Financial Audit Manual: Volume 2, July 2008 (25-JUL-08, 	 
GAO-08-586G).							 
                                                                 
The U.S. Government Accountability Office (GAO) and the 	 
President's Council on Integrity and Efficiency (PCIE) maintain  
the GAO/PCIE Financial Audit Manual (FAM). The FAM provides	 
guidance for performing financial statement audits of federal	 
entities. The FAM is a key tool for enhancing accountability over
taxpayer-provided resources.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-586G					        
    ACCNO:   A83086						        
  TITLE:     Financial Audit Manual: Volume 2, July 2008	      
     DATE:   07/25/2008 
  SUBJECT:   Auditing procedures				 
	     Auditing standards 				 
	     Auditors						 
	     Audits						 
	     Federal agencies					 
	     Financial statement audits 			 
	     Internal auditors					 
	     Internal audits					 

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GAO-08-586G

   

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Financial Audit Manual: 

Volume 2: 

July 2008: 

United States Government Accountability Office: 

GAO-08-586G: 

July 2008: 

To Audit Officials, Agency Cfos, And Others Interested In Federal 
Financial Auditing And Reporting: 

This letter transmits the revised Financial Audit Manual (FAM) Volume 2 
of the Government Accountability Office (GAO) and the Presidentâs 
Council on Integrity and Efficiency (PCIE). GAO and the PCIE issued the 
joint FAM in July 2001. The FAM presents a methodology to perform 
financial statement audits of federal entities in accordance with 
professional standards. We have updated the FAM for significant changes 
that have occurred in auditing financial statements in the U.S. 
government since the last major revisions to the FAM were issued in 
July 2004. 

To help the FAM continue to meet the needs of the federal audit 
community and the public it serves, GAO and the PCIE created a joint 
FAM Working Group. The Group is comprised of auditors from GAO and 
several Offices of the Inspectors General experienced in conducting 
audits of federal entity financial statements. Through a collaborative 
effort, the FAM Working Group prepared a revised FAM Volume 2 that 
contains audit tools. A revised FAM Volume 1 that contains the audit 
methodology is being issued separately. FAM Volume 3, which contains 
checklists for Federal Accounting (FAM 2010) and Federal Reporting and 
Disclosures (FAM 2020), was issued on August 28, 2007 (GAO-07-1173G). 

On October 5, 2007, we issued exposure drafts of FAM Volumes 1 and 2 
for an extended public comment period that ended on January 31, 2008. 
We received 15 letters of comment which have been considered in this 
issued version of FAM Volume 2, as well as FAM Volume 1. 

The revisions to the FAM are primarily due to changes in (1) 
professional auditing and attestation standards of the Auditing 
Standards Board of the American Institute of Certified Public 
Accountants (AICPA); (2) Government Auditing Standards issued by GAO; 
(3) audit and reporting guidance issued by the Office of Management and 
Budget (OMB); (4) accounting standards issued by the Federal Accounting 
Standards Advisory Board (FASAB); and (5) laws. 

Summary of Major Revisions and Improvements for FAM Volume 2: 

FAM Volume 2 incorporates changes based on (1) AICPA Statement of 
Auditing Standards (SAS) No. 100 through 114, which include the audit 
risk standards (SAS Nos. 104 through 111); (2) Government Auditing 
Standards (July 2007 Revision); (3) audit guidance in OMB Bulletin No. 
07-04, Audit Requirements for Federal Financial Statements (September 
4, 2007); and (4) financial reporting guidance in revised OMB Circular 
No. A-136, Financial Reporting Requirements (June 29, 2007). 

FAM Volume 2 also includes the effects on financial audits of FASAB 
accounting concepts and standards issued through May 31, 2007. This 
includes accounting, reporting, and disclosure requirements for social 
insurance, heritage assets and stewardship land, and earmarked funds. 
Finally, throughout the updated FAM Volume 2, revisions were made for 
new terminology, changes in the federal audit environment, and effects 
of applicable laws. A table of major changes to FAM Volume 2 is 
presented in attachment 1 to this letter. 

This FAM Volume 2 supersedes previously issued versions of FAM Volume 2 
through July 2004 and can be used to audit federal entity financial 
statements for the fiscal year ended September 30, 2008. 

Should you need additional information, please contact us at 
[email protected] or call GAOâs Financial Management and Assurance Assistant 
Directors Roger Stoltz, at (202) 512-9408; or Janet Krell, at (202) 512-
4716; Director Steve Sebastian at (202) 512-9521; or PCIE FAM Working 
Group Leaders Alex Biggs, at (202) 693-5258; or Joel Grover, at (202) 
927-5768. Other GAO FAM Project Team and PCIE FAM Working Group members 
are presented in attachment 2 of this letter. 

Sincerely yours, 

/Signed/: 

McCoy Williams: 
Managing Director: 
Financial Management and Assurance: 

The Honorable Jon T. Rymer: 
Chairman, Audit Committee: 
Presidentâs Council on Integrity U.S. Government Accountability Office 
and Efficiency: 

Attachments and enclosures: 

Attachment I: Table of Major Changes to FAM Volume 2: 

FAM section: Various; 
Major change: SAS references, particularly the audit risk standards 
(SAS No.104 through No. 111) have been codified in the appropriate AU 
section. 

FAM section: 650; 
Major change: Some clarifications and new terminology throughout were 
added for using the work of others. 

FAM section: 701A; 
Major change: Consistent with OMB audit guidance, performance measures 
are excluded from internal control definitions effective starting in 
fiscal year 2008 at FAM 701 A-8, II H. 

FAM section: 802; 
Major change: The general compliance checklist in FAM 802.06 lists five 
general laws for compliance consistent with OMB audit guidance while 
four other laws commonly assessed by auditors are now presented in FAM 
802.07. 

FAM section: 803; 
Major change: New audit procedures for checking on Antideficiency Act 
violations were added at FAM 803-6, steps 7 and 8. 

FAM section: 902; 
Major change: Auditing related parties and intragovernmental activity 
and balances have been revised to be consistent with OMB auditing 
guidance. 

FAM section: 903; 
Major change: The discussion of full costing per SFFAS No. 30 was 
expanded at FAM 903.02. 

FAM section: 921; 
Major change: Treasuryâs development and implementation of a new 
Government Wide Accounting (GWA) system that will have a significant 
impact on auditing Fund Balance with Treasury (FBWT) is discussed at 
FAM 921.11-.12. Treasuryâs plan to discontinue use of certain suspense 
accounts is discussed at FAM 921.13. Because these changes are to occur 
over several years, auditors should reevaluate their FBWT audit 
procedures, some examples of which are now presented in FAM 921.17-.22. 

FAM section: 921A; 
Major change: Treasury processes and reports are being substantially 
revised as a result of the implementation of the GWA system and other 
changes. 

FAM section: 921D; 
Major change: The audit program was eliminated. 

FAM section: 931; 
Major change: This new section provides guidance on auditing heritage 
assets and stewardship land as a result of SFFAS No. 29. 

FAM section: 941; 
Major change: This new section provides guidance on auditing the 
Statement of Social Insurance as a result of SFFAS Nos. 17, 25, 26, and 
28. 

FAM section: 1001; 
Major change: This section on management representation letters has 
been revised to be consistent with changes in professional standards. 
The effect of a change in management on representation letters was 
added at FAM 1001.19. 

FAM section: 1001A; 
Major change: The example management representation letter was changed 
to group representations by category (financial statements, internal 
control, fraud, etc.) Representations were added for Antideficency Act 
violations at FAM 1001 A.27, Statement of Social Insurance at FAM 1001 
A.28-.36, consistency of budget information required by OMB audit 
guidance at FAM 1001 A.37, and earmarked funds at FAM 1001 A.38. 
âGovernment-wide policesâ was deleted at FAM 1001 A.13 b. 

FAM section: 1002; 
Major change: A table for analyzing contingent losses was added to FAM 
1002.06 and a new FAM 1002.12 was added for certain legal claims where 
no monetary damages are being sought. FAM 1002.16 expanded the 
discussion and timing of interim and final legal letters. 

FAM section: 1003; 
Major change: The audit completion checklist was revised to be 
consistent with new professional standards and the revised FAM. 

