Yes No. Review Time Budget Actual Time Used for Initial Preliminary Review. Objective and Purpose:

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1 NEW MEXICO OFFICE OF THE STATE AUDITOR PRELIMINARY REVIEW GUIDE FOR GASB 34 AUDIT REPORTS For review of audits of the fiscal year ended June 30, 2004 Review Time Budget Actual Time Used for Initial Preliminary Review AGENCY NAME AGENCY NUMBER DATE OF REPORT AUDITOR DATE REPORT RECEIVED /State Agencies Only Date of DFA Notice A (1)(f) regarding Agency Readiness Was report late? Yes No NUMBER OF FINDINGS REVIEWER SIGNATURE REVIEWER (Print Name) OPINION RENDERED DATE OF ENGAGEMENT LETTER Was a member of the governing authority present at the exit conference? Yes No For Administration Use Only: Did SAO receive a signed dated engagement letter before the audit report was submitted for review? If not, do not accept the report. (SAO Rule A) Objective and Purpose: The objectives of the initial review are to (1) ensure that audit reports meet applicable reporting standards and OMB Circular A-133 reporting requirements, (2) identify any follow-up audit work needed, (3) identify audits for potential quality control reviews (full desk and work paper reviews), (4) identify issues that may require management attention and (5) comply with Chapter 12, Article 6, Section 14(D) NMSA 1978 of the Audit Act. The purpose of this guide is to help ensure that the scope of the initial review is sufficient to fulfill these objectives and to ensure consistent reviews. z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 1 of 40

2 Description: All questions have been designed to show Yes or N/A (not applicable) answers as favorable responses. A No answer indicates a deficiency. All No responses must be fully explained in a memo using the comment and disposition format and be cross-referenced to the audit report. Comments must be presented in three sections A, B, and C. Section A comments represent deficiencies related to accounting and auditing standards. Section B comments represent deficiencies related to NMAC or other laws or regulations. Section C comments represent deficiencies related to grammar, etc. The reviewer must exercise professional judgment when answering the questions and reaching specific and overall conclusions on the quality of the audit report. Literature Reference AU GAS GASB SAS AAG-SGA AAG-SLV AICPA Codification of Statements on Auditing Standards Government Auditing Standards (Yellow Book) Government Accounting Standards Board Statement on Auditing Standards AICPA Audits of States, Local Governments, and Not-for-Profit Organizations Receiving Federal Awards (Old SOP 98-3) Audit Guide AICPA Audits of State and Local Governments (GASB 34 Edition) Audit Guide QUESTIONS Did SAO receive a copy of the signed management representation letter and a list of passed adjustments as required by Sections C? 1 Independent Auditor s Report: a. Does the report on the financial statements contain the required elements? The AAG-SGA specifies the following provisions: (AU , , A (a); AAG-SGA10.35) Introductory Paragraph (1) Is there a statement identifying the financial statements being audited? Does the scope paragraph indicate that the following were audited: a. the basic financial statements (consisting of the governmental activities, the business-type activities (when applicable), the aggregate discretely presented component units (when applicable) each major fund, and the aggregate remaining fund information? b. Also when applicable, the financial statements of each of the agency s nonmajor governmental, Comments: z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 2 of 40

3 nonmajor enterprise, internal service, and fiduciary funds presented as supplementary information in the accompanying combining and individual fund financial statements as of and for the year ended in June 30, 200X, as listed in the table of contents. See Example A-13 in the AICPA Guide (AAG-SLV) and take into consideration footnote 31. (SAO Rule A.(2) and AU b, AAG-SGA 10.35b) For colleges & universities, the basic financial statements consist of: Statement of Net Assets; Statement of Revenues, Expenses, and Changes in Net Assets, Statement of Cash Flows, and the notes (basic financial statements), and audited Supplemental Information (SI) consisting of budget comparison schedules. (SAO Rule E (2) and (3)) Scope Paragraph (2) A statement that the audit was conducted in accordance with auditing standards generally accepted in the United States of America and with standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. AU d; GAS 5.05; AAG-SGA 10.35d, SAS 93) Explanatory and Opinion Paragraphs (3) In the year GASB 34 is implemented by the agency, is there an explanatory paragraph (following the opinion paragraph) regarding the adoption of GASB 34 in the Independent Auditor s Report if the change in accounting principle had a material effect on the financial statements? (SAS AU and AAG- SLV 14.77) (4) For state agencies, district attorneys, district courts, Educational Institutions created by the New Mexico Constitution Article XII Section 11: 1) the University of New Mexico; 2) NM State University; 3) NM Highlands University; 4) Western NM University; 5) Eastern NM University; 6) NM Institute of Mining and Technology; 7) NM Military Institute; 8) NM School for the Visually Handicapped; 9) NM School for the Deaf; and 10) Northern NM State School at El Rito, and other separately issued reports on departments of the State is there an explanatory paragraph preceding the opinion paragraph regarding the financial statements presenting the financial position and results of operation of only that portion of the financial reporting agency of the primary government that is attributable to the transactions of the agency? (SAO Rule A (13)) and Example A.15 at AAG- SLV and footnote 35). Comments: Comments: Comments: Comments: Comments: z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 3 of 40

