LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC s Guide to HUD Audits. Twenty-fourth Edition (September 2017)

Transcription

1 Route To: j Partners j Managers j Staff j File P.O. Box Carrollton, TX Tel (972) (800) Fax (888) tax.thomsonreuters.com LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC s Guide to HUD Audits Twenty-fourth Edition (September 2017) General Update Features. The following are some of the features of the 2017 Edition of PPC s Guide to HUD Audits. Current Developments Affecting HUD Audits. New guidance affecting audits of HUD-assisted projects can come from HUD, other federal agencies, and the standard setters. In October 2016, HUD issued a revision of 7 of the HUD audit guide affecting FHA lenders. The Guide, including the related audit program, has been updated for this revision. We monitor activities closely so that your Guide will help you stay current with guidance and audit programs, checklists, letters, and report examples tailored to help you perform your HUD audits effectively and efficiently. Updated Guidance on Single Audits. If you perform Single Audits of HUD-assisted entities, you know how complex the auditing requirements are and how important it is to have the latest guidance and practice aids to help you perform Single Audits. Your Guide provides targeted guidance and practice aids for audits of nonprofit HUD-assisted projects that are required to be conducted in accordance with the OMB s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Your Guide also continues to provide compliance audit programs for Single Audits in accordance with the previous administrative and internal control requirements. Updated for the 2017 Edition of the AICPA Federal Awards Audit Guide. Your Guide has also been updated to incorporate the guidance in the 2017 edition of the AICPA Audit Guide, Government Auditing Standards and Single Audits. Updated and New Practice Aids. Your Guide includes Evaluating Independence Yellow Book and GAAS Audits. We have modified this practice aid to better streamline the documentation of independence threats and nonattest/nonaudit services. Financial Statement Materiality Worksheet for Planning Purposes. We ve made adjustments in our benchmark table (Table 1) to provide for the effects of inflation since the table was last updated. Documentation and Analysis of Group Components. This form has been expanded to help auditors better identify and document components that may be applicable in an audit of group financial statements. Significant Estimates Identification Checklist. This form was added to serve as a memory jogger to assist in determining whether all estimates have been identified. SAS No. 132 on Going Concern. In February 2017, the AICPA issued SAS No. 132 (AU-C 570), The Auditor s Consideration of an Entity s Ability to Continue as a Going Concern. The SAS, which supersedes SAS No. 126, is effective for audits of financial statements for periods ending on or after December 15, Your Guide, including relevant practice aids, has been thoroughly updated for the requirements in the new SAS. Specialized Disclosure Checklists. Several new Accounting Standards Updates have been issued by the FASB in the past year. Your Guide provides separate disclosure checklists tailored for for-profit and nonprofit entities that have been updated for the recently-issued standards. Your Guide also includes a checklist for common HUD-specific disclosures and another disclosure checklist for the Schedule of Expenditures of Federal Awards (SEFA). hudp17sub 1

2 Throughout the Guide 1 Overview 2 HUD Multifamily Housing Programs 3 Accounting Considerations and Financial Statement Presentation 1. Updated the references to the AICPA Audit Guide, Government Auditing Standards and Single Audits (GAS/ SA Audit Guide), dated March 1, Added a discussion or footnote to chapters, or updated the instructions or practical considerations to practice aids, for the issuance of an exposure draft by the GAO of proposed revisions to Government Auditing Standards, 2011 Revision (the Yellow Book). 1. Updated a footnote for the issuance of a revision of 7, FHA-Approved Lenders Audit Guidance, of the HUD audit guide. 2. Updated the website for general information on HUD s multifamily programs. 1. Updated the HUD program descriptions with current funding data. 2. Updated the discussion of HUD s risk-sharing program for recent developments. 3. Updated for issuance of the revised Section 8 Policy Renewal Guide. 4. Updated the HUD contracts and forms finding list to reflect the current status. 1. Where applicable, added footnotes describing the issuance of new accounting guidance from the FASB, or to alert the auditor about FASB projects that are expected to result in new guidance that could affect the financial statements of HUD-assisted entities. 2. Expanded the discussion of the accounting guidance prescribed by HUD. 3. Added a discussion or footnote for the implementation of ASU , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. 4. Added a discussion or footnote on HUD s REAC guidance about how the changes from ASU , Interest Imputation of Interest (Subtopic ), Simplifying the Presentation of Debt Issuance Costs, affect the electronic filing of the financial statements in FASSUB. 5. Expanded the list of compliance issues when auditing a HUD-assisted entity that has had a M2M transaction. Various Various Paragraph Appendix 1A Throughout the chapter. Paragraph Paragraph Appendix 2A Throughout the chapter Paragraphs Paragraph Paragraph Paragraph Streamlined the discussion on comprehensive income. Paragraphs Updated the discussion or added a footnote on management s evaluation of the entity s ability to continue as a going concern for the issuance of SAS No. 132, The Auditor s Consideration of an Entity s Ability to Continue as a Going Concern (AU-C 570). Paragraphs and

