Chapter 11 – Auditing of Governmental and Not-for-Profit Organizations
11–10
11-14. Although this case requires no analysis, it is a useful exercise to give students a feel for
the resources auditors use to test for compliance in performing single audits.
a. The Catalog of Federal Domestic Assistance (CFDA) number for this program is
readily determinable from the Catalog: 16.710.
A. Activities Allowed or Unallowed
B. Allowable Costs/Cost Principles
C. Cash Management
d. (1) No. It does not appear that a Fourth of July picnic, even if it did improve
community relations, would qualify as allowable activities. Allowable costs
General Problem Information: Auditing a federal program
Chapter 11 – Auditing of Governmental and Not-for-Profit Organizations
11–11
11-15.
a. The seven threats found in GAGAS Section 3.10 are as follows:
(1) Self-interest threat – the threat that a financial or other interest will
inappropriately influence an auditor’s judgment or behavior.
(2) Self-review threat – the threat that an auditor will not appropriately evaluate the
results of a previous judgment made or service performed by the auditor, or the
audit organization, on which the auditor will rely when forming a judgment
significant to an audit.
Three of the seven threats could apply to this situation. Since the accounting firm put
offices, familiarity threat could also prove to be an issue.
b. A request for proposals for governmental audit services should describe accounting-
related characteristics of the governmental entity and detail the scope of audit services
Chapter 11 – Auditing of Governmental and Not-for-Profit Organizations
11–12
Ch. 11, Solutions, Case 11–15 (Cont’d)
The introductory section typically includes information about the governmental entity
and the audit. Some governments, primarily those with large, complex audits, require
auditor, and other considerations, such as working paper retention and access to
working papers.
The government seeking an audit should also be described in the RFP. Summary
financial data (e.g., total revenues, number of funds, component units) and accounting
A solution this complete would require some research on the part of the student.
Sample RFPs for government audits are available online. On example is:
https://www.iacpa.org/Libraries/RFPs/RFPSample1GovernmentalEntities.sflb.ashx.
General Problem Information: Auditor selection and independence
Learning Objective: 11-2
Learning Objective: 11-5
Topic: Ethics and Independence, Special Topics Related to Audits of Governments and
Not-for-Profits
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: Critical Thinking
Level of Difficulty: Hard
11-16.
a. The purpose of the exposure draft was to identify the authoritative sources of GAAP
Chapter 11 – Auditing of Governmental and Not-for-Profit Organizations
11–13
Ch. 11, Solutions, Case 11–16 (Cont’d)
b. The board’s initial approach was to develop a one-category hierarchy of authoritative
literature. In its discussions, it determined that the primary source of GAAP for state
bulletins and implementation guides to be included in a single category hierarchy.
Both of these forms of guidance are subjected to a less rigorous process that GASB
Standards, which concerned the board. The tentative conclusion was that
implementation guides would need to have broader public exposure to fit into the one-
category hierarchy, and that technical bulletins would need to be eliminated.
bulletins, GASB implementation guides, and AICPA literature.
c. The hierarchy in this chapter lists four categories of authoritative accounting principles
for state and local governments. The new hierarchy contains only two categories, and
eliminates GASB interpretations from the hierarchy.
d. Students’ answers will differ depending on the status of the project at the time this
Learning Objective: 11-1
Learning Objective: 11-2
Topic: The Audit Process
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Chapter 11 – Auditing of Governmental and Not-for-Profit Organizations
11–14
Ch. 11, Solutions (Cont’d)
11-17.
a. There are many resources, workshops, articles and books on the topic of audit
committees in general. For governments, in particular, the AICPA has a resource
titled Government Audit Committee Toolkit available at www.aicpa.org.
Learning Objective: 11-5
Topic: Special Topics Related to Audits of Governments and Not-for-Profits
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Chapter 11 – Auditing of Governmental and Not-for-Profit Organizations
11–15
Solutions to Exercises and Problems
11-18. Each student should have a different governmental annual report, so will have different
General Problem Information: Examine the CAFR
Learning Objective: 11-1
Topic: Financial Audits by Independent CPAs
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
11-19. 1. d. 6. c.
2. b. 7. a.
General Problem Information: Various
Learning Objective: 11-1
Learning Objective: 11-2
Learning Objective: 11-3
Learning Objective: 11-4
Topic: Various Chapter Topics
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
11-20. 1. Q 6. DNQ*
* This is basic knowledge an accountant should possess.
** This is to help individual clients, and is not related to government.
***This is specifically excluded on page 22 of the GAO guidance.
General Problem Information: Continuing Professional Education
Learning Objective: 11-2
Topic: GAGAS Financial Audits
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: Critical Thinking
Level of Difficulty: Medium
Chapter 11 – Auditing of Governmental and Not-for-Profit Organizations
11–16
Ch. 11, Solutions (Cont’d)
11–21.
a. Total federal awards expended for the year are $17,130,000. Using the
sliding scale for determining the threshold for a Type A program (found
earlier in this chapter), it can be determined that the threshold is $750,000,
and 7 as high-risk Type B programs.
c. Programs 3, 4, and 5 would be audited as Type A programs in the current
Chapter 11 – Auditing of Governmental and Not-for-Profit Organizations
11–17
Ch. 11, Solutions, 11–21 (Cont’d)
minimum of 40% of expended amounts or $6,852,000 ($17,130,000*.40)
11–22. 1. GAGAS 6. GAAS
2. GAAS 7. GAGAS
General Problem Information: GAAS versus GAGAS standards
11–23. The audit report seems to be a blend of an older version of a standard audit
report and the current unmodified audit report shown in Illustration 11-1.
Chapter 11 – Auditing of Governmental and Not-for-Profit Organizations
11–18
Ch. 11, Solutions, 11–23 (Cont’d)
• The introductory paragraph follows a heading “Report on the Financial
Statements” and identifies the opinion units on which the auditor will
opine.
• The “Other Matters” section is appropriate, but its content is
incomplete. The auditor has addressed some supplementary
information, however, more than the Statistical Section is considered
supplementary information.
• Additionally, the report mentions government auditing standards in the
scope paragraph. If a GAGAS audit was performed the report should
General Problem Information: Audit Report
Learning Objective: 11-1
Topic: Format of the Audit Report
Bloom’s Taxonomy: Analyze
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Hard