4 (5) a. Regarding the opinion (or disclaimer of opinion) on the financial statements (AU h; AAG- SGA 10.35h) b. Does the opinion cover all applicable opinion units? (the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the agency, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the [indicate the major governmental funds involved] for the year then ended in conformity with GAAP) (Example A-13 and footnote 2 of AAG-SLV 14.78) Does the opinion cover all applicable SI opinion units? (In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of each nonmajor governmental, nonmajor enterprise, internal service, and fiduciary fund of the agency, and the respective changes in financial position and cash flows where applicable, thereof and the respective budgetary comparisons for the nonmajor governmental funds for the year then ended in conformity with GAAP ) (Example A-13 and footnote 32 of AAG-SLV 14.78) (6) If the budget comparisons for the general and major special revenue funds are mixed in with other budget information for example in organization or program budgets, such budget comparisons with a different perspective must be shown as RSI. When that is the case, those RSI budget schedules must be opined on. (SAO Rule A.(2) (c) and Example A-13 in AAG-SLV) (7) Does one of the two following statements appear in the report? The OSA is accepting either one, depending on whether the 2003 or 2004 AICPA Guide is followed by the auditor. In accordance with Government Auditing Standards, we have also issued our report dated [date of report] on our consideration of the City of Example s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards Comments: Comments: Comments: Comments: z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 4 of 40

5 and should be read in conjunction with this report in considering the results of our audit. (2003 version) In accordance with Government Auditing Standards, we have also issued our report dated [date of report] on our consideration of the City of Example s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. (anticipated 2004 version) (8) The audit contract requires that the IPA apply certain limited procedures to the MD&A (RSI) and report deficiencies in or the omission of required information in accordance with the requirements of SAS AU When the MD&A appears in an auditor submitted document (IPA cover) is there a description of the character of the auditor s work and the degree of responsibility the auditor is taking for the MD&A. If the MD&A has no deficiencies like those described above, the auditor should disclaim an opinion on the MD&A. (SAS AU ) When the MD&A appears in a client-submitted document (agency cover) and there are no deficiencies as described above, then the auditor has no reporting requirement but may voluntarily disclaim an opinion on the RSI. Does the report correctly reflect these requirements? (AAG-SLV 14.55) Comments: Comments: (9) Accompanying Supplementary Information requiring a SAS 29 or SAS 52 opinion on whether the information is fairly stated, in all material respects, in relation to the financial statements taken as a whole, follow: (AU d; AAG-SGA (j) (l), and AAG-SGA Example 1 of Appendix D) Comments: z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 5 of 40

6 (a) For a Single Audit ($500,000 or more of federal money expended) is the Schedule of Expenditures of Federal Awards specifically mentioned? (OMB Circular A (a)) (b) For Housing Authorities that are a single audit or part of a Single Audit, is the Financial Data Schedule (FDS) included here with a SAS 29 opinion rendered? (HUD UFRS (C) Special Rules for Certain PHAs) Comments: Comments: (10) Is there a manual or printed signature of the auditor s firm? (AU i; AAG-SGA 10.35m) (11) Is the date of the audit report included? (AU j; AAG-SGA 10.35n) Comments: Comments: 2 Report on Internal Control over Financial Reporting and on Compliance and Other Matters required by Government Auditing Standards: (The Office is accepting either the 2003 or 2004 AICPA examples for this report. The 2003 guidance places the Compliance paragraph first. The 2004 guidance places the Internal Control Over Financial Reporting paragraph first.) a. Does the report on internal control over financial reporting and compliance contain the required elements? The Audit Guide contains the provisions listed below: (A (b); AAG-SGA 10.39) Introductory/Scope Paragraph (1) Is there a statement that the auditor audited the financial statements (should describe the opinion units being reported on) and a reference to the auditor s report on the financial statements, including a description of any departure from the standard report? (AAG-SGA 10.39a) (AAG-SGA APP D Ex 2 fn22) (2) Is there a statement that the audit was conducted in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards (GAS) issued by the Comptroller General of the United States? (GAS 5.05; AAG-SGA 10.39b, SAS 93) Internal Control Over Financial Reporting (3) Is there a statement that in planning and performing the audit, the auditor considered the auditee s internal control over financial reporting in order to determine the auditing procedures for the purpose of expressing opinion(s) on the financial statements and z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 6 of 40

