A county hospital subject to GAGAS reports on financial statements, internal control and compliance. A single audit adds major-program compliance reporting and a schedule of findings when applicable.
Generally accepted government auditing standards (GAGAS), issued by the Government Accountability Office (GAO) in the Yellow Book, apply when laws, regulations, contracts, grant agreements or policy require them. For a financial audit, GAGAS incorporates the auditing standards for nonissuers by reference and adds reporting requirements on top.
This lesson addresses the following additional reporting requirements:
- A statement that the audit was performed in accordance with GAGAS.
- A report on internal control over financial reporting and on compliance with provisions of the law, regulations, contracts and grant agreements.
- Findings presented with their elements and the views of responsible officials.
- Direct reporting to parties outside the entity when management fails to act.
- Rules for confidential information and for report distribution.
A nonissuer's report states that the audit followed auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards.
Common mistakes
- Opinion where none exists. The GAGAS report expresses no opinion on internal control or compliance; only the single audit report opines, and only on compliance for major programs.
- Finding elements assumed complete. Evaluate whether criteria, condition, cause and effect have been developed to the extent necessary for the audit objectives. An unexplained cause is a gap when the objective requires determining why the condition occurred.
- Wrong questioned costs test. On a major program the auditor reports known questioned costs above $25,000 for a requirement type, and reports known costs of any size when likely questioned costs for that requirement type exceed $25,000; on a nonmajor program only known costs above $25,000 count, so $9,000 known with $64,000 likely is not...
Bottom line
- GAGAS adds a report on internal control over financial reporting and on compliance with provisions of laws, regulations, contracts and grant agreements that have a material effect on the statements; it expresses no opinion on either.
- The report may sit inside the financial statement report or stand alone with the same date; when separate, the financial statement report references it under Other Reporting Required by Government Auditing Standards.
- Required GAGAS findings include material weaknesses, significant deficiencies and reportable fraud or noncompliance; lesser control deficiencies warrant written communication when they merit officials' attention, and lesser noncompliance when more than clearly inconsequential.
- Develop criteria, condition, cause and effect to the extent necessary for the audit objectives, and report responsible officials' views and planned corrective action as applicable.
Exam shortcut
Identify the report's subject before selecting an opinion. GAGAS financial-audit control and compliance reporting ordinarily expresses none; major-program compliance receives its own opinion. Apply the cost tests only to cost-reporting categories and evaluate independently reportable control, noncompliance and fraud findings. For the two management-failure escalation cases, communicate with governance first while also evaluating any separate direct-reporting duty.
The full lesson (about 4,936 words, 33 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- IV.E5
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