ASB. The members of the ASB have foundthe attestation guidance in this guide to be consistent with existing SSAEs.

A practitioner should be aware of and consider the guidance in this AICPAGuide applicable to his or her attestation engagement. If the practitioner doesnot apply the attestation guidance included in an applicable AICPA Guide, thepractitioner should be prepared to explain how he or she complied with theSSAE provisions addressed by such attestation guidance.

Any attestation guidance in a guide appendix or chapter appendix in a guide, orin an exhibit, while not authoritative, is considered an "other attestation pub-lication." In applying such guidance, the practitioner should, exercising profes-sional judgment, assess the relevance and appropriateness of such guidanceto the circumstances of the engagement. Although the practitioner determinesthe relevance of other attestation guidance, such guidance in a guide appendixor exhibit has been reviewed by the AICPA Audit and Attest Standards staffand the practitioner may presume that it is appropriate.

The ASB is the designated senior committee of the AICPA authorized to speakfor the AICPA on all matters related to attestation. Conforming changes made

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vto the attestation guidance contained in this guide are approved by the ASBchair (or his or her designee) and the Director of the AICPA Audit and At-test Standards staff. Updates made to the attestation guidance in this guideexceeding that of conforming changes are issued after all ASB members havebeen provided an opportunity to consider and comment on whether the guideis consistent with the SSAEs.

Purpose and ApplicabilityThis guide provides guidance (chapters 1–4) on the auditor's responsibilitieswhen conducting an audit of financial statements in accordance with Govern-ment Auditing Standards. This guide has been prepared using the GovernmentAuditing Standards, December 2011 Revision.

Financial statement audits of state and local governments are often requiredto be performed in accordance with Government Auditing Standards becausethey are subject to the Uniform Guidance, or because state and local laws andregulations require it. Because an audit of a government's financial statementsunder the provisions of the AICPA Audit and Accounting Guide State and Lo-cal 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 govern-ment's basic financial statements, should address each opinion unit. This guidedoes not provide specific guidance related to auditing state and local govern-mental entities in accordance with GAAS; however, the concept of opinion unitsshould be considered when applying the guidance in chapters 1–4 of this guideto the financial statement audit of an entity subject to the provisions of Auditand Accounting Guide State and Local Governments. See that guide for infor-mation on performing a GAAS audit of a governmental entity.

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

� describes the applicability of Government Auditing Standards.� discusses the relationship between GAAS and Government Audit-

ing Standards.� discusses the standards and guidance found in chapters 1–4 of

Government Auditing Standards, with an emphasis on the stan-dards for financial audits.

� describes the auditor's responsibility for considering internal con-trol over financial reporting, compliance with applicable fed-eral statutes, regulations, and provisions of contracts and grantsagreements, fraud, and abuse.

� describes the auditor's responsibility for reporting and other com-munications and provides examples of the required auditor's re-ports.

It also provides guidance (chapters 1 and chapters 5–14) on the auditor's re-sponsibilities when conducting a single audit or program-specific audit in ac-cordance with the Single Audit Act and the Uniform Guidance. This guide wasoriginally issued as Statement of Position (SOP) 98-3, Audits of States, LocalGovernments, and Not-for-Profit Organizations Receiving Federal Awards, inMarch 1998 and updated annually for conforming changes for relevant guid-ance contained in authoritative auditing standards and other requirements.

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viThe AICPA converted SOP 98-3 into an audit guide in 2003. That conversiondid not supersede the guidance that appeared in SOP 98-3 but only changed itsformat.

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

� describes the applicability of and provides an overview of the re-quirements of the Single Audit Act and the Uniform Guidance.

� discusses the relationship between Government Auditing Stan-dards and the Uniform Guidance.

� describes the auditor's additional responsibilities for consideringinternal control over compliance with direct and material com-pliance requirements; performing tests of compliance with thoserequirements; and performing procedures on the schedule of ex-penditures of federal awards.

� discusses considerations in designing an audit approach that in-cludes audit sampling to achieve both compliance and internalcontrol over compliance related audit objectives in a complianceaudit performed under the Uniform Guidance.

� describes the auditor's responsibilities in a program-specific audit.� describes the auditor's responsibility for reporting and provides

examples of the required auditor's reports.� provides guidance on applying GAAS in a Uniform Guidance com-

pliance audit and adapts that guidance, as appropriate, to the ob-jectives of that compliance audit.2

Recognition2017 Guide Edition

AICPA Senior Committee

Auditing Standards Board

Gerry Boaz, ASB MemberMike Santay, Chair

The AICPA gratefully acknowledges those members of the AICPA Governmen-tal Audit Quality Center (GAQC) Executive Committee, who reviewed or oth-erwise contributed to the development of this edition of the guide: Ronald A.

1 In this guide, the use of the phrases single audit or audit in accordance with the UniformGuidance includes both the financial statement audit and the compliance audit that is performedunder Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements,Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). The use of the termUniform Guidance compliance audit includes only the compliance audit that is performed under theUniform Guidance audit requirements.

2 AU-C section 935, Compliance Audits (AICPA, Professional Standards), states that when per-forming a compliance audit, the auditor, using professional judgment, should adapt and apply theAU-C sections to the objectives of a compliance audit, except for the AU-C sections listed in the ap-pendix, "AU-C Sections That Are Not Applicable to Compliance Audits," of AU-C section 935. Thisappendix notes that the AU-C sections identified as not applicable to a compliance audit are iden-tified as such either because (a) they are not relevant to a compliance audit environment, (b) theprocedures and guidance would not contribute to meeting the objectives of a compliance audit, or (c)the subject matter is specifically covered in paragraph .12 of AU-C section 935. Part II of this auditguide includes the appropriate AU-C sections as adapted for a Uniform Guidance compliance audit.