7 not to provide assurance [ an opinion] on the internal control over financial reporting? (AAG- SGA 10.39g) (4) a. If reportable conditions were noted, is there a description of the reportable condition(s) or a reference to the schedule of findings and questioned costs and a statement about whether the auditor believes any of the reportable conditions described in the report are material weaknesses and, if so, identifies which one(s)? (AAG-SGA 10.39j and l) b. If no reportable conditions were noted, is there a statement that the auditor s consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be material weaknesses and a statement that no material weaknesses were noted? (AAG-SGA 10.39i and l) c. Is a material weakness defined? (AAG-SGA) 10.39k) (See report examples for proper wording) (5) If any other matters involving internal control over financial reporting were noted, are they included in the findings as required by Sections M (3) and J, and GAGAS 5.16 and did the auditor refer to them in the body of the report with wording like We noted other matters involving the internal control over financial reporting that are required to be reported per section NMSA 1978 and detailed in findings FY0X, FY04-0Y? (AAG-SGA and footnote 22) Compliance and Other Matters (6) Is there a statement that, as part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, the auditor performed tests of compliance with certain provisions of laws, regulations, contracts and grant [2004 adds agreements] noncompliance with which would have a direct and material effect on the determination of financial statement amounts? (AAG-SGA 10.39c) (7) Is there a statement that providing an opinion on compliance with those provisions was not an objective of the audit and that, accordingly, the auditor does not express such an opinion? (AAG- SGA 10.39d) z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 7 of 40

8 (8) Is there a statement that notes whether the results of tests disclosed instances of noncompliance [2004 adds - or other matters] that are required to be reported under GAS and, if they are, describes the instances of noncompliance or refers to the schedule of findings and questioned costs? (AAG-SGA 10.39e) (9) If any instances of immaterial noncompliance were noted, are they included in the findings as required by sections M(3) and J, and GAGAS 5.20 and did the auditor refer to them in the body of the report with wording like We noted other immaterial instances of noncompliance that required to be reported per Section NMSA 1978 and detailed in findings FY0X, FY 0Y? Concluding Paragraph (10) Is there a statement that the report is intended solely for the information and use of the specified parties (audit committee, management, specified legislative or regulatory bodies, and is not intended to be and should not be used by anyone other than these specified parties? (AU532; SAS 87, Para 19, AAG- SGA 10.39n) (11) Is the manual or printed signature of the auditor s firm included? (AAG-SGA o) (12) Is the date of the report included? Is the date consistent with the dates on the Independent Auditors Report and the Report on Compliance with Major Programs if any? (AAG-SGA 10.39p and 10.50) Single Audit 3 Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with Circular A-133. (Section 3. applies only to Single Audits with federal expenditures equal to or greater than $500,000.) Total up what appear to be federal expenditures. If the federal dollars expended total between $300,000 and $500,000, and the report on Compliance with Requirements Applicable to Each Major Program and a Schedule of Findings and Questioned Costs are included in the report, consult the reviewing manager immediately. A Single Audit was not required, but evidently the auditor performed one anyway. The agency should be informed that such an unnecessary Single Audit cannot be paid for with federal z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 8 of 40

9 funds. The auditor should be informed that Circular A-133 has been updated and Single Audits for FY04 are required only when federal expenditures equal or exceed $500,000. If the amount of federal dollars expended during the fiscal year is equal to or greater than $500,000, is there a report on Compliance with Requirements Applicable to Each Major Program and a Schedule of Findings and Questioned Costs? If the answer is no, consult the reviewing manager immediately, the audit report may have to be rejected. If the answer is yes the Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance should contain the following required elements. (A (c) and (d); AAG- SGA and 10.55) Compliance (1) Is there a statement that the auditor has audited the compliance of the auditee with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that are applicable to each of its major programs? (AAG- SGA 10.46a) (2) A statement that the auditee s major programs are identified in the summary of the auditor s results section of the schedule of findings and questioned costs. (AAG-SGA 10.46b) (3) A statement that compliance with requirements of laws, regulations, contracts and grants applicable to each of the auditee s major federal programs is the responsibility of management, and that the auditor s responsibility is to express an opinion on the auditee s compliance based on the audit. (AAG- SGA 10.46c) (4) Is there a statement that the audit was conducted in accordance with auditing standards generally accepted in the United States of America; standards applicable to financial audits contained in Government Auditing Standards (GAS) issued by the Comptroller General of the United States and OMB Circular A-133? (AAG-SGA 10.46d, SAS 93) (5) Are the following statements included: that those standards and Circular A-133 require that the auditor plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements that could have a direct and material effect on a major federal program occurred; that an audit includes the examining, on a z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 9 of 40

