.01 In performing a governmental type audit at a government agency or not-for-profit organization, the Statements on Auditing Standards (SAS's) are applicable. Therefore, the auditor should perform the audit, at a minimum, in accordance with generally accepted auditing standards. However, in governmental type audits and audits for the City of Philadelphia, there are numerous other official publications of which the auditor must be knowledgeable, and the auditor must perform the audit in accordance with the provisions of these additional regulations. The AICPA recognized these additional standards and/or procedures and concluded the following in Ethics Ruling 501-3:

.02 Failure to follow the standards and/or procedures contained in the publications listed in Sections 202 to 207 of this Audit Guide, without disclosure in the auditor's report, will be a violation of Ethics Rule 501. In addition, reference in the auditor's report that the audit was conducted in accordance with the provisions of the City of Philadelphia Subrecipient Audit Guide incorporates the applicable provisions of the publications cited in Sections 202 to 207 as well as the other applicable pronouncements promulgated by the Government Accounting Standards Board (GASB), Financial Accounting Standards Board (FASB) and the AICPA.

.03 The auditor should obtain and become familiar with the following publications prior to auditing the programs of the subrecipient organization. The following is a summary of each publication along with information for obtaining each publication. This summary is provided for informational purposes only. The organization and the auditor should refer to the actual publication for guidance.

.01 Statements on Auditing Standards (SAS). Issued by the Auditing Standards Board and represents generally accepted auditing standards. "Rule 202 of the AICPA's Code of Professional Ethics requires adherence to generally accepted auditing standards, recognizes Statements on Auditing Standards as interpretations of those standards, and requires that members be prepared to justify departures." In addition, the following statements on auditing standards are critical in the performance of a governmental type audit and must be understood and utilized by the auditor.

This Statement provides guidance on the independent auditor's responsibility for the detection of errors and irregularities in an audit of financial statements in accordance with generally accepted auditing standards. It describes factors that influence the auditor's ability to detect errors and irregularities and explains how the exercise of due care should give appropriate consideration to the possibility of errors or irregularities. It also provides guidance on the auditor's responsibility to communicate detected matters both within and outside the entity whose financial statements are under audit.

This Statement prescribes the nature and extent of the consideration an independent auditor should give to the possibility of illegal acts by a client in an audit of financial statements in accordance with generally accepted auditing standards. The Statement also provides guidance on the auditor's responsibilities when a possible illegal act is detected.

This Statement provides guidance on the independent auditor's consideration of an entity's internal control structure in an audit of financial statements in accordance with generally accepted auditing standards. It describes the elements of an internal control structure and explains how an auditor should consider the internal control structure in planning and performing an audit.

In December 1995, the AICPA issued SAS No. 78, which amended SAS No. 55. The amendment was made to recognize the definition and description of internal control contained in Internal Control - Integrated Framework, published by the Committee of Sponsoring Organizations (COSO) of the Tradeway Commission. COSO designated the following five components of internal control:

• Control environment sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure.

• Risk assessment is the entityís identification and analysis of relevant risks to achievement of its objectives, forming a basis for determining how the risks should be managed.

• Control activities are the policies and procedures that help ensure that management directives are carried out.

(1) Superseded by SAS No. 82 - Consideration of Fraud in a Financial Statement Audit

• Monitoring is a process that assesses the quality of internal control performance over time.

This Statement is applicable when an auditor is engaged to audit a governmental entity under generally accepted auditing standards (GAAS), and engaged to test and report on compliance with laws and regulations under Government Auditing Standards (the Yellow Book) or in certain other circumstances involving governmental financial assistance, such as single or organization-wide audits or program-specific audits under certain federal or state audit regulations.

The specific guidance previously provided in SAS No. 68 is now provided in the AICPA Audit and Accounting Guide - Audits of State and Local Government Units, and in Statement of Position (SOP) 92-9, Audits of Not-for-Profit Organizations Receiving Federal Awards, as applicable.

SAS No. 74 is effective for audits of financial statements and of compliance with laws and regulations for fiscal periods ending after December 31, 1994.

• Describes fraud and its characteristics.

• Requires the auditor to specifically assess the risk of material misstatement due to fraud and provides categories of fraud risk factors that should be considered in the auditorís assessment.

• Provides guidance on how the auditor should respond to the results of the assessment.

• Describes related documentation requirements.

• Provides guidance regarding the auditorís communication about fraud to management, the audit committee, and others.