3 4 Pre-engagement Considerations and Audit Planning 5 Performing Substantive 6 Concluding the Audit 8. Updated for revisions in the FASSUB User Guide. Paragraph Updated the accountant s report on applying the agreed-upon procedure required by HUD for the requirements of SSAE No. 18, Attestation Standards: Clarification and Recodification. 1. Added discussion or a footnote for SAS No. 132 (AU-C 570). 2. Expanded the discussion on the presumption of revenue recognition as a fraud risk. 3. Added footnotes on the COSO framework and an auditor s understanding of internal control. Appendix 3A, Appendix 3B Paragraphs 400.6, , Paragraphs Paragraph Added footnote to the discussion on key controls. Paragraph Added a footnote to the discussion on the information Paragraph system as related to the financial reporting system. 6. Added a footnote to the discussion on understanding controls related to significant risks. 7. Added a footnote on SSAE No. 18 (AT-C 320), Reporting on an Examination of Controls at a Service Organization Relevant to User Entities Internal Control Over Financial Reporting. Paragraph Paragraph Updated discussion on establishing planning materiality. Paragraphs Revised the discussion on determining individually significant dollar items (ISI). Paragraph Revised the discussion on clearly trivial misstatements. Paragraph Updated discussion on component auditors. Paragraphs , Expanded the discussion on substantive analytical procedures. 2. Added a discussion on substantive procedures for income statement accounts. Paragraphs Paragraphs Expanded discussion on precision of expectation. Paragraphs 502.8, Revised content on going concern considerations for Paragraph 600.3, Section Revised discussion on written representations. Paragraph Added footnote on evaluating materiality of corrected Paragraph misstatements. 4. Expanded the discussion on workpaper retention for access to electronic workpapers through the retention period. Paragraph

4 7 Compliance Auditing 8 Auditor s Reports and Other Communications 1. Revised the discussion to clarify Uniform Guidance requirements for the auditor to obtain an understanding of internal control over compliance for each major program even when controls and transactions may be similar for multiple federal programs. 2. Expanded the discussion on documenting samples for tests of controls to clarify ways to include identification of the selected samples. 3. Updated for new guidance in the 2017 Compliance Supplement. Paragraph Paragraph Paragraphs Updated a footnote for Paragraphs , Expanded the discussion on reporting on internal Paragraph control. 3. Updated the discussion about automatic extensions of Paragraph time to submit reporting packages for nonprofit HUD-assisted entities. 4. Updated the discussion for the 2017 data collection form. Paragraph Updated the discussion on performing attestation engagements for implementation of SSAE No Updated the discussion on reporting requirements for agreed-upon procedures engagements in SSAE No Updated reports and footnotes for changes in the example reports in the 2017 AICPA Audit Guide, Government Auditing Standards and Single Audits (GAS/SA Audit Guide). 8. Updated report for changes in the example reports in the GAS/SA Audit Guide. Updated report and footnotes for 9. Updated reports and footnotes for changes in the GAS/SA Audit Guide s example reports. Added a footnote in applicable reports on when the definition of a significant deficiency may be omitted from the Yellow Book report. 10. Updated reports for changes in the GAS/SA Audit Guide s example reports. Added footnotes on management s response to audit findings, the auditor s statement on not subjecting management s response to auditing procedures, and when the definition of significant deficiency in internal control over compliance may be omitted from the single audit reports. Paragraphs Paragraph Appendix 8A-1, Appendix 8A-2, Appendix 8B-1, Appendix 8C-2, Appendix 8C-3, Appendix 8E, Appendix 8F-2, Appendix 8F-3, Appendix 8I Appendix 8B-2 Appendix 8D-1, Appendix 8F-1, Appendix 8G-1 Appendix 8D-2, Appendix 8D-3, Appendix 8G-2, Appendix 8G-3 4