10 test basis, evidence about the auditee s compliance with those requirements and performing of such other procedures as the auditor considered necessary in the circumstances; that the auditor believes that the audit provides a reasonable basis for the auditor s opinion; and that the audit does not provide a legal determination of the auditee s compliance with those requirements? (AAG-SGA (e) to (h)) (6) If instances of noncompliance are noted that result in an opinion modification, is there a reference to a description of the related findings in the accompanying schedule of findings and questioned costs, including reference number(s) of the finding(s), identification of the type(s) of compliance requirements, and the related major program(s), and a statement that compliance with such requirements is necessary, in the auditor s opinion for the auditee to comply with the requirements applicable to the program(s)? AAG-SGA 10.46I) (7) Is there an opinion (or disclaimer of opinion) on whether the auditee complied, in all material respects, with the types of compliance requirements that apply to each of its major programs? (AAG- SGA 10.46j) (8) If applicable, is there a statement that the results of auditing procedures disclosed instances of noncompliance required to be reported in accordance with A-133? If so, is there a reference to the schedule of findings and questioned costs in which they are described? (AAG-SGA 10.46k) Internal Control Over Compliance (9) Is there a statement that the auditee s management is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts and grants applicable to federal programs? (AAG-SGA 10.46m) (10) Is there a statement that in planning and performing the audit, the auditor considered the agency s internal control over compliance with requirements that could have a direct and material effect on a major Federal program, in order to determine the auditing procedures for the purpose of expressing an opinion on compliance and to test and report on the internal control over compliance in accordance with A-133? (AAG-SGA 10.46m) (11) If applicable, is there a statement that reportable z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 10 of 40

11 conditions were noted and the definition of a reportable condition; and reference to a description of reportable conditions noted in the accompanying schedule of findings and questioned costs, including the reference number of the findings(s)? (AAG- SGA 10.46(n) and (o)) (12) If no reportable conditions are noted, is there a statement that the auditor s consideration of the internal control over compliance would not necessarily disclose all matters in internal control that might be material weaknesses? (13) if reportable conditions are noted, is there a statement that the auditor s consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses? (AAG-SGA 10.46(p)) (14) The definition of a material weakness. (AAG-SGA 10.46(q) (15)If there are reportable conditions, is there a statement about whether the auditor believes any of the reportable conditions noted are material weaknesses and, if they are, a reference to a description of the material weakness in the schedule of findings and questioned costs, including the reference to the number of the finding(s). If there are no reportable conditions, is there a statement that no material weaknesses were noted. (AAG-SGA 10.46r) (a) If material instances of noncompliance were noted did the auditor appropriately modify the opinion to qualified or adverse in the A-133 report? (AICPA Single Audits 2003, Appendix B, Common Engagement Deficiencies.) (16) Is there a statement that the report is intended solely for the information and use of the specified parties (audit committee, management, specified legislative or regulatory bodies, federal awarding agencies, and if applicable pass-through entities) and is not intended to be and should not be used by anyone other than these specified parties. (AU 532; SAS 87, Par 19, AAG-SGA 10.46s) z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 11 of 40

12 (17) Is the manual or printed signature of auditor s firm included? (AAG-SGA 10.46t) (18) Is the date of the report included? (AAG-SGA 10.46u) Is the date on this report consistent with the other auditor reports issued? (AAG-SGA 10.51) 4 Schedule of Findings and Questioned Costs For a Yellow Book audit that is not a Single Audit, the following questions are the only ones that are relevant: 4.b. (2) criteria; 4.b. (3) condition; 4.b. (5) proper perspective; 4.b. (6) effect and cause; 4.b. (7) recommendations; 4.b. (8) management response; 4.b. (9) finding reference number, and 4(e) response blames the OSA. (GAGAS 5.19, 7.19, and 7.21, SAO Rule Sec J) a. The schedule of findings and questioned costs should include a summary of audit results section containing the following elements. (A d; AAG-SGA 10.56a.) (1) Does it identify the auditee s major programs? (2) Where applicable, a statement that reportable conditions in internal control were disclosed by the audit of the financial statements and whether any such conditions were material weaknesses. (3) A statement on whether the audit disclosed any noncompliance that is material to the financial statements. (4) Where applicable, a statement that reportable conditions in the internal control over major programs were disclosed by the audit and whether any such conditions were material weaknesses. (5) The type of report the auditor issued on compliance for major programs. z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 12 of 40

13 (6) A statement whether the audit disclosed any audit findings that the auditor is required to report under 510(a) of Circular A-133. (7) Does it include the dollar threshold used to distinguish between type A and B programs? (A (d)(viii); AAG-SGA 10.56A) (8) Does it indicate whether the auditee qualified as a low-risk auditee? (A (d)(ix); (AAG-SGA 10.56a) b. The federal findings should be presented in sufficient detail, consider whether the reported deficiencies provide the following information. (A (b); AAG-SGA 10.64) (1) Are the federal program and specific federal award identified, including the Catalog of Federal Domestic Assistance (CDFA) title and number, federal award number and year, name of federal agency, and name of applicable pass-through entity? When information such as the CFDA title and number or federal award number is not available, the auditor should provide the best information available to describe the federal award. (A (b); AAG-SGA 10.64a) (2) Is the criterion or specific requirement, upon which the audit finding is based, including the statutory, regulatory, or other citation shown? (GAGAS 5.15, A (b)(2); AAG-SGA 10.64b) (3) Is the condition found, including facts that support the deficiency identified in the audit finding included? (GAGAS 5.15, A (b)(3); AAG- SGA 10.64c) z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 13 of 40