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viiConrad, Brittney Williams, Jeff Winter, and the chair of the Executive Com-mittee, Erica Forhan. In addition, the AICPA gratefully acknowledges otherswho have contributed to the development of this edition: Ralph DeAcetis, JohnGood, Terry Ramsey, and George A. Rippey.

AICPA Staff

Susan ReedTechnical Manager

Accounting and Auditing Content Development

Teresa BordeauxLead Technical Manager

Governmental Auditing and Accounting

Guidance Considered in This EditionThis edition of the guide has been modified by AICPA staff to include cer-tain changes necessary due to the issuance of authoritative guidance since theguide was originally issued and other revisions as deemed appropriate. Rele-vant guidance issued through March 1, 2017, has been considered in the de-velopment of this edition of the guide. However, this guide does not include allaudit, reporting, and other requirements applicable to an entity or a particularengagement. This guide is intended to be used in conjunction with all applicablesources of relevant guidance.

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

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

In updating this guide, all guidance issued up to and including the followingwas considered, but not necessarily incorporated, as determined based on ap-plicability:

� SAS No. 132, The Auditor's Consideration of an Entity's Abilityto Continue as a Going Concern (AICPA, Professional Standards,AU-C sec. 570)

� SAS No. 131, Amendment to Statement on Auditing Standards No.122 Section 700, Forming an Opinion and Reporting on FinancialStatements (AICPA, Professional Standards, AU-C sec. 700)

� SAS No. 130, An Audit of Internal Control Over Financial Re-porting That Is Integrated With an Audit of Financial Statements(AICPA, Professional Standards, AU-C sec. 940)

� Interpretations issued (or reissued) through March 1, 2017

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viii� The Single Audit Act Amendments of 19963

� Uniform Administrative Requirements, Cost Principles, and Au-dit Requirements for Federal Awards

� Government Auditing Standards, December 2011 Revision� Council on Financial Assistance Reform (COFAR) Frequently

Asked Questions (FAQ), issued up through March 1, 2017

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

The changes made to this edition of the guide are identified in the Scheduleof Changes appendix. The changes do not include all those that might be con-sidered necessary if the guide was subjected to a comprehensive review andrevision.

Terms Used to Define Professional Requirementsin This AICPA GuideAny requirements described in this guide are normally referenced to the ap-plicable standards or regulations from which they are derived. Generally theterms used in this guide describing the professional requirements of the refer-enced standard setter (for example, the ASB) are the same as those used in theapplicable standards or regulations (for example, must or should).

The Uniform Guidance use of terms to define professional requirements issomewhat different than the use of these terms in GAAS and Government Au-diting Standards. The use of the term must in the Uniform Guidance indicatesa requirement. This is consistent with the use of the term must in GAAS andGovernment Auditing Standards. The use of the term should in the UniformGuidance indicates a best practice or recommended approach. However, GAASand Government Auditing Standards use the term should to indicate a pre-sumptively mandatory requirement. An auditor must comply with a presump-tively mandatory requirement in all cases in which such a requirement is rel-evant, except in rare circumstances. In this guide, the term should, when ital-icized and bolded, indicates a best practice or recommended approach in theUniform Guidance. This is intended to differentiate it from the term "should"used throughout the guide to refer to presumptively mandatory requirementsin GAAS and Government Auditing Standards.

Readers should refer to the applicable standards and regulations for more in-formation on the requirements imposed by the use of the various terms usedto define professional requirements in the context of the standards and regula-tions in which they appear.

Certain exceptions apply to these general rules, particularly in those circum-stances when the guide describes prevailing and/or preferred industry practicesfor the application of a standard or regulation. In these circumstances, the ap-plicable senior committee responsible for reviewing the guide's content believesthe guidance contained herein is appropriate for the circumstances.

3 This guide uses the term Single Audit Act when referencing this legislation.

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ix

Applicability of Quality Control StandardsQC section 10, A Firm's System of Quality Control (AICPA, Professional Stan-dards), addresses a CPA firm's responsibilities for its system of quality controlfor its accounting and auditing practice. A system of quality control consistsof policies that a firm establishes and maintains to provide it with reasonableassurance that the firm and its personnel comply with professional standards,as well as applicable legal and regulatory requirements. The policies also pro-vide the firm with reasonable assurance that reports issued by the firm areappropriate in the circumstances.

QC section 10 applies to all CPA firms with respect to engagements in their ac-counting and auditing practice. In paragraph .13 of QC section 10, an account-ing and auditing practice is defined as "a practice that performs engagementscovered by this section, which are audit, attestation, compilation, review, andany other services for which standards have been promulgated by the AICPAAuditing Standards Board (ASB) or the AICPA Accounting and Review ServicesCommittee (ARSC) under the "General Standards Rule" (ET sec. 1.300.001) orthe "Compliance With Standards Rule" (ET sec. 1.310.001) of the AICPA Codeof Professional Conduct. Although standards for other engagements may bepromulgated by other AICPA technical committees, engagements performed inaccordance with those standards are not encompassed in the definition of anaccounting and auditing practice."

In addition to the provisions of QC section 10, readers should be aware of othersections within AICPA Professional Standards that address quality control con-siderations, including the following provisions that address engagement levelquality control matters for various types of engagements that an accountingand auditing practice might perform:

� AU-C section 220, Quality Control for an Engagement Con-ducted in Accordance With Generally Accepted Auditing Stan-dards (AICPA, Professional Standards)

� AT-C section 105� AR-C section 60, General Principles for Engagements Performed

in Accordance With Statements on Standards for Accounting andReview Services (AICPA, Professional Standards)

Because of the importance of engagement quality, this guide includes appendixB, "Overview of Statements on Quality Control Standards." This appendix sum-marizes key aspects of the quality control standard. This summarization shouldbe 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, asapplicable.