[End of table] 

Attachment 2: 

GAO FAM Project Team: 

McCoy Williams, Managing Director: Steven J. Sebastian, Director: 
Robert F. Dacey, Chief Accountant: Abraham D. Akresh, Senior Level 
Expert for Auditing Standards: Roger R. Stoltz, Assistant Director: 
Janet M. Krell, Assistant Director: Corinne P. Robertson, Senior 
Auditor and Project Manager: William E. Boutboul, Project Manager: 
Charles R. Fox, Project Manager: Suzanne Murphy, Project Manager: Vera 
M. Seekins, Senior Auditor: Sharon O. Byrd, Audit Sampling Specialist: 
Francis L. Dymond, Assistant General Counsel: Jacquelyn N. Hamilton, 
Deputy Assistant General Counsel: 

PCIE FAM Working Group Members: 

The Honorable John P. Higgins, Jr., Chairman, Audit Committee, PCIE: 
Alex Biggs, PCIE Working Group Leader, Office of Inspector General, 
U.S. Department of Labor: Joel Grover, PCIE Working Group Leader, 
Office of Inspector General, U.S. Department of Treasury: Debra Alford, 
Office of Inspector General, U.S. Department of Defense: Morgan 
Aronson, Office of Inspector General, U.S. Department of Interior: Ade 
Bankole, Office of Inspector General, U.S. Department of Treasury: 
Susan Barron, Office of Inspector General, U.S. Department of Treasury: 
Paul Curtis, Office of Inspector General, Environmental Protection 
Agency: Mary Harmison, Office of Inspector General, Federal Trade 
Commission: Mark L. Hayes, Office of Inspector General, U.S. Department 
of Justice: David S. Laun, Office of Inspector General, U.S. Department 
of Justice: Marie Maguire, Office of Inspector General, National 
Science Foundation: Kelly A. McFadden, Office of Inspector General, 
U.S. Department of Justice: Joon Park, Office of Inspector General, 
U.S. Department of Labor: Kieu Rubb, Office of Inspector General, U.S. 
Department of Treasury: Gregory Spencer, Office of Inspector General, 
U.S. Department of Education: 

Contents-FAM Volume 2-Tools: 

Planning And General: 

Introduction to FAM Volume 2 â Tools: Using the Work of Others: Summary 
of Audit Procedures and Documentation for Review of Other Auditorsâ 
Work: Example Audit Procedures for Using the Work of Others: Example 
Reports When Using the Work of Others: Agreed-Upon Procedures: Example 
Agreed-Upon Procedures Engagement Letter: Example Representation Letter 
from Responsible Entity on Agreed-Upon Procedures Engagement: Agreed-
Upon Procedures Engagement Completion Checklist: Example Agreed-Upon 
Procedures Report: 

Internal Control (See also FAM 900): 

Assessing Agency Systems with the Federal Financial Management 
Improvement Act (FFMIA): Example Audit Procedures for Testing Systems 
Compliance with FFMIA: Summary Schedule of Instances of Systems 
Noncompliance with FFMIA: 

Compliance: 

General Compliance Checklist: 
Antideficiency Act: 
Federal Credit Reform Act of 1990: Provisions Governing Claims of the 
U.S. Government (31 U.S.C. 3711- 3720E) (Including the Debt Collection 
Improvement Act of 1996) (DCIA): Prompt Payment Act: Pay and Allowance 
System for Civilian Employees, as Provided Primarily in Chapters 51-59 
of Title 5, U.S. Code: Civil Service Retirement Act, 5 U.S.C. Chapter 
83: Federal Employees Health Benefits Act, 5 U.S.C. Chapter 89: Federal 
Employeesâ Compensation Act (FECA), 5 U.S.C. Chapter 81: Federal 
Employeesâ Retirement System Act of 1986 (FERS), 5 U.S.C.: Chapter 84: 

Substantive Testing: 

Related Parties, Including Intragovernmental Activity and Balances: 
Example Account Risk Analysis for Intragovernmental Activity and 
Balances: Example Specific Control Evaluation for Intragovernmental 
Accounts: Example Audit Procedures for Intragovernmental and Other 
Related Partiesâ Activity and Balances: Auditing Cost Information: 
Auditing Fund Balance with Treasury (FBWT): Treasury Processes and 
Reports Related to FBWT Reconciliation: Example Account Risk Analysis 
for Fund Balance with Treasury: Example Specific Control Evaluation for 
Fund Balance with Treasury: Auditing Heritage Assets and Stewardship 
Land: Auditing the Statement of Social Insurance: 

Reporting: 

Management Representations: 
A Example Management Representation Letter: Inquiries of Legal Counsel: 
Example Audit Procedures for Inquiries of Legal Counsel: Example Legal 
Letter Request: Example Legal Representation Letter: Example Management 
Summary Schedule: Financial Statement Audit Completion Checklist: 
Subsequent Events Review: 

Section 600: 

Planning and General: 

601 â Introduction to FAM Volume 2 â Tools: 

.01: Volume 2 of the GAO/PCIE Financial Audit Manual (FAM) consists of 
tools to assist the auditorp[Footnote 1] in performing a financial 
statement audit of a federal entity. These tools are generally 
organized according to the phases of the audit and are presented in 

* FAM 600, the planning phase and general issues;
* FAM 700, the internal control phase;
* FAM 800, compliance;
* FAM 900, substantive testing; and
* FAM 1000, the reporting phase. 

.02: Many of the tools in the various FAM sections include activities 
that would be performed during other phases of the audit. Thus, the 
auditor may refer to the FAM sections in volume 2 early in the audit. 
For example, FAM 701, Assessing Compliance of Agency Systems with the 
Federal Financial Management Improvement Act, includes procedures that 
would be performed throughout the audit, not just during the internal 
control phase, although many of them would be performed then. Also, FAM 
902, Related Parties, Including Intragovernmental Activity and 
Balances, has procedures that the auditor may decide to perform in the 
planning and internal control phases of the audit as well as during the 
testing phase. 

.03: The audit procedures presented in the examples in this and other 
FAM sections of volume 2 are examples of some of the audit steps 
typically performed in each area. They are used in conjunction with the 
appropriate FAM sections. In using these procedures, the auditor uses 
professional judgment to add additional procedures, delete irrelevant 
procedures, modify procedures, indicate the extent and timing of 
procedures, and change the terminology to that used by the federal 
entity to be audited. The auditor may integrate these steps with the 
audit programs for related line items. For example, tests of 
intragovernmental activity and balances in FAM 902 may be integrated 
with tests of accounts receivable and payable, and, to improve 
effectiveness, the auditor may coordinate those tests with related 
nonintragovernmental activity and balances. 

650 - Using the Work of Others: 

.01: In many financial statement audits, the auditor uses the work and 
reports of other auditors and specialists that may include CPA firms, 
inspectors general[Footnote 2] (IG), state auditors, and internal 
auditors. Specialists include actuaries and information systems (IS) 
personnel. The auditor may contract with a CPA firm to perform parts of 
an audit, or to perform the entire audit. The auditor expressing the 
opinion on the financial statements is usually âthe principal auditorâ 
as defined by AU 543.02, but this is a matter of professional judgment. 

.02: FAM 650 provides guidance to auditors on designing and performing 
oversight and other procedures when using the work of other auditors 
and specialists. Various professional standards also provide guidance 
in this area. These standards include AU 543, âPart of Audit Performed 
by Other Independent Auditors;â AU 322, âThe Auditorâs Consideration of 
the Internal Audit Function in an Audit of Financial Statements;â AU 
336, âUsing the Work of a Specialist;â[Footnote 3] and AU 315 
âCommunications Between Predecessor and Successor Auditors.â These 
standards have different requirements depending on whether the auditor 
is using the work of an independent auditor, an internal auditor, or a 
specialist. 

.03: In the federal environment, the auditor may use the work of other 
auditors and specialists in various situations. For example: 

* Audits of federal entity financial statements, either consolidated or 
individual bureaus, agencies, funds, or other components, by IGs or CPA 
firms in accordance with GAGAS (which includes U.S. GAAS) and OMB audit 
guidance. 

* CPA firms, IGs, or specialists engaged to do parts of an audit (for 
example, review information system (IS) controls, review actuarial 
calculations, or test specific accounts). 