14 (4) Are the questioned costs identified and how they were computed? (A (b)(4) AAG-SGA 10.64d) (5) Is information included to provide proper perspective for judging the prevalence and consequences of the audit findings, such as whether the findings represent an isolated instance or a systemic problem? Where appropriate, are instances identified: related to the universe; related to the number of cases examined; and quantified in terms of dollar value? (A (b)(5); AAG-SGA 10.64e) (6) Is the possible asserted effect included to provide sufficient information to the auditee and federal agency, or pass-through entity in the case of a subrecipient, to permit them to determine the cause and effect in order to facilitate prompt and proper corrective action? (GAGAS 5.15, A (b)(6); AAG-SGA 10.64f) (7) Are recommendations to prevent future occurrences of the deficiency identified in the audit finding included? (A (b)(7); AAG-SGA 10.64g) (8) a. Are views of responsible officials of the auditee included? (A (b)(8); GAGAS 5.26; AAG-SGA 10.64h) b. If management s response to an audit finding, or when corrective actions did not adequately address the auditors recommendations, did the author state his/her reasons for disagreeing with the management response or planned corrective actions as required by GAGAS 5.30? (9) Is there a reference number for each finding? (A (c); AAG-SGA 10.65) c. Were the findings separated into two sections, one for the financial statement findings and one for the Federal award findings? Federal award findings should be for z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 14 of 40

15 internal control over major programs, compliance related to the federal programs, questioned costs (greater than $10,000), or known fraud affecting a Federal award. (A-133 Sec 505(d)(2) and (3)) d. Were at least 50% of the federal award dollars expended tested as major programs if the entity was not a low-risk auditee? Were at least 25% of federal award dollars expended tested as major programs if the entity was a low-risk auditee? (A-133 Sec. 520(f)) e. If any management response to a finding blames the Office of the State Auditor in any way for the finding, show Carl Baldwin the finding and response so the Office can respond and require the response to be included in the report. 5 Schedule of Expenditures of Federal Awards (Applies only to Single Audit) a. A Single Audit report should include a Schedule of Expenditures of Federal Awards with the following information (A (b); AAG-SGA 5.06) (1) Does it List individual federal programs by federal agency? (AAG-SGA 5.06) (2) For federal programs included in a cluster of programs, does it list individual federal programs within the cluster of programs? For research and development, are the total federal awards expended shown either by individual award or by federal agency and major subdivision within the federal agency? (A (b)(1); AAG-SGA 5.06) (3) Does it include, for federal awards received as a subrecipient, the name of the pass-through entity and the identifying number assigned by the pass-through entity? (A (b)(2); AAG-SGA 5.06) (4) Does it provide the total federal awards expended for each individual federal program and the CFDA number or other identifying number when the CFDA number is not available? (A (b)(3); AAG- SGA 5.06) (5) Does it include notes that describe the significant accounting policies used in preparing the schedule? (A (b)(4); AAG-SGA 5.06) z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 15 of 40

16 (6) Identify, to the extent practical, the total amount provided to subrecipients by pass-through entities from each federal program (A (b) (5); AAG-SGA 5.06) (7) Does it include in either the schedule or a note to the schedule, the value of federal awards expended in the form of noncash assistance, the amount of insurance in effect during the year, and loans and loan guarantees outstanding at year-end? (A (b)(6); AAG-SGA 5.06) (a) For all Colleges and Universities Is the value of federal awards expended in the form of loans or loan guarantees outstanding at year end either disclosed in the notes or shown in the Schedule of Expenditures of Federal Awards? If not, write a comment asking the auditor whether the institution was a participant in federal loan programs, and to include the related required disclosure. (A (b)(6)) 6 Other Information in the Report a. Does the report include a summary schedule of prior year audit findings? Compare to prior year audit report to be sure all prior year audit findings were included. (SAO Rule J(2), AAG-SGA 10.68, A ) b. Does the report contain indications of fraudulent or illegal acts of a criminal nature or other sensitive matters affecting federal awards or other funds? If there is a related finding photocopy it. If there is no related finding explain the activity in the comment section to the right. (SAO Rule L (1-2)) Consider whether auditor or auditee has communicated suspected improprieties to SAO that may not be reflected in audit report. c. Does the report include an audit finding for failure to submit the audit report by the due date? Does the finding describe the circumstances for a late report and a response from the governing officials? Is the late report finding included as an instance of noncompliance in the agency s report on internal controls over financial reporting? (SAO Rule A(3)) z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 16 of 40