5 9 Compliance Audits of FHA-Approved Lenders 10 Low-income Housing Tax Credit Projects Practice Aid AUDIT PROGRAMS (HUD-AP) General Planning Other General Planning 11. Renumbered and refined the illustrative report examples for reporting on an agreed-upon procedures engagement under SSAE No Updated for the October 2016 revisions to 7, FHA-Approved Lenders Audit Guidance, of the HUD audit guide. 2. Updated the discussion about HUD Handbook , FHA Single Family Housing Policy Handbook (HUD HB ) for recent developments. 1. Refined the report examples for reporting on an agreed-upon procedures engagement under SSAE No Added a practical consideration referencing HUD-CX-3.5, Documentation and Analysis of Group Components. 2. Expanded the step regarding minutes of the governing board and committee meetings and review of other documentation. 3. Updated the audit program for current developments, including the 2017 AICPA GAS/SA Audit Guide and the 2017 Compliance Supplement. 4. Added a practical consideration regarding contemplation of nonattest/nonaudit services during the course of the audit engagement. 5. Revised a practical consideration on the due date of reporting packages and previous extensions of due dates. 6. Modified a practical consideration on risk assessment procedures that addresses conditions or events that raise doubt about the entity s ability to continue as a going concern. 7. Added a practical consideration referencing COSO s Internal Control Integrated Framework. 8. Revised a practical consideration on the implementation of the Uniform Guidance procurement standards for the additional year allowed. 9. Added a practical consideration regarding AICPA Question and Answer , Use of Component Materiality When the Component Is Not Reported on Separately. 10. Added a practical consideration regarding determination that the other auditor complies with certain requirements that are similar to the requirement for component auditors. Appendix 8H-1, Appendix 8H-2 Throughout the chapter Paragraph Appendix 10A, Appendix 10B, Appendix 10C, Other Audit, Other Audit 5

6 General Auditing and Completion Other General Auditing and Completion Cash and Restricted Deposits (Including Interest-bearing Deposits) Investments and Derivatives 11. Modified a practical consideration on considering assessed risks and circumstances of the work of a specialist., Other Audit 12. Modified program steps on use of service organizations., Other Audit 13. Added a practical consideration to provide a reminder that the risk assessment procedures contain a retrospective review of significant accounting estimates. 14. Added a practical consideration noting the definition of a related party in FASB ASC Modified the step on the evaluation of conditions or events that indicate that there could be substantial doubt about the entity s ability to continue as a going concern under 16. Combined the steps to obtain the project owner s and agent s certifications on the financial statements and supplementary information. 17. Revised the step to apply agreed-upon procedure and document findings for the agreed-upon procedures engagement as part of the electronic submission of the project owner s financial information. 18. Added practical considerations on responsibility for the financial report submission to HUD or the Single Auditor report package distribution. 19. Added additional steps on procedures to respond to risks related to related-party transactions. 20. Added a practical consideration discussing a proposed ASU, Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. 21. Added a practical consideration on ASU , Financial Instruments Overall (Subtopic ): Recognition and Measurement of Financial Assets and Financial Liabilities. 22. Added a practical consideration on guidance in AU-C 240.A Modified or added practical considerations discussing ASU HUD-AP-2 HUD-AP-2 HUD-AP-2 HUD-AP-2 HUD-AP-2 HUD-AP-2 HUD-AP-2, Other General Auditing and Completion HUD-AP-2, Other General Auditing and Completion HUD-AP-2, Other General Auditing and Completion HUD-AP-4 HUD-AP-5, Basic and Other 6

7 Audit Programs for Prepaids, Deferred Charges, Intangibles, and Other Assets Receivables and Revenues Property 24. Added a practical consideration to discuss ASU HUD-AP-5, Basic and Other 25. Added a practical consideration to address ASU Added a practical consideration on a proposed ASU, Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. 27. Added a practical consideration on several nonauthoritative AICPA Technical Questions and Answers. 28. Added a practical consideration addressing ASU Modified practical considerations to discuss ASU Added a practical consideration to address ASU Added a practical consideration to discuss hedge accounting in FASB ASC Added a practical consideration to address ASU , Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. 33. Added a practical consideration to address ASU Modified practical considerations to discuss ASU Added a practical consideration discussing the issuance of ASU HUD-AP-5, Basic HUD-AP-5, Basic HUD-AP-5, Extended HUD-AP-5, Other HUD-AP-5, Other HUD-AP-5, Other HUD-AP-5, Other HUD-AP-5, Other HUD-AP-5, Other HUD-AP-6, Basic and Other HUD-AP-6, Other 36. Modified step on goodwill impairment. HUD-AP-6, Other 37. Added a practical consideration addressing ASU HUD-AP-6, Other 38. Added practical considerations to discuss ASU HUD-AP-7, Basic and Other 39. Added steps on tests of sales details. HUD-AP-7, Extended 40. Added practical considerations discussing the issuance of ASU HUD-AP-8, Basic and Other 41. Expanded steps on the test of additions to property. HUD-AP-8, Extended 7