AICPA.org WebsiteThe AICPA encourages you to visit its website at www.aicpa.org and the Finan-cial Reporting Center at www.aicpa.org/FRC. The Financial Reporting Centersupports members in the execution of high-quality financial reporting. Whetheryou are a financial statement preparer or a member in public practice, thiscenter provides exclusive member-only resources for the entire financial re-porting process, and provides timely and relevant news, guidance, and exam-ples supporting the financial reporting process. Another important focus of the

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xFinancial Reporting Center is keeping those in public practice up to date onissues pertaining to preparation, compilation, review, audit, attestation, assur-ance and advisory engagements. Certain content on the AICPA's website refer-enced in this guide may be restricted to AICPA members only.

Governmental Audit Quality CenterThe GAQC is a voluntary membership center for CPA firms and state auditorganizations designed to improve the quality and value of governmental au-dits. For the purposes of the GAQC, governmental audits are performed underGovernment Auditing Standards and are audits and attestation engagementsof federal, state, or local governments; not-for-profit entities; and certain for-profit organizations, such as housing projects and colleges and universities thatparticipate in governmental programs or receive governmental financial assis-tance. The GAQC keeps members informed about the latest developments andprovides them with tools and information to help them better manage theiraudit practice. Certain content on the GAQC's website referenced in this guidemay be restricted to GAQC members only.

An Auditee Resource Center, open to the public, is also available on the GAQCwebsite and provides information, practice aids, tools, and other resources thatis of interest and benefit to auditees undergoing an audit performed under Gov-ernment 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 ProjectTo address concerns over the clarity, length, and complexity of its standards,the ASB established clarity drafting conventions and undertook a project toredraft all the standards it issues in clarity format. The redrafting of SSAEs, orattestation standards, in SSAE No. 18, Attestation Standards: Clarification andRecodification (AICPA, Professional Standards), represents the culmination ofthat process.

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

Uniform GuidanceIn December 2013, the Office of Management and Budget (OMB) issuedthe Uniform Guidance,4 which establishes uniform cost principles and au-dit requirements for federal awards to nonfederal entities and administrative

4 Some content in this guide refers to a specific section (or paragraph number) in the UniformGuidance. An example of such section reference is 2 CFR 200.518.

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xirequirements for all federal grants and cooperative agreements. Once the ad-ministrative requirements and cost principles of the Uniform Guidance are ef-fective for all federal awards to nonfederal entities, the previous OMB guidanceand requirements related to administrative requirements and cost principleswill be superseded. Note that the cost principles for hospitals have not yet beenincorporated into the Uniform Guidance.

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

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

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

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

� 2 CFR 200—Uniform Guidance� "Uniform Guidance Crosswalk for Federal Agency Exceptions and

Additions"� FAQs

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

� Uniform Guidance Crosswalk from Predominant Source in Exist-ing Guidance (29 pages, 442 kb)

� Uniform Guidance Crosswalk to Predominant Source in ExistingGuidance (10 pages, 282 kb)

5 The "Frequently Asked Questions" document issued by the Council on Financial AssistanceReform clarifies that federal awards made with modified award terms and conditions at the time ofthe incremental funding action are subject to the Uniform Guidance if that action occurred on or afterDecember 26, 2014. Funding increments with no change to award terms and conditions continue to besubject to pre-Uniform Guidance administrative requirements and cost principles (for example, thosefound in Circular A-122, Cost Principles for Non-Profit Organizations) if the related award was madeprior to December 26, 2014.

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xii� Uniform Guidance Cost Principles Text Comparison (174 pages,

1.62 mb)� Uniform Guidance Audit Requirements Text Comparison (46

pages, 731 kb)� Uniform Guidance Definitions Text Comparison (76 pages, 476 kb)� Uniform Guidance Administrative Requirements Text Compari-

son (123 pages, 1 mb)

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

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

This guide contains guidance and requirements regarding the compliance au-dit part of a single audit as found in the Uniform Guidance. The guide includestechnical corrections issued up through the date of this guide, that is, March1, 2017. The chapters related to a Uniform Guidance compliance audit are lo-cated in part II of this guide. Certain chapters of part II of this guide containa section titled "Transition Considerations Related to the Uniform Guidance,"that provides information regarding significant areas of change, or things toconsider, as it relates to that chapter's content.

OMB Website

The OMB website was relaunched in conjunction with the presidential admin-istration change. At the publication date of this guide key OMB documentswere available in an archive location instead of their previous location. It isexpected that links to these documents will be restored to the main OMBwebpage in the future.

Prior to its relocation to the archive, the Compliance Supplement wasavailable on the OMB website at www.whitehouse.gov/omb/circulars_default. The location as found in the archive is https://obamawhitehouse.archives.gov/omb/circulars_default.

Other Considerations Related to a Uniform GuidanceCompliance AuditThe 2017 OMB Compliance Supplement (Compliance Supplement) was not fi-nalized at the publication date of this guide. Therefore, information regardingrevisions to the Compliance Supplement in this guide are based on the draftversion. Users of the guide should refer to the final 2017 Compliance Supple-ment for the relevant information needed in performing the compliance audit.