* Reports on the processing of transactions by service organizations 
(i.e. SAS No. 70 reviews under AU 324). 

* Single audits or audits of federal funds provided to units of state 
and local governments performed by state auditors and CPA firms. 

* Work performed by internal audit functions (or equivalent, such as a 
program review office or those performing A-123 internal control 
reviews). 

* Work performed by internal audit staff who provide direct assistance 
to the auditor. 

.04: AU 543.13 states that in some circumstances the auditor may find 
it appropriate to participate in discussions regarding the accounts 
with management personnel of the component whose financial statements 
are being audited by other auditors and/or to make supplemental tests 
of such accounts. The determination of the extent of additional 
procedures, if any, to be applied rests with the principal auditor 
alone in the exercise of professional judgment and in no way 
constitutes a reflection on the adequacy of the other auditorâs work. 

An auditor transmitting the other auditorâs opinion is not a principal 
auditor; neither is the auditor expressing negative assurance on the 
other auditorâs work. However, if the auditor assumes responsibility 
for the opinion on the financial statements on which the auditor 
reports without making reference to the audit performed by the other 
auditor, the auditor taking responsibility should determine the extent 
of procedures to be undertaken. 

.05: FAM 650 provides guidance in making the judgments necessary for 
the auditor to use the work of others, including the: 

* type of reporting (FAM 650.09-.10); 

* evaluation of the other auditorsâ or specialistsâ independence and 
objectivity (FAM 650.11-.24); 

* evaluation of the other auditorsâ or specialistsâ qualifications (FAM 
650.25-.35); and: 

* determination by the auditor on the level of review (FAM 650.36-.42 
and: FAM 650 A). 

.06: The auditor should coordinate with the other auditor whose work is 
to be used. In turn, the other auditor should determine the needs of 
the auditor who plans to use the work being performed so that the 
professional judgments exercised by both auditors can satisfy the needs 
of both. This is best done before major work is started. For example, 
auditors of a consolidated entity (such as the U.S. government or an 
entire department or federal entity) are likely to plan to use the work 
of other auditors of subsidiary entities (such as individual 
departments, agencies, bureaus, funds, or other components). This 
coordination can result in more efficient and effective government 
audits and avoid duplication of effort. 

In addition, both auditors should coordinate throughout the audit so 
that the timing needs of the auditor and the other auditor are met. The 
auditor should provide instructions on audit procedures to be 
performed, materiality considerations, reporting format, and any other 
information deemed appropriate. The other auditor should perform the 
requested procedures in accordance with these instructions and report 
the findings solely for use by the auditor (AU 9543.03). The other 
auditor should also provide full and timely access to appropriate 
individuals and audit documentation for review by the auditor (GAGAS 
par. 4.23). This may occur on an ongoing basis during the audit, 
although this work may not be completely reviewed. 

.07: In this coordination, the auditor should inform other auditors on 
how their work and report will be used. AU 543.07 indicates that if the 
auditorâs report will name the other auditor, the principal auditor 
should obtain permission to do so and should present the other 
auditorâs report together with its report. For CPA firms, this 
permission may be obtained as part of the contracting process. As a 
professional courtesy, the auditor generally should also provide other 
auditors with a draft of its report to avoid surprises before final 
issuance. 

.08: When there is a difference of opinion, the auditor should confer 
with the other auditor in an attempt to reach an agreement as to the 
procedures that would be necessary to satisfy both auditorsâ 
professional judgments. If both auditors are unable to reach agreement, 
see FAM 650.54-.56. FAM 650 B contains example audit procedures for 
using the work of others, which depend on the professional judgments 
made. 

Types of Reporting: 

.09: There are various types of reporting when using the work of other 
auditors and specialists. The type of reporting depends on the degree 
of responsibility the auditor accepts and the work the other auditors 
and specialists will perform. Factors for the auditor to evaluate in 
deciding which type of reporting to use include the degree of assurance 
to provide, legal requirements, and cost-benefit considerations. The 
amount of resources required varies by type of report and generally 
increases in the order presented below. 

The auditor generally should decide the type of reporting in planning 
the engagement. The auditor generally should discuss the type of 
reporting with the other auditors or specialists early in the audit. 
The auditor exercises professional judgment in making these decisions 
and should document the basis for the decisions. AU 504.03 indicates 
that an auditor is associated with financial statements when the 
auditor has consented to the use of its name in a report, document, or 
written communication containing the financial statements. The type of 
reporting will depend on the auditorâs association with the report: 

a. No association with report. In this situation, the other auditors or 
specialists provide the report directly to the audited entity and/or to 
significant users. The auditor may use this method when procuring the 
audit but not acting as âthe auditor.â Examples are when there is no 
legal requirement for a separate audit report, or the user does not 
need a separate audit report, or a separate audit report would provide 
no additional information. When the auditor is required by law to 
perform the audit, the auditor should not use this option as the 
auditor is associated with the report. 

b. Association with report. In this situation, there are two possible 
types of transmittal letters: one expressing no assurance and one 
expressing negative assurance on the other auditorsâ work. For either 
type, the auditor is associated with the financial statements as 
described in AU 504. The fourth standard of reporting was amended by 
SAS No. 113 in AU 150.02 to state âIn all cases where an auditorâs name 
is associated with financial statements, the auditor should clearly 
indicate the character of the auditorâs work, if any, and the degree of 
responsibility the auditor is taking, in the auditorâs report.â 

Because the auditor did not perform the audit, the auditor should 
disclaim an opinion and should not express its concurrence with the 
other auditorsâ opinion. The auditor may use this approach when the 
auditor did not perform the audit but wants to issue a report or 
letter. The auditor may also expand the letter to highlight certain 
findings or information or to indicate that certain procedures were 
performed. See example 1 of FAM 650 C for wording for both types of 
transmittal letters which: 

* Express no assurance. For this letter, the auditor issues a 
transmittal letter without reviewing the other auditorsâ audit 
documentation. In these situations, the transmittal should be clear as 
to the limitations of the work of the auditor who generally has the 
responsibility to monitor audit contracts, as applicable, to meet the 
requirements of statutory audit provisions, such as in the IG Act, CFO 
Act, or Accountability of Tax Dollars Act of 2002. 

* Express negative assurance. This letter indicates that the auditor 
reviewed the other auditorsâ or specialistsâ report and related audit 
documentation, inquired of their representatives, and found no 
instances where the other auditors did not comply, in all material 
respects, with U.S. GAAS or GAGAS. 

c. The auditor issues a report that refers to other auditorsâ reports 
and indicates a division of responsibilities. To use this approach, the 
auditor has two decisions to make: (1) whether the auditor may serve as 
the principal auditor (AU 543.01-.03) and (2) whether the auditor will 
refer to the work of the other auditors (AU 543.01-.10). For audits of 
federal entities, auditors may be designated by law.[Footnote 4] The 
auditor exercises professional judgment in making these decisions and 
should document the basis for the decisions. One consideration in 
deciding whether the auditor is the principal auditor is sufficient 
knowledge of the entire entity, including portions audited by other 
auditors. Another consideration is the materiality and importance of 
the consolidated assets, liabilities, expenses, revenues, or net 
position the auditor has not audited. 

The auditor may issue a report that refers to other auditors when (1) 
the other auditors have reported on financial statements for a 
component entity that is part of the entity whose financial statements 
the principal auditor is reporting on and (2) the principal auditor 
does not wish to take responsibility for the other auditorsâ work. (See 
AU 543.09 for example wording.) This approach may be used only for CPA 
firms or for other auditors that are organizationally independent (see 
FAM 650.14) and should not be used for internal auditors or 
specialists. 

However, a reader of the report could question the basis for the 
principal auditor issuing the opinion because of the significant 
materiality and importance of the portion of the financial statements 
audited by the other auditors. In this case, the principal auditor 
should determine whether there is a need to issue a report that does 
not mention the other auditorsâ work, which may require additional work 
(see FAM 650.09 e). 

d. The auditor issues a report that expresses concurrence with the 
other auditorsâ report and conclusions. The auditor may use this 
approach when other auditors have reported on financial statements and 
the principal auditor needs or wants to provide more assurance than 
what is provided in the transmittal letter. For example, a certain 
audit may be required by law, in which the auditor, although allowed to 
hire other auditors to do the work, is required to give its opinion. In 
the absence of such a requirement, a report expressing concurrence is 
generally not cost-effective because of the resources required. 