The SAS affects existing standards as follows:

• It supersedes SAS No. 53, The Auditorís Responsibility to Detect and Report Errors and Irregularities.

• Amends Section 110 of SAS No. 1, Responsibilities and Functions of the Independent Auditor, to clarify the auditorís presently existing responsibility in an audit for the detection of material misstatements in financial statements resulting from fraud.

• Amends Section 230 of SAS No. 1, Due Professional Care in the Performance of Work, to include an expanded discussion of due professional care and reasonable assurance.

• Amends SAS No. 47, Audit Risk and Materiality in Conducting and Audit. These revisions provide a foundation within the audit risk model for the consideration of fraud and incorporate certain guidance relating to errors that was formerly included in superseded SAS No. 53.

SAS No. 82 is effective for audits of financial statements for periods ending on or after December 15, 1997. Early application is permissible.

(New Edition as of June 1, 1996)

This AICPA Audit and Accounting Guide (Guide) was prepared to assist nongovernmental not-for-profit organizations in preparing financial statements in conformity with generally accepted accounting principles (GAAP) and to assist independent auditors in auditing and reporting on those financial statements. This Guide applies to organizations that meet the definition of a not-for-profit organization included in appendix D of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 166, Accounting for Contributions Received and Contributions Made.

This Guide incorporates certain provisions of FASB Statement Nos. 116 and 117, Financial Statements of Not-for-Profit Organizations. Not all guidance that is included in those Statements, however, is incorporated, repeated, or summarized in this Guide. Accordingly, those Statements should be read in conjunction with this Guide. Like FASB Statement Nos. 116 and 117, this Guide is directed at not-for-profit organizations in general, and not at specific kinds of such organizations, such as voluntary health and welfare organizations or private colleges and universities.

It also supersedes the following AICPA SOPs:

• SOP 74-8, Financial Accounting and Reporting Colleges and Universities.
• SOP 78-10, Accounting Principles and Reporting Practices for Certain Nonprofit

• SOP 87-2, Accounting for Joint Costs of Informational Materials and Activities of Not-

• SOP 94-2, The Application of the Requirements of Accounting Research Bulletins,

This statement of position (SOP) is only applicable for single audits for years ending through June 30, 1996. Due to the issuance of the revised OMB-133 (effective July 1, 1996) this audit guide is not applicable to single audits for years ending June 30, 1997. A revised SOP is expected to be issued during the Fall of 1997.

All of the above publications are available from the:

The standards for audit of governmental organizations, programs, activities, and functions, the "Yellow Book", provides standards for financial and performance audits of government organizations, programs, activities, and functions, and of government funds received by contractors, not-for-profit organizations, and other nongovernment organizations. The standards incorporate the AICPA Statements on Auditing Standards for field work and reporting on financial audits and prescribe additional standards to meet the needs of government audit report users. The standards pertain to the auditor's professional qualifications, the quality of audit effort, and the characteristics of professional and meaningful audit reports.

The above publication is available from the:

The Circular establishes principles for determining costs applicable to grants, contracts and other agreements with educational institutions. The significant areas covered by the Circular include:

The Circular establishes cost principles and standards applicable to grants, contracts and other agreements with state and local governments. The significant areas covered by the Circular include:

The Circular provides standards and guidance for the administration of grants to state and local governments.

These rules and regulations finalize a common rule establishing consistency and uniformity among federal agencies in the administration of grants and cooperative agreements to state and local governments and federally-recognized Indian tribal governments. This Common Rule was published in the Federal Register, Volume 53. No. 48, on Friday, March 11, 1988.

This Circular sets forth standards for obtaining consistency and uniformity among Federal agencies in the administration of grants to and agreements with institutions of higher education, hospitals, and other nonprofit organizations.

The provisions of the sections of this Circular shall be applied by Federal agencies to recipients. Recipients shall apply the provisions of this Circular to subrecipients performing substantive work under grants and agreements that are passed through or awarded by the primary recipient. This Circular does not apply to grants, contracts, or other agreements between the Federal Government and units of State or local governments covered by OMB Circular A-102, "Grants and Cooperative Agreements with State and Local Governments," and the Federal agencies' grants management common rule which standardized and codified the administrative requirements Federal agencies impose on State and local grantees. In addition, subawards and contracts to State or local governments are not covered by this Circular. However, this Circular applies to subawards made by State and local governments to organizations covered by this Circular.