17 d. Does the report include an audit finding for failure to transfer reverting funds timely? (If the amount due to the State General Fund is larger than the current year s reversion the difference could be caused by late reversions or miscellaneous reimbursements; py cancelled warrants etc. Review the note disclosure on the payable and see what components make up the payable.) (SAO Rule A(7)(b)) e. If a quorum of a public body subject to the Open Meetings Act was present at the exit conference, was it held at a closed meeting to preserve the confidentiality of the information? (SAO Rule K(3)) How do you know? 7 Does the annual financial report include the following? a. Management s Discussion and Analysis (1) If the MD&A is missing did the auditor include a paragraph in the Independent Auditor s Report stating that the MD&A required by GASB was omitted? (SAS AU ). (2) If the MD&A is included in the report read it and write a comment to the IPA only if you notice gross misstatements of facts. b. Government-wide Financial Statements (GASB Stmt 34 Paragraphs 12 to 63) Note: It is permissible to preface the titles of these statements with Governmentwide, per Robert J. Freeman, Ph.D., CPA. (1) Government-wide financial statements consist of a statement of net assets and a statement of activities that include: a. Information about the overall government without displaying individual funds or fund types. (GASB Stmt 34, Paragraph 12 (a)) b. Exclude information about fiduciary activities, including components that are fiduciary in nature. (GASB Stmt 34, Paragraph 12 (b)) c. Distinguish between the primary government and its discretely presented component units. (GASB Stmt 34, Paragraph 12 (c)) z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 17 of 40

18 d. A total column should be presented for the primary government. A total column for the entity as a whole may be presented but is not required. Prior-year data may be presented in the government-wide statements but also are not required. (GASB Stmt 34, Paragraph 14) e. Distinguish between governmental activities and business-type activities of the primary government. (GASB Stmt 34, Paragraph 12 (d)) f. Measure and report all assets (both financial and capital), liabilities, revenues, expenses, gains, and losses using the economic resources measurement focus and accrual basis of accounting. (GASB Stmt 34, Paragraph 12 (e)) (2) In the government-wide financial statements are net assets shown as: invested in capital assets, net of related debt (if any); restricted for and/or unrestricted? (GASB Stmt 34, Paragraph 30-37) Note that encumbrances are a reservation of fund balance in the fund financial statements but are not a restricted net asset per 1 st GASB 34 Implementation Guide Q 95. (SAO Rule A (5)) (3) Statement of Activities (Expenses, Program Revenues, Net [Expense] Revenues, General revenues, Special Items, Transfers and Changes in net assets) GASB Stmt 34, Paragraph (4) Reporting by Special-Purpose Governments Engaged in a Single Governmental Program This format cannot be used by agencies, like Departments of the State of New Mexico, that are not a separate legal entity from the primary government (SAO Rule A.(12)). The statement of activities may be presented in a single column that reports expenses first followed by revenues. (See GASB 34 example B-5) The reconciliation between the fund financial statements and government-wide statements may be combined using a columnar format that reconciles individual line items of fund financial data to government-wide data in a separate column on the face of the financial statements rather than at the bottom of the statements or in an accompanying schedule. (See GASB 34 examples A-4 and B6 and B7) (GASB to 141) If this format is applicable, is it z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 18 of 40

19 presented correctly? c. Governmental Funds (GASB Stmt 34 Para 64 to 65, 78-90) Does the Balance Sheet Governmental Funds reflect the following descriptions: Assets, Liabilities and Fund Balances, (Reserved and/or Unreserved.)? (GASB and 84) For State Agencies Zero compensated absences should appear in the reverting funds of the governmental fund financial statements of state agencies. If the prior year audit report showed the current portion of compensated absences and the amount was material, there should be a prior period adjustment and related fund balance restatement to correct the error. (Rule M(3)) Is there an accompanying reconciliation of Total Fund Balance from Balance Sheet Governmental Funds to the Total Net Assets on the Statement of Net Assets, (Governmental Activities Column only). Note that accompanying means immediately following per 1 st GASB 34 Implementation Guide Q 190. (GASB Stmt 34 Paragraph 77) Do the Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds have the correct descriptions: (Revenues, Expenditures (Current, Debt Service, Capital Outlay) Other Financing Sources (Uses) face amount of bonds and payments for refundings, transfers in/out, Special Items, Net Change in Fund Balances? Does the column presentation correspond to the columns in Balance Sheet Governmental Funds presentation? (GASB to 89, example C-2, and GASB 37 16) (5) Is there a Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds (net change in fund balances for total governmental funds) to the Statement of Activities (change in net assets for governmental activities) at the bottom of the fund financial statements or in an accompanying schedule? (GASB Stmt 34 Paragraph 90) d. Proprietary Funds (GASB Stmt 34 Para 66-68, ) (1) Is there a Statement of Net Assets Proprietary Funds (or Balance Sheet Proprietary Funds) that reflects the z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 19 of 40