Expressing concurrence means that the auditor would have reached the 
same opinion or conclusion had it done the audit. Therefore, the 
auditor should do the same level of work it would have done to take 
responsibility for the other auditorâs work. In this instance both the 
other auditor and the auditor that expresses concurrence are principal 
auditors because both have sufficient knowledge of the overall 
financial statements and the important issues, and the concurring 
auditor, by reason of the level of work done, has also audited the 
financial statements. 

The auditor usually accomplishes this by reviewing the audit 
documentation of the other auditor, having discussions with entity 
management, and/or performing supplemental tests, (see example 2 in FAM 
650 C for report wording). 

This approach may be used only for CPA firms or for other auditors who 
are organizationally independent (see FAM 650.14). The auditor should 
not use this report for specialists, since AU 336.15 prohibits 
reference to a specialistâs report unless the auditor issues a 
qualified or adverse opinion or a disclaimer of opinion based on the 
specialistâs work. The auditor also should not use this approach for 
internal auditors. AU 322.19 states that the responsibility to report 
on the financial statements rests with the auditor and cannot be shared 
with internal auditors.[Footnote 5] 

e. The auditor issues a report that does not mention the other 
auditorsâ or specialistsâ work. In this situation, the auditor issues 
the example report in FAM 595 A and/or FAM 595 B (as if no other 
auditors or specialists were involved). This means the auditor takes 
responsibility for the other auditorsâ or specialistsâ work. (See FAM 
650.09 c for a discussion of principal auditor issues.) The auditor may 
use this approach when the other auditors have done part of the audit. 
(This approach also may be used when the other auditors have done 
substantially the entire audit.) For example, a number of other 
auditors may have audited individual components of an entity and the 
auditor may audit the consolidation process. The auditor may use this 
approach if the auditor has sufficient knowledge of the entire entity 
and does additional work (see FAM 650.10). 

The auditor generally should accomplish this by reviewing the audit 
documentation, having discussions with entity management, and/or 
performing supplemental tests. The auditor also should use this 
approach when using the work of specialists and internal auditors 
because professional standards do not permit referring to specialistsâ 
or internal auditorsâ work (unless, for specialists, the auditor issues 
a qualified or adverse opinion or a disclaimer of opinion based on the 
specialistsâ work). GAO uses this approach in the audit of the 
consolidated financial statements of the U.S. government. 

.10: Table 650.1 presents an overview of the work the auditor generally 
shouldperform for each type of report or letter. âYesâ means that the 
auditor should perform some of that category of work. âNoâ means that 
the auditor need not perform that category of work. The extent of work 
in each category depends on the auditorâs professional judgment. See 
FAM 650.36 for discussion on the level of review. 

Table 650-1: Overview of Work Performed for Each Type of Reporting: 

Type of reporting: No association with report (FAM 650.09 a); 
Evaluate the other auditors' independence and objectivity (FAM 650.22-
.24): No[A]; 
Evaluate the other auditors' qualifications (FAM 650.25-.35): No; 
Level of review (FAM 650.36-.42): None; 
Hold discussions and/or perform supplemental tests (FAM 650.43-.47): 
No. 

Type of reporting: Auditor transmittal letter expresses no assurance 
(FAM 650.09 b, first bullet); 
Evaluate the other auditors' independence and objectivity (FAM 650.22-
.24): Yes; 
Evaluate the other auditors' qualifications (FAM 650.25-.35): Yes; 
Level of review (FAM 650.36-.42): Low or none; 
Hold discussions and/or perform supplemental tests (FAM 650.43-.47): 
No. 

Type of reporting: Auditor transmittal letter expresses negative 
assurance (FAM 650.09 b, second bullet); 
Evaluate the other auditors' independence and objectivity (FAM 650.22-
.24): Yes; 
Evaluate the other auditors' qualifications (FAM 650.25-.35): Yes; 
Level of review (FAM 650.36-.42): Moderate or low; 
Hold discussions and/or perform supplemental tests (FAM 650.43-.47): 
No. 

Type of reporting: Report refers to the other auditorsâ report and 
indicates a division of responsibilities (FAM 650.09 c); 
Evaluate the other auditors' independence and objectivity (FAM 650.22-
.24): Yes; 
Evaluate the other auditors' qualifications (FAM 650.25-.35): Yes; 
Level of review (FAM 650.36-.42): Low or none; 
Hold discussions and/or perform supplemental tests (FAM 650.43-.47): 
No. 

Type of reporting: Report concurs with the other auditorsâ report or 
does not mention the other auditorsâ work (FAM 650.09 d and e); 
Evaluate the other auditors' independence and objectivity (FAM 650.22-
.24): Yes; 
Evaluate the other auditors' qualifications (FAM 650.25-.35): Yes; 
Level of review (FAM 650.36-.42): High, moderate, or low; 
Hold discussions and/or perform supplemental tests (FAM 650.43-.47): 
Yes for internal auditorsâ work (should include supplemental tests); 
yes for auditorsâ work for high level of review; 
no for auditorâs work for moderate or low level of review. 

[End of table] 

Evaluating the Other Auditorsâ or Specialistsâ Independence and 
Objectivity: 

.11: Unless the auditor has no association with the report, the auditor 
should evaluate the other auditorsâ or specialistsâ independence and 
objectivity. Where the auditor has previously used the work of the same 
other auditor, the auditor generally should update the previous 
evaluation. Under GAGAS, chapter 3, audit organizations and individual 
auditors should be free both in fact and appearance from personal, 
external, and organizational impairments to independence. The auditor 
should first evaluate organizational independence. Different standards 
apply to CPA firms, other organizationally independent auditors, 
internal auditors, and specialists. 

.12: For CPA firms and specialists, the auditor may use a contracting 
process that is part of its organization or a procurement function 
within the entity to be audited. The auditor should determine whether 
the firm selected represented [in the statement of work (SOW) or 
request for proposal (RFP)] that it (and the assigned engagement team) 

* is independent and objective with respect to the audited entity;
* will remain independent throughout the audit;
* will disclose any independence issues discovered; 
and
* will immediately notify the COTR if it considers submitting a 
proposal on any contracts involving the audited entity to permit 
evaluation of whether its auditorsâ independence could be impaired. 

Firms should be asked to describe in their proposals all work, 
including nonaudit services, they have done for the audited entity in 
the last several years. See GAGAS, chapter 3, and Government Auditing 
Standards: Answers to Independence Questions (GAO-02-870G, July 2002). 

The auditor generally should determine whether the SOW or RFP indicate 
that âThe government will determine whether a firm is independent for 
the purpose of performing an audit of financial statements of the 
federal entity.â This avoids a potential dispute where, for example, 
the firm does substantial nonaudit work for the entity to be audited 
that the auditor views as a conflict. The technical evaluation panel 
should evaluate whether the nature and extent of nonaudit services or 
other factors causes an independence or objectivity issue, either in 
fact or in appearance. In this evaluation, the panel generally should 
determine whether (1) the other auditors will need to audit their own 
work or (2) whether the other auditors made management decisions or 
performed management functions. 

.13: The auditor generally should have a role in contracting for the 
CPA firm or specialist.[Footnote 6] When the auditor does not 
participate in contracting for the CPA firm or specialist, the auditor 
generally should obtain an overview of the contracting process, 
including: 

* reading the SOW or RFP;
* reviewing the proposal of the firm selected; and: 
* understanding the evaluations of the panel selecting the firm. 

The auditor should determine whether the firm provided a representation 
as to independence and objectivity (usually in its proposal). If the 
firm has not provided a representation as to independence and 
objectivity, the auditor should obtain a representation from the firm. 
If the auditor is not familiar with the firm, the auditor should 
inquire of professional organizations, such as the AICPA or the Public 
Company Accounting Oversight Board (PCAOB), as to the firmâs 
professional reputation and standing. 