8 Accounts Payable, Accrued Liabilities, and Other Liabilities Debt and Related Liabilities and Capital Advances Income Taxes Equity For-profit Audit Program Compliance Requirements for FHA-approved Lenders Nonprofit Audit Program Compliance Requirements for Section 202 and Section 811 Programs (Federal Awards Made Prior to December 26, 2014) 42. Added a practical consideration discussing the issuance of ASU Added a practical consideration on testing asset retirement obligations. 44. Added a sub-step to the search for unrecorded liabilities program step. 45. Modified a practical consideration on joint and several liability arrangements. 46. Added a practical consideration discussing a proposed ASU, Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent). HUD-AP-8, Extended HUD-AP-8, Extended HUD-AP-9, Basic HUD-AP-9, Other 0, Basic 47. Added steps on the identification of unrecorded debt. HU-AP-10, Extended 48. Added a practical consideration discussing ASU Modified a practical consideration on the opinion of an outside tax advisor. 50. Added a practical consideration for a proposed ASU, Income Taxes (Topic 740): Disclosure Framework Changes to the Disclosure Requirements for Income Taxes. 1 1, Basic 1, Basic and Extended 51. Modified a practical consideration for ASU , Extended 52. Added a practical consideration for ASU , Basic 53. Updated for changes in the October 2016 revision of 7 of the HUD audit guide (REV-2, CHG-21) by the HUD OIG. 54. Updated for changes in the 2017 Compliance Supplement

9 Nonprofit Audit Program Compliance Requirements for Section 202 and Section 811 Programs (Federal Awards Made/ Changed on or after December 26, 2014) Nonprofit Audit Program Compliance Requirements for Section 8 Project-based Cluster Programs (Federal Awards Made Prior to December 26, 2014) Nonprofit Audit Program Compliance Requirements for Section 8 Project-based Cluster Programs (Federal Awards Made/ Changed on or after December 26, 2014) Nonprofit Audit Program Federal Award Programs Not Included in the Compliance Supplement CHECKLISTS AND PRACTICE AIDS (HUD-CX) Application of Practice Aids to Engagements Engagement Acceptance and Continuance Form Evaluating Independence Yellow Book and GAAS Audits 55. Updated for changes in the 2017 Compliance Supplement. 56. Updated for changes in the 2017 Compliance Supplement. 57. Updated for changes in the 2016 Compliance Supplement. 58. Updated for changes in the 2017 Compliance Supplement HUD-AP-20 Instructions 1. Updated for changes made to the practice aids. HUD-CX Added a PC for out-of-state/area prospective engagements. 3. Added a PC regarding other factors that might prevent obtaining sufficient audit evidence to issue an opinion. 4. Revised step to identify threats and circumstances and/or relationships creating threats and added a related practical consideration. HUD-CX-1.1 HUD-CX-1.1 HUD-CX-1.2 9

10 Nonprofit Single Audit and Major Program Determination Worksheet Nonprofit Low-risk Federal Program Determination Worksheet Financial Statement Materiality Worksheet for Planning Purposes Understanding the Entity and Identifying Risks Engagement Team Discussion Fraud Risk Inquiries Form Audit Inquiries Summary Form Documentation and Analysis of Group Components Financial Reporting System Documentation Forms Activity and Entity-level Control Forms 5. Revised the table documenting allowable nonattest/nonaudit services to capture all information for those nonattest/nonaudit services. 6. Noted AICPA resources available for guidance when considering nonattest services. 7. Revised and updated instructions, worksheet, and practical considerations for current developments, including the 2017 Compliance Supplement. 8. Updated to address new guidance in Appendix VII of the 2017 Compliance Supplement on the effect of a newly added program to a Part 5 existing other cluster on the 2-year lookback criterion. 9. Modified instructions and adjusted the base in Table 1 for inflation. 10. Added a practical consideration to obtain an understandingofthelevelofexperienceofmanagement. 11. Added practical considerations on the identification and documentation or risks. 12. Added a practical consideration regarding the entity s plans to implement new accounting guidance with deferred effective dates. 13. Modified step on going concern conditions or events and added practical considerations due to the issuance of HUD-CX-1.2 HUD-CX-1.2 HUD-CX-1.5 HUD-CX-1.6 HUD-CX-2.1 HUD-CX-3.1 HUD-CX-3.1 HUD-CX-3.1 HUD-CX Modified the order of the discussion items. HUD-CX Added a practical consideration on the need for professional skepticism. 16. Added steps on the inquiries of management about going concern matters. 17. Revised the instructions and added a table to identify components and their relationship to the group financial statements. HUD-CX-3.3 HUD-CX-3.4 HUD-CX Revised a step to consider cloud-based services. HUD-CX Added a practical consideration relative to the evaluation of the risk of material misstatement associated with cybersecurity and related controls. 20. Revised the instructions to note how the terms board of directors and entity are defined in the principles and controls in the forms. HUD-CX HUD-CX-5 series 10