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

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

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

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Table of Contents xv

TABLE OF CONTENTSChapter Paragraph

1 Introduction and Overview of Government Auditing Standards .01-.19Purpose and Applicability of This Guide . . . . . . . . . . . . . . . . . . . . . . .01-.11Overview of Government Auditing Standards . . . . . . . . . . . . . . . . . .12-.19

Applicability of Government Auditing Standards . . . . . . . . . . . . .12-.13Additional Requirements of Government Auditing

Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14-.15Use of Terminology to Define Government Auditing

Standards Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16-.19

2 Government Auditing Standards—Ethical Principles and GeneralStandards .01-.51

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01Government Auditing Standards—Ethical Principles . . . . . . . . . . . .02-.05Government Auditing Standards—General Standards . . . . . . . . . .06-.50

Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .07-.30Professional Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31-.33Competence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34-.42Quality Control and Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43-.45External Peer Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46-.50

Appendix—Government Auditing Standards ConceptualFramework for Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51

3 Planning and Performing a Financial Statement Audit inAccordance With Government Auditing Standards .01-.71

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01-.03Agreeing Upon the Terms of the Engagement With

Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .04-.07Planning the Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .08-.15

Communications With Other Entities . . . . . . . . . . . . . . . . . . . . . . . .15Group Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17-.18Audit Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19-.22Understanding the Entity and Its Environment and Assessing

the Risks of Material Misstatement . . . . . . . . . . . . . . . . . . . . . . . . . .23-.31The Entity’s Internal Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25-.28Identifying and Assessing the Risks of Material

Misstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29-.31Performing Audit Procedures and Evaluating Audit Evidence

Obtained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32-.35Tests of Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34-.35

Consideration of Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36-.42Assessing the Risk of Material Misstatements Resulting

From Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40-.42

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3 Planning and Performing a Financial Statement Audit inAccordance With Government Auditing Standards—continued

Consideration of Laws and Regulations in an Audit ofFinancial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43-.52

Consideration of Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53-.58Evaluating Identified Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . .59Developing Elements of a Finding . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60The Auditor’s Communication With Those Charged With

Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61-.65Communicating Internal Control Matters Identified

in an Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66Written Representations From Management . . . . . . . . . . . . . . . . . . .67-.68Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69-.70

Exit Conference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69-.70Appendix—Examples of Deficiencies in Internal Control . . . . . . . .71

4 Auditor Reporting Requirements and Other CommunicationConsiderations of Government Auditing Standards .01-.88

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01Report on the Financial Statements—GAAS Requirements . . . . . .02-.04Additional Reporting Requirements of Government Auditing

Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .05-.06Reporting on Internal Control Over Financial Reporting

and on Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .07-.12Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . .13-.23Fraud, Noncompliance With Provisions of Laws, Regulations,

Contracts, and Grant Agreements, and Abuse . . . . . . . . . . . . . .24-.45Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25-.30Noncompliance With Laws and Regulations . . . . . . . . . . . . . . . . .31-.34Noncompliance With Provisions of Contracts and Grant

Agreements and Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35-.38Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39Additional Considerations Related to Fraud, Noncompliance

With Provisions of Laws, Regulations, Contracts, andGrant Agreements, and Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . .40-.42

Government Auditing Standards—Reporting FindingsDirectly to Parties Outside the Entity . . . . . . . . . . . . . . . . . . . . .43-.45

Report on Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .46-.52Other Considerations—Citing Compliance With

Government Auditing Standards in the Auditor’sReport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49-.51

Other Reporting Responsibilities in an Audit of FinancialStatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52

Report on Internal Control Over Financial Reporting and onCompliance and Other Matters Based on an Audit ofFinancial Statements Performed in Accordance WithGovernment Auditing Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . .53-.54

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4 Auditor Reporting Requirements and Other CommunicationConsiderations of Government Auditing Standards—continued

Other Reporting and Communication Considerations . . . . . . . . . . .55-.83Findings—Deficiencies in Internal Control, Noncompliance

With Provisions of Laws, Regulations, Contracts andGrant Agreements, Fraud, and Abuse . . . . . . . . . . . . . . . . . . . .55-.62

Reporting Views of Responsible Officials and PlannedCorrective Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63-.66

Distributing Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67Reporting Confidential and Sensitive Information . . . . . . . . . . . .68-.71Other Written Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72-.73Portions of the Entity Not Audited in Accordance With

Government Auditing Standards . . . . . . . . . . . . . . . . . . . . . . . . .74-.76Referring to the Work of a Component Auditor . . . . . . . . . . . . . .77-.83

Freedom of Information Act and Similar Laws andRegulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84-.85

Assurance to Regulators and Oversight Agencies . . . . . . . . . . . . . .86-.87Appendix—Illustrative Auditor’s Reports Under Government

Auditing Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88

5 Overview of the Single Audit Act, the Uniform Guidance AuditRequirements, and the Compliance Supplement .01-.56

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01-.02Uniform Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .03Single Audit Act and Uniform Guidance Audit

Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .04-.47Objectives of a Single Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .04-.08General Audit Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .09-.20Reporting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21-.23Auditor Selection and Audit Costs . . . . . . . . . . . . . . . . . . . . . . . . . . .24-.25Basis for Determining When Federal Awards

Are Expended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26-.27Subrecipient and Contractor Determinations . . . . . . . . . . . . . . . . .28Major Program Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29-.32Auditee Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33-.39Federal Awarding Agency Responsibilities . . . . . . . . . . . . . . . . . .40Pass-Through Entity Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . .41Cognizant Agency for Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42-.43Oversight Agency for Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44-.45Program-Specific Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46Required Government-wide Evaluation of Single

Audit Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47OMB Compliance Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48-.49Transition Considerations Related to the Uniform Guidance . . . . .50-.56

Frequently Asked Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55Reference Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56