The effective dates of this new OMB Circular A-110, are as follows:

The Circular includes the following parts:

Subpart A - General

Subpart B - Pre-Award Requirements

Subpart C - Post-Award Requirements

- Property Standards

- Procurement Standards

- Reports and Records

- Termination and Enforcement

Subpart D - After-the-Award Requirements

Appendix A - Contract Provisions

The Circular establishes principles for determining costs of grants, contracts and other agreements with not-for-profit organizations. It does not apply to state and local governments, which are covered by Circular A-87. The significant areas covered by the Circular include:

This Circular was issued pursuant to the Single Audit Act of 1984, P.L. 98-502, and the Single Audit Act Amendments of 1996, P.L. 104-156. It sets forth standards for obtaining consistency and uniformity among Federal agencies for the audit of States, local governments, and non-profit organizations expending Federal awards. The Circular rescinds Circular A-128, "Audits of State and Local Governments," issued April 12, 1985, and supersedes the prior Circular A-133, "Audits of Institutions of Higher Education and Other Non-Profit Institutions," issued April 22, 1996.

(1) OMB Circular A-133 is included in Appendix B of this Audit Guide.

The standards set forth in this Circular, which apply directly to Federal agencies, shall be effective July 1, 1996, and shall apply to audits of fiscal years beginning after June 30, 1996.

In addition, the standards set forth in this Circular that Federal agencies shall apply to non-Federal entities shall be adopted by Federal agencies in codified regulations not later than 60 days after publication of this final revision in the Federal Register, so that they will apply to audits of fiscal years beginning after June 30, 1996.

The audit requirements under this Circular are that Non-Federal entities that expend $300,000 or more in a year in Federal awards shall have a single or program-specific audit conducted for a particular year. The following parameters apply in whether a single audit or program audit is pertinent:

• Single audit. Non-Federal entities that expend $300,000 or more in a year in Federal awards shall have a single audit conducted except when they elect to have a program-specific audit conducted.

• Program-specific audit election. When an auditee expends Federal awards under only one Federal program (excluding R&D) and the Federal programís laws, regulations, or grant agreements do not require a financial statement audit of the auditee, the auditee may elect to have a program-specific audit conducted. A program-specific audit may not be elected for R&D unless all of the Federal awards expended were received from the same Federal agency, or the same Federal agency and the same pass-through entity, and that Federal agency, or pass-through entity in the case of a subrecipient, approves in advance a program-specific audit.

Non-Federal entities that expend less than $300,000 a year in Federal awards are exempt from Federal audit requirements for that year, but records must be available for review or audit by appropriate officials of the Federal agency, pass-through entity, and General Accounting Office (GAO).

The above audit, except for the provisions for biennial audits provided below shall be performed annually. Any biennial audit shall cover both years within the biennial period.

1. A State or local government that is required by constitution or statute, in effect on January 1, 1987, to undergo its audits less frequently than annually, is permitted to undergo its audits pursuant to this part biennally. This requirement must still be in effect for the biennial period under audit.

 

2. Any non-profit organization that had biennial audit for all biennial periods ending between July 1, 1992, and January 1, 1995, is permitted to undergo its audits pursuant to this part biennally.

The financial statements required under this Circular to be prepared by the auditee are:

1. Financial statements that reflect its financial position, results of operations or changes in net assets, and, where appropriate, cash flows for the fiscal year audited. The financial statements shall be for the same organizational unit and fiscal year that is chosen to meet the requirements of the Circular.

 

2. A schedule of expenditures of Federal awards for the period covered by the auditeeís financial statements. At a minimum, the schedule shall:

• List individual Federal programs by Federal agency. For Federal programs included in a cluster of programs, list individual Federal programs within a cluster of programs. For R&D, total Federal awards expended shall be shown either by individual award or by Federal agency and major subdivision within the Federal agency.

• For Federal awards received as a subrecipient, the name of the pass-through entity and identifying number assigned by the pass-through entity shall be included.

• Provide total Federal awards expended for each individual Federal program and the CFDA number or other identifying number when the CFDA information is not available.

• Include notes that describe the significant accounting policies used in preparing the schedule.

• To the extent practical, pass-through entities should identify in the schedule the total amount provided to subrecipients from each Federal program.

• Include, in either the schedule or a note to the schedule, the value of the Federal awards expended in the form of non-cash assistance, the amount of insurance in effect during the year, and loans or loan guarantees outstanding at year end. While not required, it is preferable to present this information in the schedule.