.14: For government auditors, the auditor should decide whether the 
other auditor is organizationally independent to report externally or 
whether to consider it as an internal audit organization. The auditor 
may refer to the work of organizationally independent government 
auditors but should not refer to the work of internal audit 
organizations in the audit report. The auditor generally should perform 
more extensive review and supervision when dealing with internal 
auditors. The auditor should obtain written representations from 
appropriate officials[Footnote 7] of the government audit organization 
that to the best of their knowledge, the organization and the 
individual auditors doing the work are independent of the entity being 
audited. This means that the individual auditors are free of personal 
impairments to independence and maintain an independent attitude and 
appearance. It also means that the auditor is free from external 
impairments and is organizationally independent (see GAGAS, chapter 3). 

The representation letter may indicate the general criteria for 
determining independence, such as âunder the criteria in GAGAS.â The 
auditor should obtain representations for the period of the financial 
statements to the date of the other auditorsâ report. Since the auditor 
decides on the independence and objectivity of the other auditors to 
plan its work, the auditor generally should obtain oral representations 
early in the audit and written representations at the end of the audit. 

.15: Government auditors may be presumed to be free from organizational 
impairments to independence when reporting externally to third parties 
ifthey are organizationally independent of the audited entity. 
Government auditors may meet the requirement for organizational 
independence in a number of ways. There is a presumption that a 
government auditor is organizationally independent (GAGAS, chapter 3) 
if the auditor is assigned to: 

a. a level of government other than the one to which the audited entity 
is assigned (federal, state, or local), for example, a federal auditor 
auditing a state government program; or: 

b. a different branch of government within the same level of government 
as the audited entity, for example, a legislative auditor auditing an 
executive branch program. 

.16: There is also a presumption of organizational independence if the 
head of the government audit organization (GAGAS, chapter 3) meets one 
of the following criteria: 

a. directly elected by voters of the jurisdiction being audited; 

b. elected or appointed by a legislative body, subject to removal by a 
legislative body, and reports the results of audits to and is 
accountable to a legislative body; 

c. appointed by someone other than a legislative body, so long as the 
appointment is confirmed by a legislative body and removal from the 
position is subject to oversight or approval by a legislative body, and 
reports the results of audits to and is accountable to a legislative 
body; or: 

d. appointed by, accountable to, reports to, and can only be removed by 
a statutorily created governing body, the majority of whose members are 
independently elected or appointed and come from outside the 
organization being audited. 

.17: If the other auditor or its head meets one of the above criteria, 
the auditor need not perform any procedures concerning organizational 
independence other than to obtain a representation letter from an 
appropriate official of the government audit organization as noted in 
FAM 650.14 (see FAM 650.23 for tests of personal independence). 
However, if the auditor encounters evidence that the other auditor 
might not be organizationally independent, the auditor should determine 
the need for inquiries and other procedures, and then evaluate the 
results of these procedures. 

.18: In addition to the presumptive criteria, GAGAS recognizes that 
there may be other organizational structures under which a government 
audit organization could be free from organizational impairments. The 
auditor should determine whether these other structures provide 
sufficient safeguards to prevent the audited entity from interfering 
with the government auditorâs ability to perform the work and report 
the results impartially. For the auditor to determine that the 
government audit organization is free from organizational impairments 
to report externally under a structure different from the ones listed 
above, the government auditor (GAGAS, chapter 3) should have all of the 
following safeguards: 

a. statutory protections that prevent the audited entity from 
abolishing the government audit organization; 

b. statutory protections that require that if the head of the 
government audit organization is removed from office, the head of the 
federal entity report this fact and the reasons for the removal to the 
legislative body; 

c. statutory protections that prevent the audited entity from 
interfering with the initiation, scope, timing, and completion of any 
audit; 

d. statutory protections that prevent the audited entity from 
interfering with the reporting on any audit, including the findings and 
conclusions, or the manner, means, or timing of the government audit 
organizationâs reports; 

e. statutory protections that require the government audit organization 
to report to a legislative body or other independent governing body on 
a recurring basis; 

f. statutory protections that give the government audit organization 
sole authority over the selection, retention, and dismissal of its 
staff; and: 

g. statutory access to records and documents related to the federal 
entity, program, or function being audited, and access to government 
officials or other individuals as needed to conduct the audit. 

.19: If the auditor concludes that the government audit organization 
has all the safeguards listed in FAM 650.18, the auditor may determine 
that the governmental auditor is free from organizational impairments 
to independence when reporting externally. The auditor should document 
the statutory provisions in place that provide these safeguards. 

.20: When using the work of other government auditors that meet these 
requirements, the auditor should request a representation letter (see 
FAM 650.14) from an appropriate official of the government audit 
organization. The auditor should review this document and as necessary 
discuss it with appropriate officials of the government audit 
organization, the external quality assurance reviewer, legal counsel 
for the government audit organization, and the auditorâs legal counsel. 

.21: If the auditor decides that the government audit organization is 
not organizationally independent to report externally (either because 
it does not meet the criteria in GAGAS or for another reason), the 
auditor should determine whether the other auditor is organizationally 
independent to report internally. Such auditors are internal auditors. 
The Institute of Internal Auditorsâ (IIA), International Standards for 
the Professional Practice of Internal Auditing defines internal 
auditing as âan independent, objective assurance and consulting 
activity designed to add value and improve an organizationâs 
operations. It helps an organization accomplish its objectives by 
bringing a systematic, disciplined approach to evaluate and improve the 
effectiveness of risk management, control, and governance processes.â 
GAGAS contain guidance on organizational independence for government 
internal auditors. For example, internal auditors should be outside the 
staff or line management function of the unit under audit. They should 
report their results and be accountable to the head or deputy of their 
federal entity. IIA standards require internal auditors to be objective 
for the activities they audit. These GAGAS and IIA standards of 
independence for internal auditors differ from independence under the 
AICPA Code of Professional Conduct or independence for external 
auditors under GAGAS. 

The auditor generally should determine whether the internal auditors 
whose work is to be used are independent of the activities they audit. 
The auditor also should determine the organizational status of the head 
of the audit organization. For the audit organization to be considered 
free from organizational impairments to report internally to 
management, the head of the audit organization (GAGAS, chapter 3) 
should meet all criteria: 

a. is accountable to the head or deputy head of the government entity, 
or those charged with governance; 

b. is required to report the results of the audit organizationâs work 
to the head or deputy head of the government entity and those charged 
with governance; 

c. is located organizationally outside the staff or line management 
function of the unit under audit; 

d. has access to those charged with governance; and: 

e. is sufficiently removed from political pressures to conduct audits 
and report findings, opinions, and conclusions objectively without fear 
of political reprisal. 

.22: If the auditor concludes that the internal auditors are not 
independent under GAGAS and IIA standards, the auditor should treat the 
work as if the audited entity prepared it. If the auditor concludes 
that the internal auditors are independent under GAGAS and IIA 
standards, the auditor may use their work to the extent permitted by AU 
322. In either case, the auditor should not issue a report referring to 
or concurring with the work of internal auditors. 

.23: In addition to evaluating the other auditorsâ organizational 
independence, the auditor should evaluate whether the audit team has 
any personal impairments. For both internal auditors and 
rganizationally independent government audit organizations, the auditor 
generally should ask how the other auditors monitor the personal 
independence of individual staff members, especially those doing the 
work the auditor would like to use. 

.24: The auditor should document the work performed and the conclusions 
reached as to independence and objectivity. The documentation should 
indicate the auditorâs conclusion as to whether the other auditors are 
independent and objective and the basis for that conclusion. The 
auditor should consult with the reviewer if there are questions about 
the other auditorsâ independence or objectivity. 

Evaluating Other Auditorsâ or Specialistsâ Qualifications: 

.25: After evaluating the other auditorsâ or specialistsâ independence 
and objectivity, the auditor should evaluate their qualifications to 
perform the specific tasks required. This involves evaluating the 
qualifications of the firm or audit organization and evaluating the 
qualifications of the specific audit team. Where the auditor has 
previously used the work of the same other auditors, the auditor 
generally should update the previous evaluation. 