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6 Auditor Planning Considerations Under the Uniform Guidance .01-.78Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01-.02Adapting and Applying Applicable Auditing Standards to a

Uniform Guidance Compliance Audit . . . . . . . . . . . . . . . . . . . . . . .03-.06Identifying Supplementary Audit Requirements . . . . . . . . . . . . . . . . .07Agreeing Upon the Terms of the Engagement With

Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .08-.09Financial Statement Audit Considerations . . . . . . . . . . . . . . . . . . . . . .10-.13Developing an Efficient Audit Approach . . . . . . . . . . . . . . . . . . . . . . .14Defining the Entity to Be Audited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15Determining the Audit Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16-.17

Fiscal Year and Program Period May Differ . . . . . . . . . . . . . . . . . .16Stub Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Initial-Year Audit Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18-.19Preceding Period Audited by Another Auditor . . . . . . . . . . . . . . .18Factors to Consider Under the Risk-Based Approach . . . . . . . . .19

Timing of the Completion of the Audit and ReportSubmission Deadlines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Determining the Major Programs to Be Audited . . . . . . . . . . . . . . . .21Identifying Direct and Material Compliance Requirements . . . . . .22-.24Audit Risk of Noncompliance Considerations . . . . . . . . . . . . . . . . . .25-.35

Components of Audit Risk of Noncompliance . . . . . . . . . . . . . . . .27-.29Performing Risk Assessment Procedures . . . . . . . . . . . . . . . . . . . . . .30-.35

Assessing the Risks of Material Noncompliance . . . . . . . . . . . . . . . .36-.46Assessing the Risks of Material Noncompliance Due

to Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41-.46Audit Materiality Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47-.52

Materiality Differences Between the Financial StatementAudit and the Uniform Guidance Compliance Audit . . . . . .48-.49

Materiality for Purposes of Reporting Audit Findings . . . . . . . . .50-.52Audit Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53Audit Documentation Access and Audit Follow-Up . . . . . . . . . . . . . .54-.56

Audit Documentation Access and Retention . . . . . . . . . . . . . . . . . .54-.55Audit Follow-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56

Group Audit Considerations in a Uniform GuidanceCompliance Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57-.59

Existence of an Internal Audit Function . . . . . . . . . . . . . . . . . . . . . . . . .60-.69Considerations Related to the Internal Audit Function . . . . . . . .62-.69

Communications With the Cognizant or Oversight Agencyfor Audit and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70

State and Local Compliance Requirements . . . . . . . . . . . . . . . . . . . . .71Desk Reviews and On-Site Reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . .72-.73Restriction on the Auditor’s Preparation of Indirect

Cost Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74Transition Considerations Related to the Uniform

Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75-.78

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7 Schedule of Expenditures of Federal Awards .01-.43Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01-.02Identification of Federal Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .03-.05

Federal Agency and Pass-Through Entity Requirements . . . . . . .03-.04Auditee Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .05

Audit Considerations Related to the Schedule of Expendituresof Federal Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .06-.19

Conditions for and Procedures Related to Issuing theIn-Relation-To Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .06-.12

Additional Auditor Requirements Relating to ComplianceAudit Objectives and Internal Control OverCompliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13-.16

Management Representations Relating to the Scheduleof Expenditures of Federal Awards . . . . . . . . . . . . . . . . . . . . . . .17

Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Reporting on the Schedule of Expenditures of

Federal Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19General Presentation Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . .20-.28

Basis of Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Required Content for the Schedule of Expenditures of

Federal Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21-.23Providing Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .24Schedule May Not Agree With Other Federal Award

Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Inclusion of Nonfederal Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26Considerations Relating to State Awards . . . . . . . . . . . . . . . . . . . .27CFDA Number Not Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Subwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29-.30Treatment of Subawards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29Commingled Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Determining the Value of Federal Financial Assistance . . . . . . . . . .31-.35Treatment of Noncash Assistance and Other Federal

Financial Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31-.32Determining the Value of Federal Financial Assistance

Expended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33Loan and Loan Guarantee Continuing Compliance

Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34Documentation Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Issuing an Opinion on the Schedule of Expenditures ofFederal Awards Under AU-C Section 805 When theAuditor Is Engaged to Perform Only the ComplianceAudit Under the Uniform Guidance . . . . . . . . . . . . . . . . . . . . . . . . .36-.38

Transition Considerations Related to the Uniform Guidance . . . . .39-.42Appendix—Illustrative Schedules of Expenditures of

Federal Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

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8 Determination of Major Programs .01-.38Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01Determining Major Programs Under the Uniform Guidance . . . . .02-.19

Step 1—Determination of Type A and Type B Programs . . . . . .03-.08Step 2—Identification of Low-Risk Type A Programs . . . . . . . . . .09-.13Step 3—Identification of High-Risk Type B Programs . . . . . . . . .14-.15Step 4—Determination of Programs to Be Audited

as Major . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16Percentage-of-Coverage Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Documentation of Risk Assessment . . . . . . . . . . . . . . . . . . . . . . . . . .18Auditor Judgment in the Risk Assessment Process . . . . . . . . . . . .19

Other Considerations Regarding the Determination ofMajor Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20-.21

Federal Agency and Pass-Through Entity Requests forAdditional Major Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Low-Risk Auditee Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Assessing Risk When Determining Major Programs . . . . . . . . . . . .22Criteria for Federal Program Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23-.32

Current and Prior Audit Experience . . . . . . . . . . . . . . . . . . . . . . . . .24-.29Oversight Exercised by Federal Agencies and

Pass-Through Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30-.31Inherent Risk of Noncompliance of the Federal Programs . . . .32