20 following descriptions: assets current/noncurrent; liabilities current/noncurrent; net assets, invested in capital assets, net of related debt, restricted for, unrestricted, total net assets. (GASB 34 Paragraph 91(a) and example at D-1) (2) Is there a Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds (or fund equity) that reflects the following descriptions: operating revenues; operating expenses; operating income (loss), nonoperating revenues (expense), total nonoperating revenues (expenses), income (loss) before contributions and transfers, capital contributions, transfers out, change in net assets, total net assets-beginning, and total net assetsending? (GASB 34 Paragraph 91 (b) and the example at D-3) (3) Net assets and changes in net assets in the proprietary fund financial statements for total enterprise funds usually equal the net assets and changes in net assets of business-type activities in the government-wide statement of activities. If there are differences they would be caused by the reclassification of internal service fund transactions that affected proprietary funds. Are any such differences explained on the face of the fund statement or in an accompanying schedule? (GASB Stmt 34 Paragraphs 104). (4) Is the Direct Method used for the Proprietary Fund Statement of Cash Flows showing the following four categories of cash flows from: operating activities; noncapital financing activities; capital and related financing activities; and investing activities? Is a reconciliation of operating cash flows to operating income included? (GASB Stmt 34 Paragraph 105 and example at D-4) Note An example of direct method of cash flow appears in GASB 9, 75. e. Fiduciary Fund and Similar Component Unit Financial Statements Are all fiduciary funds of the primary government, as well as component units that are fiduciary in nature included in the fiduciary fund financial statements? Do the statements provide a separate column for each applicable fund type (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trusts, (4) agency funds? (GASB Stmt 34 Paragraphs and ) z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 20 of 40

21 (1) Statement of Fiduciary Net Assets Do the Agency Fund assets equal the liabilities when presented in the Statement of Fiduciary Net Assets? (GASB 34 Paragraph 110 and example E-1) (2) Does the Statement of Changes in Fiduciary Net Assets include information about the additions to, deductions from, and net increase (or decrease) for the year in net assets for each fiduciary fund type? (GASB 34 Paragraph 109 and example E-2) (3) Agency funds are excluded from the Statement of changes in Fiduciary Net Assets. They have no net assets. It is a requirement of the State Auditor that a Schedule of Changes in Assets and Liabilities for the agency funds be included as supplemental information (SI) for all agencies that have Agency Funds. (GASB 34 Paragraph 110 and SAO Rule CC (2)) (4) If separate GAAP financial statements were not issued for individual pension plans and postemployment healthcare plans, do the notes to the financial statements include those separate financial statements? If separate GAAP financial reports have been issued, do the notes disclose how to obtain those separate reports? (GASB 34 Paragraph 106) f. Governmental & Proprietary fund financial statements - Focus on Major Funds (GASB Stmt ) Is each major fund presented in a separate column in the governmental and proprietary fund financial statements? (GASB 34 Paragraph 75) Is the main operating fund (general fund or its equivalent) reported as a major fund? Are other individual governmental and enterprise funds reported in separate columns as major funds based on: (GASB 34 Paragraph 76; GASB 37 15) Total assets, liabilities, revenues, expenditures/expenses of that individual governmental or enterprise fund are at least 10 percent of the corresponding element total (assets, liabilities and so forth) for all funds of that category or type; and The same element that met the 10 percent criterion above is at least 5 percent of the corresponding element total for all governmental z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 21 of 40

22 and enterprise funds combined; or Other governmental or enterprise funds that the government s officials believe particularly important to financial statement users may be reported as major funds? - Are the nonmajor funds aggregated and displayed in a single column? Do combining statements for the nonmajor funds appear as supplemental information? (GASB 34 examples H-1 and H-2) g. Budget Comparison Statements Are budget comparison statements for only the general fund and major special revenue funds presented up front with the financial statements after the statement of changes in revenues, expenditures, and changes in fund balances? (SAO Rule P (3) (a) and Q 248) Is budget comparison information for any other funds presented as supplemental information? (SAO Rule P (3) (c)) (1) For each fund that has a legally adopted budget that is not already presented in the front, are individual fund budget comparison schedules included in the report as audited SI? (SAO Rule A(2)(d)(iii) and P(3)(c)) (2) Do the budgetary comparison statements present the original budget, the final budget, actual expenditures or expenses on the budgetary basis, and a variance column? (GASB 34 Paragraph 130 and SAO Rule P (3)) (3) Does the Budget column include the required fund balance (if prepared on accrual or modified basis) or prior year cash balance (if prepared on a cash basis) necessary to balance the budget? SAO Rule P (1). z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 22 of 40