.26: For CPA firms and specialists, the auditor generally should 
evaluate qualifications through the contracting process, usually by 
using a technical evaluation panel to select a qualified firm. A firm 
submits rÃ©sumÃ©s for its audit team members, demonstrates why its team 
is qualified to do the work, and submits its plan for doing the audit. 
Each CPA firm should submit its latest peer review report, letter of 
comments, and response to the peer review report. The firm should also 
agree to submit updated peer review reports during the period of the 
contract. If the peer review report was issued more than three years 
earlier, the evaluation panel may obtain documentation relating to the 
internal quality control policies and procedures of the selected firm, 
or read the firmâs inspection report and response.[Footnote 8] 

A CPA firm may also be asked to submit its latest public inspection 
report prepared by the PCAOB, but these reports pertain to audits of 
publicly traded companies and related quality controls. However, to the 
extent they raise issues about quality controls or methodology, they 
may be applicable to audits of federal entities.[Footnote 9] 

.27: Where the auditor did not participate in the contracting process, 
the auditor should determine how the qualifications of a firm were 
evaluated. For example, did the technical evaluation panel review: 

* RÃ©sumÃ©s of the team members? 

* The audit approach? 

* The peer review report and related letter of comments (if any)? 

* The firmâs response to the peer review report? 

The auditor should read these documents and reach a conclusion as to 
qualifications. 

.28: For auditors other than CPA firms, the auditor should ask whether 
the audit organization had a peer review and the date of that review. 
IGs have peer reviews performed every 3 years by other IGs. Most state 
auditors also have peer reviews every 3 years. To comply with GAGAS, 
the audit organization should have a peer review every 3 years. The IIA 
standards indicate that â[e]xternal assessments, such as quality 
assurance reviews, should be conducted at least once every five years 
by a qualified, independent reviewer or review team from outside the 
organization.â 

While reviews under the IIA standard are not designed to report whether 
the audit organizationâs quality control adheres to GAGAS, they do 
provide evidence about whether the work adheres to a recognized set of 
professional standards. The auditor should read the peer review report, 
the letter of comments, and the audit organizationâs response. Where 
the audit organization has received an unqualified peer review report 
recently (usually less than 3 years ago), the auditor generally need 
not perform further review of the audit organizationâs qualifications. 

.29: Where the peer review report is not recent, the auditor generally 
should review the results of the audit organizationâs internal 
inspection program for any new quality control issues. The inspection 
generally should include reviews of audit documentation, interviews of 
staff members, and tests of functional areas. Where the inspection is 
recent (usually within the past year) and the inspection report is 
unqualified, the auditor generally need not perform further review of 
the audit organizationâs qualifications. 

.30: Where the peer review or inspection report is qualified or 
adverse, the auditor should evaluate whether the quality control system 
has since been strengthened to allow the auditor to use the other 
auditorsâ work. The auditor may review the organizationâs action plan 
for improving quality controls and inspection results in determining 
whether quality controls have improved since the peer review. The 
auditor should evaluate the effect of remaining weaknesses in 
determining the nature and extent of procedures to be performed. 

.31: Where the latest peer review was completed more than 3 years 
earlier and there is no inspection program, the auditor should obtain 
an overview of the important quality control policies and procedures of 
the other auditor.[Footnote 10] 

The overview generally should cover the functional areas of: 

* independence, integrity, and objectivity (FAM 650.11-.24); 

* leadership responsibilities; 

* ethical requirements; 

* acceptance and continuance of clients and engagements; 

* human resources (includes recruiting and hiring, advancement, 
professional development and training, and assigning personnel to 
assignments); 

* engagement performance (includes supervision and consultation); and: 

* monitoring programs. 

.32: The auditor may obtain this information through interviews of the 
other auditorâs management and staff and through reading its quality 
control summary document. The auditor also may read the other auditorâs 
manuals and other guidance for conducting audits. 

.33: In addition to evaluating the other auditorâs qualifications, the 
auditor also should evaluate the overall qualifications of the team 
assigned to do the work. The auditor may review rÃ©sumÃ©s of key team 
members to accomplish this. The auditor should review the specific 
education, training, certifications, and experience of key team 
members. In evaluating qualifications, the auditor should review the 
specific role of staff members on the job. When the auditor has 
knowledge of qualifications from prior experience for key team members, 
the auditor should inquire about their experience in the time since the 
last audit. 

.34: Where the auditor is not satisfied as to the qualifications of the 
other auditor, the auditor generally should perform a more detailed 
review of the documentation and/or perform supplemental tests of key 
line items (see FAM 650.36). 

The auditor should document the work performed and the conclusions 
reached as to the other auditorsâ qualifications. The documentation 
should indicate the auditorâs conclusion as to whether the other 
auditors are qualified to perform the tasks required and the basis for 
that conclusion. The auditor should consult with the reviewer if there 
are questions about the other auditorsâ qualifications. 

.35: If the auditor has significant concerns about the other auditorsâ 
independence, objectivity, or qualifications, the auditor should revise 
its audit strategy. For example, the auditor may: 

* contract with another firm; 

* ask the other auditors to substitute more highly qualified or 
objective staff members; 

* do the audit without using the other auditorsâ work, treating any 
work done by the other auditors as prepared by the audited entity; 

* divide the work so that the other auditors test the areas where they 
are qualified, and the auditor does the rest of the audit; or: 

* issue a disclaimer of opinion. 

Planning the Review and Testing of Other Auditorsâ or Specialistsâ 
Work: 

.36: After evaluating the other auditorsâ or specialistsâ independence, 
objectivity, and qualifications, the auditor should develop an audit 
strategy and audit plan for reviewing and, if necessary, testing the 
work done. In this strategy, the auditor generally should document the 
level of review as high, moderate, or low. In some situations, the 
auditor should perform significantly more work than the work shown for 
the high level to include performing significant supplemental tests. In 
other situations, the auditor may decide less review or no review is 
necessary. These situations typically involve entities or line items 
that are very small in relation to the financial statements taken as a 
whole. In these situations, the auditor may decide to read the other 
auditorsâ report and the financial statements and ask questions if 
anything seems unusual. 

The auditor should reevaluate the audit strategy and plan as the work 
progresses. If serving as the COTR, the auditor will assist the 
contracting officer to ensure contractor compliance with the terms and 
conditions of the contract. In addition, the IG Act requires that the 
IG take appropriate steps to assure that any work performed by 
nonfederal auditors complies with GAGAS. The level of review is a 
professional judgment the auditor generally should make for significant 
assertions in each material line item considering the following 
factors: 

a. The type of report or letter the auditor will issue, as less review 
is needed for a transmittal letter than for reports in which the 
auditor takes responsibility for the other auditorsâ work (see FAM 
650.10). 

b. Whether the other auditors issue a disclaimer of opinion because of 
a scope limitation, as less work is needed to concur with a scope 
limitation than to concur with an unqualified opinion (see FAM 650.37). 

c. Whether the auditorâs report might contain a disclaimer because of a 
scope limitation, as less work is needed if the auditorâs report will 
contain a scope limitation (see FAM 650.39). 

d. The other auditorsâ independence, objectivity, and integrity (both 
for the audit organization and its audit team) are impaired, as the 
level of review increases as independence, objectivity, and integrity 
decreases. 

e. The other auditorsâ qualifications (both for the audit organization 
and its audit team) to perform the work the auditor wishes to use, as 
the level of review increases as the other auditorsâ qualifications 
decrease. 

f. The auditorsâ prior experience with the other auditors (both for its 
audit organization and its audit team), as the level of review tends to 
decrease as the auditorâs confidence increases from working with the 
other auditors. 

g. The materiality of the line item in relation to the financial 
statements the auditor is reporting on, taken as a whole, as the level 
of review increases as the line item becomes more material. 

h. The risk of material misstatement, including the risk of material 
fraud for the line item and assertion in the financial statements the 
other auditors are auditing, as the level of review increases as the 
risk of material misstatement increases. 

.37: If the other auditorsâ work has a scope limitation, this generally 
affects the level of review, except for transmittal letters with no 
assurance. If the other auditors disclaim an opinion on the financial 
statements because of a scope limitation, the auditor should also issue 
a disclaimer of opinion, unless the financial statements the other 
auditors audited are not material to the financial statements the 
auditor is auditing. The auditor generally need not perform extensive 
procedures to be satisfied that this disclaimer is appropriate. 
Additionally, the auditor generally need not hold discussions with 
entity management and/or perform supplemental tests in this situation, 
and may limit the review of documentation to summary documentation. 
Thus, the level of review is usually low or no review (see FAM 650.10). 
However, the auditor may do additional work to learn about the entity, 
to help the other auditor plan future audits, or to help entity 
management correct the causes of the scope limitation. 