Transition Considerations Related to the Uniform Guidance . . . . .33-.38

9 Consideration of Internal Control Over Compliance forMajor Programs .01-.66

Uniform Guidance—Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .02-.03Internal Control Over Compliance for Federal Awards . . . . . . . . .04-.07

Auditee Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .04-.07Requirements Related to Internal Control in the Uniform

Guidance Compliance Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .08-.09Auditor Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .08-.09

Control Objectives and the Components of Internal Control . . . .10-.11Auditor’s Consideration of Internal Control Over Compliance

for Each Major Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12-.16Obtaining an Understanding of Internal Control Over Direct

and Material Compliance Requirements for MajorPrograms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17-.25

Understanding Direct and Material ComplianceRequirements and Identifying Relevant Controls . . . . . . . . . . .17-.21

Compliance Supplement Internal Control Guidance . . . . . . . . . .22-.23Multiple Organizational Unit Considerations . . . . . . . . . . . . . . . .24Subrecipient Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Planning and Performing the Testing of OperatingEffectiveness of Internal Control Over Direct and MaterialCompliance Requirements for Each Major Program . . . . . . . . .26-.59

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9 Consideration of Internal Control Over Compliance forMajor Programs—continued

Assessing Control Risk of Noncompliance . . . . . . . . . . . . . . . . . . .26-.27Planning the Testing of Operating Effectiveness of Internal

Control Over Compliance for Each Major Program toSupport a Low Assessed Level of Control Risk ofNoncompliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28-.31

Existence of Ineffective Internal Control in Preventing orDetecting Noncompliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32-.34

Performing Tests to Evaluate the Effectiveness of Controls . . . . .35-.38Evaluating the Results of Tests of Controls . . . . . . . . . . . . . . . . . . . .39-.45Significant Deficiencies and Material Weaknesses in

Internal Control Over Compliance Related toFederal Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46-.59

Documentation Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60-.63Transition Considerations Related to the Uniform Guidance . . . . .64-.66

10 Compliance Auditing Applicable to Major Programs .01-.83Compliance Objectives in a Uniform Guidance Compliance

Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .02-.03Responsibilities of Auditee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .04-.05Use of Professional Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .06Audit Risk of Noncompliance Considerations . . . . . . . . . . . . . . . . . .07-.09

Performing Further Audit Procedures in Response toAssessed Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .08-.09

Materiality Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10-.13Materiality Judgments About Compliance Applied to Each

Major Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11-.12Effect of Material Noncompliance on the Financial

Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Performing a Uniform Guidance Compliance Audit . . . . . . . . . . . .14-.72

Identifying Major Programs to Be Tested . . . . . . . . . . . . . . . . . . . . .16Identifying Direct and Material Compliance Requirements . . . .17-.31Planning the Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32-.35Consideration of Internal Control Over Compliance for

Major Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36Performing Compliance Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37-.46Consideration of Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47Consideration of Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48Consideration of Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . .49-.51Evaluation and Reporting of Noncompliance . . . . . . . . . . . . . . . .52-.65Performing Follow-Up Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . .66-.72

Documentation Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73-.74Management Representations Related to Federal Awards . . . . . . .75-.77

Suggested Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76Refusal to Furnish Written Representations . . . . . . . . . . . . . . . . . . .77

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10 Compliance Auditing Applicable to Major Programs—continuedState and Local Government Compliance Auditing

Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78Transition Considerations Related to the Uniform Guidance . . . . .79-.83

11 Audit Sampling Considerations of Uniform Guidance ComplianceAudits .01-.138

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01-.04Audit Sampling in a Uniform Guidance Compliance Audit . . . . .05-.11

Purpose and Nature of Audit Sampling in a UniformGuidance Compliance Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .06-.09

Audit Sampling in the Context of Other Audit Procedures . . . .10-.11Procedures That May Not Involve Audit Sampling . . . . . . . . . . . . . .12-.30

Inquiry and Observation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Analytical Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14-.17Procedures Applied to Every Item in a Population or

Subpopulation in Compliance Testing . . . . . . . . . . . . . . . . . . . .18-.20Individually Important Items in Compliance Testing . . . . . . . . . . .21-.28Understanding and Testing the Operating Effectiveness

of Controls Over Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . .29-.30Planning Considerations for Sampling Related to Tests of

Controls Over Compliance and Compliance Testing . . . . . . . . .31-.89Determining Audit Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31-.32Defining the Population and Considering Completeness . . . . . .33-.48Considering the Effect of Population Size . . . . . . . . . . . . . . . . . . . .49Defining Control Deviation and Compliance Exception

Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50-.51Dual Purpose Sample Considerations . . . . . . . . . . . . . . . . . . . . . . . .52-.57Determining the Sample Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58-.89

Selecting Sample Items for Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90-.98Random Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94Haphazard Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95-.96Systematic Selection With a Random Start . . . . . . . . . . . . . . . . . . .97-.98

Performing the Test Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99-.105Investigate and Understand the Nature and Cause of

Control Deviations and Compliance Exceptions . . . . . . . . . .100-.101Determine If Additional Testing Is Warranted in Response

to an Observed Deviation or Exception . . . . . . . . . . . . . . . . . .102-.105Evaluating Sample Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106-.130

Evaluating Control Deviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106-.113Reaching an Overall Conclusion on Tests of Controls . . . . . . . .114-.115Evaluating Compliance Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . .116-.127Reaching an Overall Conclusion on Tests of Compliance . . . . .128-.130

Documenting the Sampling Procedure . . . . . . . . . . . . . . . . . . . . . . . . .131-.135Transition Considerations Related to the Uniform Guidance . . . . .136-.138

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12 Audit Considerations of Pass-Through Entities and Subrecipients .01-.55Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .02Applicability of the Uniform Guidance . . . . . . . . . . . . . . . . . . . . . . . . .03-.07Pass-Through Entities, Subrecipients, and Contractors . . . . . . . . . .08-.18