11 Entity Risk Factors Fraud Risk Factors Risk Assessment Summary Form Risk of Material Noncompliance Assessment Form For-profit Entities Risk of Material Noncompliance Assessment Form Nonprofit Entities Sampling Planning and Evaluation Form Substantive Disclosure Requirements for Financial statements of Nonpublic Businesses Nonprofit Organization Disclosure Checklist Nonprofit Organization Disclosure Checklist for the Schedule of Expenditures of Federal Awards Going Concern Checklist Accounting and Engagement Issues Significant Estimates Identification Checklist CONFIRMATION AND CORRESPON- DENCE LETTERS (HUD-CL) Audit Engagement Letters 21. Expanded the list of factors to consider when identifying risks that could result in misstatements of the financial statements. 22. Added additional fraud risk factors that relate to misstatements arising from fraudulent financial reporting. 23. Noted in the instructions that the risk of material misstatement at the assertion level may be made on an overall basis or by separate assessments of inherent risk and control risk that are then combined. 24. Revised and clarified the instructions on documentation of the assessment of inherent risk of noncompliance. 25. Revised and clarified the instructions on documentation of the assessment of inherent risk of noncompliance. HUD-CX-6.1 HUD-CX-6.2 HUD-CX-7.1 HUD-CX-7.3 HUD-CX Modified instructions. HUD-CX Updated the checklist for disclosure requirements of recently issued accounting standards. 28. Updated the checklist for disclosure requirements of recently issued accounting standards. 29. Added practical considerations on documenting in the notes to the SEFA whether or not the entity elected to use the 10% de minimis indirect cost rate, and guidance from newly issued COFAR FAQs on the SEFA. 30. Updated the checklist to incorporate the requirements of 31. Modified the step on summarizing the final resolution of the issue. 32. Added a checklist to serve as a memory jogger to assist in determining whether all estimates have been identified. 1. Modified the note on tax services with additional advice on separate engagement letters. HUD-CX-13.1 HUD-CX-13.2 HUD-CX-13.4 HUD-CX-16.1 HUD-CX-16.2 HUD-CX-16.3 HUD-CL-1.1, HUD-CL

12 Agreed-upon Engagement Letters Request for Legal Representation Management Representation Letters Agreed-upon Representation Letters Communication with Those Charged with Governance Other Confirmations and Letters 2. Expanded the note on other clauses auditors might use to limit their exposure to legal liability and other losses to include examples of alternative dispute resolutions. 3. Updated the engagement letter and notes for the 2017 GAS/SA Audit Guide. 4. Renumbered the illustrative engagement letters to be used for an agreed-upon procedures engagement under SSAE No. 18 from prior year s HUD-CL-1.6 and HUD-CL Revised to refine the illustrative engagement letters for an agreed-upon procedures engagement under SSAE No Moved the standing request permission for a written update from the attorney from a practical consideration to the body of the letter. 7. Updated a practical consideration for the issuance of 8. Updated the engagement letter for the 2017 GAS/SA Audit Guide. 9. Revised to refine the agreed-upon procedures representation letter for SSAE No Added a practical consideration to address the possibility that planning and timing matters were communicated orally. 11. Updated a practical consideration for the issuance of 12. Updated a practical consideration (PC) discussing the issuance of ASU HUD-CL-1.2 HUD-CL-1.3, HUD-CL-1.4 HUD-CL-1.3, HUD-CL-1.4 HUD-CL-2.1, HUD-CL-2.2 HUD-CL-3.1, HUD-CL-3.2 HUD-CL-3.1, HUD-CL-3.2 HUD-CL-3.5, HUD-CL-3.6 HUD-CL-5.2 HUD-CL-5.2 HUD-CL Modified the instructions for the letter. HUD-CL-12.3, HUD-CL