.38: If the other auditorsâ work had a scope limitation that results in 
a qualified opinion, the auditor generally should perform a moderate or 
high level of review to determine whether the other auditors should 
have disclaimed an opinion and that the only issues are those relating 
to the qualification. 

.39: A scope limitation on the auditorâs work that results in a 
disclaimer also may affect the level of review. Since the auditor has 
already decided that not enough work can be done on the overall 
financial statements, no amount of review of the other auditorsâ work 
is likely to change that conclusion. Thus, as in FAM 650.37, 
discussions with entity management and/or supplemental tests are not 
required, the review of the other auditorsâ documentation may be 
limited to summary documentation; and the level of review is usually 
low or no review (see FAM 650.10). However, the auditor may do 
additional work to learn about the entity, to help the other auditor 
plan future audits, or to help entity management correct the causes of 
the scope limitation. 

.40: If there is a scope limitation on the auditorâs work that results 
in a qualified opinion, the auditor should perform a similar amount of 
work as for an unqualified opinion (i.e., enough to support the 
qualification). 

.41: FAM 650 A illustrates the audit work that the auditor generally 
should perform for each level of review on each significant line item, 
as well as what to retain in audit documentation. 

Review of Audit Documentation: 

.42: The extent of the auditorâs review of the other auditorsâ or 
specialistsâ documentation depends on the level of review and is a 
professional judgment based on the factors in FAM 650.36. 

* For a low level of review, the auditor may limit the review of 
documentation to key summary planning and completion documentation. 

* For a moderate level of review, the auditor generally should review 
more of the other auditorsâ or specialistsâ documentation, especially 
those evidencing important decisions. For financial statement audits, 
this includes the audit strategy and audit procedures (or equivalent 
documents); the ARA (or equivalent documentation) for significant 
accounts; the SCE (or equivalent documentation) for significant 
applications; the documentation for accounts, estimates, and judgments 
with high risk of material misstatement; the analytical procedures; the 
audit completion checklist at FAM 1003 (or equivalent documentation); 
the audit summary memorandum; and the summary of uncorrected 
misstatements (see FAM 595 C). 

* For a high level of review, the auditor generally should review all 
of the items for the moderate level of review plus the important 
detailed documentation. 

Discussions and/or Supplemental Tests for a High Level of Review: 

.43: AU 543.13 states that âIn some circumstances the principal auditor 
may consider it appropriate to participate in discussions regarding the 
accounts with management personnel of the component whose financial 
statements are being audited by other auditors and/or to make 
supplemental tests of such accounts.â The auditor may interpret âin 
some circumstancesâ to mean when the level of review is high. Thus, 
where the level of review is high, the auditor generally should (1) 
review audit documentation, and (2) hold discussions with audited 
entity management and/or perform tests of original documents. 

The objective of these additional procedures is for the auditor to 
obtain additional evidence about whether key items are properly handled 
and supported by sufficient appropriate evidence. For example, the 
auditor generally should discuss key items with entity management, 
especially estimates and judgments. This discussion generally should be 
with the other auditors present. The auditor generally should attend 
the entrance and exit conferences and other key meetings held by other 
auditors or specialists. For key items that have high risk of material 
misstatement, discussions with entity management may not provide 
sufficient evidence, and the auditor should perform supplemental tests. 

.44: The auditor may perform supplemental tests on a selection of the 
other auditorsâ work, additional tests of the accounting records, or 
both. To perform supplemental tests, the auditor should obtain access 
to the entityâs personnel and its books and records. The auditor may 
coordinate access to the entityâs personnel and records through the 
other auditor. The auditor and the other auditor also may jointly 
perform parts of a test, where the sample is planned jointly and the 
results are evaluated jointly. Although supplemental tests are usually 
performed only when the level of review is high, the auditor may 
perform supplemental tests in other situations to learn about the 
entity, to help the other auditor plan future audits, or to help entity 
management correct problems. 

.45: Where the other auditor is an internal auditor, the auditor should 
perform supplemental tests. The extent of this testing depends on 
circumstances and should be sufficient for the auditor to make an 
evaluation of the overall quality and effectiveness of the internal 
control work done by the internal auditor (see AU 322.26). 

.46 The auditor generally should limit discussions with entity 
management and/or supplemental tests to significant assertions in line 
items that have a high risk of material misstatement. This is 
especially true in areas involving estimates and judgments or in areas 
on which users place extensive reliance. The auditorâs supplemental 
tests generally should include some items tested by the other auditor, 
particularly any that appear to be exceptions, in order to determine 
whether they were appropriately evaluated in formulating an opinion. 
The auditor generally should plan to perform supplemental tests while 
the other auditors are at the entity and have access to records, as 
this can minimize the inconvenience for everyone. 

.47: It is not necessary to perform supplemental tests of the work of 
specialists. As indicated in AU 336.12, the auditor should understand 
the methods and assumptions used by the specialists, test the data 
provided to the specialists (extent of testing is based on risk and 
materiality), and evaluate whether the specialistsâ findings support 
the financial statement assertions. If the auditor believes the 
findings are unreasonable, the auditor should apply additional 
procedures and/or determine the need to obtain another specialist. 

Subsequent Events Review and Dating of the Auditorâs Report: 

.48: The auditor should date the report when the auditor has obtained 
sufficient appropriate audit evidence to support the opinion on the 
financial statements (AU 339.23 and AU 530). If the other auditorsâ or 
specialistsâ report is dated earlier and the auditorâs report does not 
mention the other auditorsâ report or concurs with the other auditorsâ 
report as in example 2 of FAM 650 C, the auditor should update the 
subsequent events review to the date of the auditorâs report. 

The auditor may ask the other auditors to update the subsequent events 
review to the required date, or the auditor may update the subsequent 
events review. However, since this requires additional work, the 
auditor should attempt to complete audit work when the other auditors 
complete their work. The auditor should evaluate this issue and 
coordinate with the other auditor when planning the audit. The auditor 
need not update the subsequent events review when the auditor issues a 
transmittal letter, as in example 1 of FAM 650 C. 

Staffing the Review of the Other Auditorsâ or Specialistsâ Work: 

.49: When staffing the review, the auditor should determine the extent 
to which the other auditors or specialists have reviewed their work. 
The other auditor should have performed at least one level of review 
for all audit work, with more material or sensitive areas having 
multiple reviews. In some cases, before the audit is complete, the 
other auditor may not have completed all levels of review, particularly 
at its top level, and may be reluctant for the auditor to access the 
audit documentation before these reviews are done. 

The auditorâs staff reviewing the work generally should have enough 
experience in financial statement auditing to understand the 
professional judgments that need to be made and to interact with the 
higher levels of the other auditor. An assistant director or a senior 
manager who has significant experience in performing and reviewing 
financial statement audit work should perform most of the review. Less 
qualified staff members may perform supplemental tests when supervised 
by more qualified auditors. 

The assistant director, audit manager, or auditor-in-charge should 
review the documentation of any supplemental tests performed by less 
experienced staff members. Except for key areas or issues, the 
auditdirector may designate another qualified auditor to perform the 
primary review of audit documentation prepared by the assistant 
director. 

.50: When the other auditorsâ work involves the review of IS controls, 
an IS controls specialist should participate in the auditorâs review. 
Together they should determine if IS controls were adequate, audit work 
was properly documented, and related audit objectives were achieved. 

Evaluating the Work of Other Auditors or Specialists: 

.51: After the auditor has completed the review of the other auditorsâ 
or specialistsâ work, and, if necessary, any supplemental testing, the 
auditor should determine whether the work is sufficient and acceptable 
for the auditorsâ use. The auditor should document this evaluation. 