Subrecipient Status Versus Contractor Status . . . . . . . . . . . . . . . . .08-.11Description of Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12-.14Contractor Compliance Considerations . . . . . . . . . . . . . . . . . . . . . .15-.18

Single Audit Considerations of Pass-Through Entities . . . . . . . . . . . .19-.45Pass-Through Entity Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . .20Audit Planning Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21-.24Auditor Consideration of Internal Control Over

Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Subrecipient Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26-.38Reporting Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39-.42For-Profit Subrecipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43Foreign Public Entities and Foreign Organizations . . . . . . . . . . .44State Designation of a Cluster of Programs . . . . . . . . . . . . . . . . . .45

Audit Considerations of Subrecipients . . . . . . . . . . . . . . . . . . . . . . . . .46-.49Additional Compliance Requirements Established by

Pass-Through Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47Information Related to the Schedule of Expenditures of

Federal Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48Audit Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

Transition Considerations Related to the Uniform Guidance . . . . .50-.55

13 Auditor Reporting Requirements and Other CommunicationConsiderations in a Single Audit .01-.69

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01-.08Requirements Under the Uniform Guidance . . . . . . . . . . . . . . . . . .03-.04Reporting Package . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .05Illustrative Auditor’s Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .06-.08

Reporting on the Financial Statements and SupplementarySchedule of Expenditures of Federal Awards in AccordanceWith GAAS and Government Auditing Standards in aSingle Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .09-.20

Basis of Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .09Implementing Regulations of Federal Awarding Agencies

May Define the Entity to Be Audited Differently ThanDoes GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Elements of the In-Relation-To Report on the SupplementarySchedule of Expenditures of Federal Awards . . . . . . . . . . . . .11-.13

Potential Report Modifications When Reporting on theSchedule of Expenditures of Federal Awards . . . . . . . . . . . . .14-.15

Considerations When Dating the Report on the Scheduleof Expenditures of Federal Awards . . . . . . . . . . . . . . . . . . . . . . .16-.19

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13 Auditor Reporting Requirements and Other CommunicationConsiderations in a Single Audit—continued

Issuing an Opinion on the Schedule of Expenditures ofFederal Awards Under AU-C Section 805 When theAuditor Is Engaged to Perform Only the ComplianceAudit Under the Uniform Guidance . . . . . . . . . . . . . . . . . . . . . .20

Reporting on Compliance and Internal Control OverCompliance Applicable to Each Major Program . . . . . . . . . . . .21-.28

Material Instances of Noncompliance . . . . . . . . . . . . . . . . . . . . . . .22Scope Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23-.25Report on Compliance for Each Major Program, Report on

Internal Control Over Compliance and Report on theSchedule of Expenditures of Federal Awards Requiredby the Uniform Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26-.27

Dating the Report on Compliance With RequirementsThat Could Have a Direct and Material Effect onEach Major Program and on Internal Control OverCompliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Other Reporting Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29-.32Reissuance of the Uniform Guidance Compliance Report . . . .29-.30Other Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31When the Audit of Federal Awards Does Not Encompass

the Entirety of the Auditee’s Operations . . . . . . . . . . . . . . . . . .32Schedule of Findings and Questioned Costs . . . . . . . . . . . . . . . . . . .33-.45

What Is Required to Be Reported . . . . . . . . . . . . . . . . . . . . . . . . . . . .34-.35Findings Related to the Financial Statements . . . . . . . . . . . . . . . . .36-.37Audit Findings Related to Federal Awards . . . . . . . . . . . . . . . . . . .38-.39Findings of Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40Detail of Audit Findings—Federal Awards . . . . . . . . . . . . . . . . . . .41-.43Other Preparation Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44-.45

Protected Personally Identifiable Information . . . . . . . . . . . . . . . . . . .46-.47Communicating Other Findings to Management . . . . . . . . . . . . . . .48Summary Schedule of Prior Audit Findings and Corrective

Action Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49-.53Data Collection Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54-.62

Submission of Reporting Package and Data CollectionForm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59

Federal Audit Clearinghouse Responsibilities . . . . . . . . . . . . . . . .60-.62Freedom of Information Act and Similar Laws and

Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63Transition Considerations Related to the Uniform Guidance . . . . .64-.68Appendix—Illustrative Auditor’s Reports Under the Uniform

Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69

14 Program-Specific Audits .01-.16Use of a Program-Specific Audit to Satisfy Uniform

Guidance Audit Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .02Program-Specific Audit Requirements . . . . . . . . . . . . . . . . . . . . . . . . . .03

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Chapter Paragraph

14 Program-Specific Audits—continuedAvailability of Program-Specific Audit Guide . . . . . . . . . . . . . . . . . . .04-.05Auditee’s Responsibilities When a Program-Specific Audit

Guide Is Not Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .06Auditor’s Responsibilities When a Program-Specific Audit

Guide Is Not Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .07-.11Audit Scope and Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .07Auditor Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .08Auditor’s Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .09-.11

Submission of Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12-.15Timing of Submission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Submission When a Program-Specific Audit Guide

Is Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Submission When a Program-Specific Audit Guide

Is Not Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14-.15Appendix—Illustrative Auditor’s Reports for Program-Specific

Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Supplement

A Single Audit Act Amendments of 1996

B Uniform Guidance Audit Requirements

Appendix

A Overview of Statements on Quality Control Standards

B Schedule of Changes Made to the Text From the Previous Edition

Index of Pronouncements and Other Technical Guidance

Subject Index

©2017, AICPA Contents

Introduction and Overview of Government Auditing Standards 1

Chapter 1

Introduction and Overview of GovernmentAuditing Standards

Update

A proposed revision to Government Auditing Standards is expected to be is-sued for comment in Spring 2017. A final revision will not likely be issueduntil late 2017 or in 2018. Once it is issued in final form and becomes effec-tive, it will supersede Government Auditing Standards (2011 Revision).