An auditor performing an audit under this Circular shall:

• Perform an audit of the financial statement(s) for the Federal program in accordance with GAGAS;

• Obtain an understanding of internal control and perform tests of internal control over the Federal program consistent with the requirements contained in the Circular for a major program;

• Perform procedures to determine whether the auditee has complied with laws, regulations, and the provisions of contracts or grant agreements that could have a direct and material effect on the Federal program consistent with the requirements contained in the Circular for a major program, and;

• Follow-up on prior audit findings, perform procedures to assess the reasonableness of the summary schedule of prior audit findings prepared by the auditee, and report, as a current year audit finding, when the auditor concludes that the summary schedule of prior audit findings materially misrepresents the status of any prior audit finding.

The auditorís report(s) may be in the form of either combined or separate reports and may be organized differently from the manner presented in this section. The auditorís reports(s) shall state that the audit was conducted in accordance with this part and include the following:

• An opinion (or disclaimer of opinion) as to whether the financial statement(s) of the Federal program is presented fairly in all material respects in conformity with the stated accounting policies;

• A report on internal control related to the Federal program, which shall describe the scope of testing of internal control and the results of the tests;

• A report on compliance which includes an opinion (or disclaimer of opinion) as to whether the auditee complied with laws, regulations, and the provisions of contracts or grant agreements which could have a direct and material effect on the Federal program, and;

• A schedule of findings and questioned costs for the Federal program that includes a summary of the auditorís results relative to the Federal program.

.08 Compliance Supplement for Single Audits of State and Local Governments (Revised September 1990) (1)

.09 Compliance Supplement for Audits of Institutions of Higher Learning and Other Non-Profit Institutions, Issued October 1991 (1)

.10 OMB Circular A-133 Compliance Supplement ñ Provisional 6/97

This document sets forth compliance auditing requirements related to the issuance of the revised OMB A-133 Circular dated June 24, 1997.

This document serves to identify existing important compliance requirements which the Federal Government expects to be considered as part of an audit required by the 1996 Amendments. Without this Supplement, auditors would need to research many laws and regulations for each program under audit to determine which compliance requirements are important to the Federal

(1) These compliance supplements have been superseded by OMB Circular A-133 Compliance Supplement - Provisional 6/97.

Government and could have a direct and material effect on a program. Providing this Supplement is a more efficient and cost effective approach to performing this research. For the programs contained herein, this Supplement provides a source of information for auditors to understand the Federal programís objectives, procedures, and compliance requirements relevant to the audit as well as audit objectives and suggested audit procedures for determining compliance with these requirements.

This Supplement also provides guidance to assist auditors in determining compliance requirements relevant to the audit, audit objectives, and suggested audit procedures for programs not included herein. For single audits, this Supplement replaces agency audit guides and other audit requirement documents for individual Federal programs.

The compliance requirements are specified in Part 3 of the document, under the following categories:

1. Activities Allowed or Unallowed
2. Allowable Costs/Cost Principles
3. Cash Management
4. Davis-Bacon Act
5. Eligibility
6. Equipment and Real Property Management
7. Matching, Level of Effort, Earmarking
8. Period of Availability of Federal Funds
9. Procurement and Suspension and Debarment
10. Program Income
11. Real Property Acquisition and Relocation Assistance
12. Reporting
13. Subrecipient Monitoring
14. Special Tests and Provisions

This Supplement is effective for audits of fiscal years beginning after June 30, 1996, and supersedes the Compliance Supplements "Audits of States and Local Governments," issued in 1990, and "Audits of Institutions of Higher Education and Other Non-Profit Organizations", issued in 1991. It is intended to assist auditors in planning and performing audits in accordance with the requirements of the 1996 Amendments and OMB Circular A-133.

This catalog is a government-wide compendium of federal programs, projects, services and activities which provide assistance or benefits to the American public. The General Services Administration (GSA) is responsible for the dissemination of federal domestic assistance information through the Catalog and maintains the information data base from which program information is obtained. The OMB serves as an intermediary between other federal agencies and the GSA, thus providing oversight relative to the collection of federal domestic assistance program data. Program information provided by the Catalog includes authorizing legislation and audit requirements.

The above publications are available as follows:

• OMB Home Page on the Internet (http://www.whitehouse.gov/WH/EOP/omb) under a section in the OMB documents list called "Grants Management."

• OMB Fax Information Line ñ Telephone: (202) 395-9068:

• Office of Administration

• General Services Administration (GSA)

• Government Printing Office (GPO)