23 (4) Component units - If separately issued financial statements of the component unit are not available, are individual fund budget comparison statements included for each component unit fund with a legally adopted budget? The OSA interprets a legally adopted budget to exist any time an entity receives federal funds, state funds, or any other appropriated funds. (AAG-SLV and SAO Rule A. (1) (e) (ii)) (5) Colleges & Universities Does the report include budget comparison statements similar to those required by the Rule in Section E (2)? (6) An agency with significant budgetary perspective differences that result in the agency not being able to present budgetary comparisons for the general fund and each major special revenue fund is required to present budgetary comparison schedules as RSI based on the fund, organization, or program structure that the government uses for its legally adopted budget. These budgetary comparisons must be audited and included in the auditor s opinion. GASB SAO Rule P (3) (b) h. Disclosure Requirements (1) If the auditee has component unit(s) like a housing authority, charter school, university foundation, etc., does the summary of significant accounting policies (reporting entity section) provide a brief description of the component units (those blended and discrete) and their relationships to the primary government? (GASB Cod. Sec (a)(1)) (a) If the public housing authority supplementary information Financial Data Schedule (FDS) differs materially from the financial statements, is a reconciliation included in the notes? (GASB Cod. Sec ) (b) If a university has a legally separate tax-exempt organization that holds resources: (i) entirely or almost entirely for the direct benefit of the university; and (ii) the university is entitled to the majority of the resources or has the ability to otherwise access them; and (iii) the resources are significant to the university, is that organization included in the university s z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 23 of 40

24 audit report as a component unit? (GASB 39 5) Is the component unit discretely presented?. (c) If no component units are identified, does the nature of the primary government indicate that there probably were no component units? (2) A description of the government-wide financial statements, noting that neither fiduciary funds nor component units that are fiduciary in nature are included. GASB 34 Paragraph 115 (a)) (3) The measurement focus and basis of accounting used in the government-wide statements. (GASB 34 Paragraph 115 (b)) (4) The policy for eliminating internal activity in the statement of activities (GASB 34 Par 115(c)) Amounts reported in the funds as interfund receivables and Payables should be eliminated in the governmental and business-type activities columns of the statement of net assets, except for the net residual amounts due between governmental and business-type activities. (GASB 34 Par 58) Amounts reported in the funds as receivable from or payable to fiduciary funds should be included in the statement of net assets as receivable from and payable to external parties (consistent with the nature of fiduciary funds), rather than as internal balances. All internal balances should be eliminated in the total primary government column. (GASB 34 Paragraph 58) Do the notes disclose the following about interfund balances reported in the fund financial statements: (GASB 38 14) a. Amounts due from other funds by individual major fund, nomajor governmental funds in the aggregate, internal service funds in the aggregate and fiduciary fund type z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 24 of 40

25 b. The purpose for interfund balances c. Interfund balances that are not expected to be repaid within one year from the date of the financial statements Do the notes disclose the following about transfers reported in the fund financial statements: (GASB 38 15) a. Amounts transferred from other funds by individual major fund, nonmajor governmental funds in the aggregate, nonmajor enterprise funds in the aggregate, internal service funds in the aggregate and fiduciary fund type b. A general description of the principal purposes of the government s interfund transfers c. The intended purpose and the amount of significant transfers that meet either or both of the following criteria: (1) Do not occur on a routine basis (2) Are consistent with the activities of the fund making the transfer (5) The policy for applying FASB pronouncements issued after November 30, 1989, to governmentwide financial statements (business-type activities) and to proprietary funds in the fund financial statements. (GASB 34 Par 115 (d)) (6) The policy for capitalizing assets and for estimating the useful lives of those assets (used to calculate depreciation expense). Governments that choose to use the modified approach for reporting eligible infrastructure assets should describe that approach. Is this disclosure included in the summary of significant accounting policies? (GASB 34 Paragraph 115(e) a. GASB 37 eliminated the requirement to capitalize z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 25 of 40

26 construction-period interest in governmental funds but is still required in propriety funds. Is this GASB requirement properly incorporated into the agency policy? (NCGAS 1 48) b. Does the policy indicate that the agency is including software in the capital assets, as required by the GSD Rule (NMAC Chapter 20, Part 1 Section C (5)) which states that information technology equipment includes software? c. Does the policy indicate whether the agency is capitalizing and depreciating computer software developed for internal use in compliance with AICPA Statement of Position 98-1? d. Does the policy indicate whether the agency is capitalizing and depreciating library books? The 1 st GASB 34 Implementation Guide, Question 26 states that if library books are considered to have a useful life of greater than one year, they are capital assets and are depreciable. Because most library collections consist of a large number of books with modest values, group or composite depreciation methods described in GASB and 166 may be appropriate. Page Ref Page Ref (7) A description of the types of transactions included in program revenues, if any, (see Paragraph 48) and the policy for allocating indirect expenses to functions in the statement of activities. According to paragraph 48, program revenues derive directly from the program itself or from parties outside the reporting government s taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government s general revenues. The statement of activities should separately report three categories of program revenues: (a) charges for services (b) program-specific operating grants and contributions, and (c) program-specific capital grants and contributions. (GASB (f); GASB 37 12) (8) The government s policy for defining operating and nonoperating revenues of proprietary funds. (GASB 34 Paragraph 115 (g)) (9) The government s policy regarding whether to first apply restricted or unrestricted resources when an expense is incurred for purposes for which both z/review Guides/FYE June Review Guides/Preliminary GASB 34 Review Guide 2004 Page 26 of 40