Purpose and Applicability of This Guide1.01 This guide1 has a two-fold purpose:

a. The first purpose is to provide auditors with a basic understandingof the procedures to be performed and of the reports that should beissued for audits of financial statements conducted in accordancewith Government Auditing Standards (also referred to as the Yel-low Book), issued by the Comptroller General of the United Statesof the Government Accountability Office (GAO).2

b. The second purpose is to provide auditors of states, local gov-ernments, and not-for-profit entities (NFPs) that receive federalawards with a basic understanding of the procedures to be per-formed and of the reports that should be issued for single auditsand program-specific audits conducted in accordance with the Sin-gle Audit Act Amendments of 19963 and Title 2 U.S. Code of Fed-eral Regulations (CFR) Part 200, Uniform Administrative Require-ments, Cost Principles, and Audit Requirements for Federal Awards(Uniform Guidance).4

1.02 Government Auditing Standards contains requirements and guid-ance for financial audits, attestation engagements, and performance audits.This guide addresses the Government Auditing Standards requirements andguidance for financial audits, generally only as they relate to audits of financialstatements prepared in accordance with generally accepted accounting princi-ples or a special purpose framework, and compliance audits conducted in ac-cordance with the Single Audit Act and the Uniform Guidance.

1 References to specific paragraph numbers throughout the guide are to paragraphs containedin the guide unless otherwise specified.

2 Government Auditing Standards is available on the Yellow Book page of the U.S. GovernmentAccountability Office (GAO) website at www.gao.gov/yellowbook.

3 The Single Audit Act Amendments of 1996 (Public Law 104-156) were enacted into law in July1996 and replaced the Single Audit Act of 1984. Supplement A, "Single Audit Act Amendments of1996," of this guide is a reprint of the act. Hereafter, this guide uses the term Single Audit Act to referto this legislation.

4 Subpart F, "Audit Requirements" of Title 2 U.S. Code of Federal Regulations Part 200, UniformAdministrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (UniformGuidance) can be found in supplement B, "Uniform Guidance Audit Requirements," of this guide. TheUniform Guidance in its entirety can be found on www.ecfr.gov.

©2017, AICPA AAG-GAS 1.02

2 Government Auditing Standards and Single Audits

1.03 Government Auditing Standards states that auditors may use Gov-ernment Auditing Standards in conjunction with professional standards is-sued by the PCAOB and the International Auditing and Assurance StandardsBoard. For example, audits of certain for-profit entities whose financial state-ment audits are performed under PCAOB audit standards are also subjectto Government Auditing Standards due to their participation in federal pro-grams that require an audit under a federal agency audit guide. Such auditsare not addressed in this guide. However, chapter 4, "Auditor Reporting Re-quirements and Other Communication Considerations of Government AuditingStandards," of this guide highlights certain reporting considerations when thefinancial statement audit is performed under PCAOB audit standards, GAAS,and Government Auditing Standards.

1.04 Government Auditing Standards incorporates by reference AICPAStatements on Auditing Standards.5 Therefore, auditors performing financialstatement audits in accordance with Government Auditing Standards shouldcomply with generally accepted auditing standards (GAAS), the requirementsfound in chapters 1–3 of Government Auditing Standards, and the additionalrequirements for financial audits found in chapter 4, "Standards for FinancialAudits," of Government Auditing Standards. This guide does not contain all theGAAS requirements and guidance that an auditor will need to know and un-derstand in order to perform an audit in accordance with Government AuditingStandards. The guide discusses GAAS requirements and guidance only to theextent necessary to provide the reader with an understanding of the additionalrequirements of Government Auditing Standards and also provides informa-tion on other GAAS guidance with particular relevance to an audit performedin accordance with Government Auditing Standards. Included in this guide'sdiscussion of GAAS is information found in relevant AU-C section paragraphstitled "Considerations Specific to Governmental Entities" that highlight consid-erations specific to governmental entities, entities receiving government fund-ing, and entities being audited in accordance with Government Auditing Stan-dards. Additional information on GAAS requirements for financial statementaudits can be found in the relevant professional standards and applicable Auditand Accounting Guides, such as Not-for-Profit Entities; State and Local Govern-ments; Health Care Entities; Gaming; Employee Benefit Plans; and Depositoryand Lending Institutions: Banks and Savings Institutions, Credit Unions, Fi-nance Companies, and Mortgage Companies.

1.05 As further discussed in the preface to this guide, auditing guidanceincluded in an AICPA Guide is recognized as an interpretive publication pur-suant to AU-C section 200, Overall Objectives of the Independent Auditor andthe Conduct of an Audit in Accordance With Generally Accepted Auditing Stan-dards (AICPA, Professional Standards). Interpretive publications are not au-diting standards. Interpretive publications are recommendations on the appli-cation of GAAS in specific circumstances, in this case to audits performed inaccordance with Government Auditing Standards and to single and program-specific audits under the Uniform Guidance. The GAO, OMB, and AICPA pro-mulgate applicable standards and requirements. Refer to those organizations'

5 Paragraph 4.01 of Government Auditing Standards notes that all sections of the Statementson Auditing Standards are incorporated into Government Auditing Standards, including the intro-duction, objectives, definitions, requirements, and application and other explanatory material.

AAG-GAS 1.03 ©2017, AICPA