.52: Sometimes, other auditors use methodologies or audit approaches 
that are different from those the auditor would have used. Auditing 
requires a great deal of professional judgment and there often are 
alternative ways to achieve audit objectives. Many CPA firms have 
developed, at considerable expense, proprieary audit methodologies to 
use on a wide range of public and private sector clients. Many of these 
audit methodologies utilize electronic technology where the entire 
audit documentation exists only in electronic form. Thus, the auditor 
should understand the other auditorsâ audit methodology and basis for 
the nature, extent, and timing of audit procedures. This may require 
obtaining permission to use proprietary software to review the audit 
documentation. Additionally, where the CPA software is retained, the 
auditor should develop a process to maintain the operability of the 
software to access the audit documentation in the future. 

The auditor should evaluate whether sufficient appropriate 
evidence[Footnote 11] has been obtained to meet the audit objectives, 
particularly for significant assertions in line items with a high risk 
of material misstatement. If the auditor has concerns about whether the 
other auditorsâ work provides sufficient appropriate evidence, the 
auditor generally should discuss the matter with the audit director and 
the reviewer before formally discussing the issue with the other 
auditors. 

.53: The auditor should determine the significance of the test results 
to the audit of the financial statements the auditor is reporting on. 
As an example, the other auditors may have selected a nonstatistical 
sample and/or the sample size may be smaller than the sample size the 
auditor would have selected. The auditor may decide that this provides 
sufficient evidence in an area that is less material or has low or 
moderate risk of material misstatement. However, if the risk of 
material misstatement is high, the auditor may conclude that sufficient 
appropriate evidence has not been obtained and that additional work is 
needed. 

In this case, after consulting with the audit director and the 
reviewer, the auditor generally should either ask the other auditors to 
perform additional tests or perform the additional tests. If this 
additional testing is not done, the auditor should determine the effect 
on the auditorâs report of the scope limitation. Because reaching this 
conclusion after the work is performed is inefficient, especially when 
the level of review is high, the auditor generally should coordinate or 
concur with major planning decisions of the other auditor before audit 
work is started. 

.54: Sometimes, the auditor may disagree with the conclusions or 
judgments of the other auditors. In this case, the auditor should 
evaluate the other auditorsâ work as well as any other evidence or 
testing necessary to determine the appropriate conclusion. 

.55: The auditor should discuss any issues of disagreement with the 
other auditors to attempt to resolve the disagreement. The auditor 
should attempt to resolve professional disagreements early to reduce 
confusion that may arise from differing auditor views. Once identified, 
the auditor should discuss the issues with the other auditors to 
resolve them in a timely manner and before the completion of the audit. 

.56: If the auditor does not reach agreement with the other auditors, 
the auditor should determine how to report. For disagreements involving 
matters that are material to the financial statements, the auditor may 
decide not to transmit the other auditorsâ report, instead issuing a 
disclaimer of opinion due to a scope limitation or doing additional 
work, if necessary, to issue an appropriate opinion. For disagreements 
involving matters that are not material to the financial statements,, 
the auditor may transmit the other auditorsâ report, issue the 
transmittal letter or report, and describe the disagreement and the 
basis for the auditorâs conclusions. 

Documenting the Review of Other Auditorsâ or Specialistsâ Work: 

.57: Regardless of the type of reporting or the level of review, the 
auditorâs documentation generally should contain the items listed in 
FAM 650 A under âdocumentation,â either electronically or in hard copy. 

.58: In addition, where the auditor performs supplemental tests of the 
accounting records, the auditorâs documentation should contain a 
description of the work (this may be a list of the documents the 
auditor examined or tick marks on a copy of the other auditorsâ 
documentation if that is the basis for the selection) and the auditorâs 
conclusion. It is not necessary to retain copies of the documents 
examined. 

.59: There is a difference between the auditorâs responsibilities to 
review the documentation of other auditors and what the auditor may 
copy and retain from that documentation. The auditor uses professional 
judgment in deciding which of the other auditorsâ or specialistsâ 
documents to copy and retain. However, many auditors use electronic 
technology to retain documentation for the entire audit. The auditor 
may cite this documentation as part of the review to include any 
supplemental testing performed on the other auditorsâ work. The auditor 
may print any documents as necessary. 

.60: The auditor may retain other documentation if it might be useful 
in understanding the entity, training staff members, planning future 
audits, reviewing the documentation, or writing the report. 
Documentation in this category includes the entity profile (or 
equivalent), audit strategy, audit procedures, ARA and SCE forms (or 
equivalent), trial balance or lead schedules, management representation 
letter, and legal representation letter. Auditors often find it helpful 
to keep copies of documents (either electronically or in hard copy) in 
case questions are raised in review but not to include those copies in 
the audit documentation unless they are needed to document the work 
performed. 

The auditor should retain documents in accordance with the contract or 
other legal requirements, but not less than 5 years from the report 
release date (AU 339.32). Audit procedures may indicate which documents 
to retain. The auditor may not discard documents after 60 days from the 
report release date (AU 339.27-.30). In documenting the review, 
auditors may indicate the document number or index number used by the 
other auditor in order to locate the document at a later date. 

Ownership and confidentiality of audit documentation is determined by 
contract and legal requirements (see AU 339.31). 

Using Internal Audit Staff to Provide Direct Assistance to the Auditor: 

.61: Sometimes, the auditor or the audited entity requests that 
internal auditors provide direct assistance to the auditor. Before this 
is done, the auditor should be satisfied with the independence, 
objectivity, and qualifications of the staff assigned to do the work 
requested. AU 322.27 indicates that in these situations, âThe auditor 
should inform the internal auditors of their responsibilities, the 
objectives of the procedures they are to perform, and matters that may 
affect the nature, timing, and extent of procedures, such as possible 
accounting and auditing issues.â 

The auditor should direct, review, test, and evaluate the work done by 
internal auditors to the extent appropriate based on the auditorâs 
evaluation of risk, materiality, objectivity, and qualifications. 

Using Federal Entity Specialists: 

.62: Many federal entities have actuaries, security specialists, 
statistical specialists, and other specialists whose work the auditor 
would like to use. However, unless these specialists are part of an 
entity that is organizationally independent or are under contract to 
such an entity, the auditor should evaluate their work as the work of 
an employee of the entity under audit. The auditor should use the 
specialists of other auditors or contract for outside specialists to 
develop and implement appropriate tests. 

Multiple Levels of Other Auditors: 

.63: Sometimes there are several levels of other auditors. For example, 
an IG may hire a CPA firm to perform an audit of a federal entityâs 
financial statements. The IG may issue a report concurring with the 
firmâs report or a letter transmitting the firmâs report. GAO auditors 
may then use the work of the IG as part of the audit of the financial 
statements of the U.S. government. 

.64: When there are multiple levels of other auditors, each audit 
organization should follow the guidance in FAM 650. IG auditors should 
evaluate the independence (see FAM 650.11-.24) and qualifications of 
the CPA firm (see FAM 650.25-.35); should review the audit 
documentation (see FAM 650.42); and may need to have discussions with 
entity management and/or perform supplemental tests of key accounts 
depending on the level of review deemed appropriate (see FAM 650.43-
.47). 

GAO auditors should evaluate the qualifications of the IG organization 
(by reading the peer review report, the letter of comments, and the 
audit organizationâs response as described in FAM 650.25) and the 
qualifications of the IG team doing the monitoring of the CPA firm. GAO 
auditors should also review the IG auditorâs documentation of its 
review of the CPA firm work and may perform supplemental tests as 
deemed necessary. If GAO auditors find that the IG auditor has 
completed and documented adequate work, including discussions with 
entity management and/or supplemental tests, further discussions and/or 
supplemental tests would be quite limited, perhaps a walk-through of 
work done in areas with high-risk of material misstatement. Often, GAO 
auditors will attend fewer meetings than the IG auditor attends and 
would concentrate the review on the IG auditorâs documentation. GAO 
auditors may then issue a report on the financial statements. 

.65: Because of the potential for inefficiency, there generally should 
be close coordination between the various auditors. The IG and GAO may 
perform the review jointly. Sometimes, a memorandum of understanding 
may be useful in documenting responsibilities. A chart that describes 
the review to be done by each organization may be useful. The following 
is a useful format for this chart (with more detail added as necessary 
under each phase of the audit). 

Phase of the audit: Planning; 
Procedures: Other auditor: [Empty]; Procedures: IG review: [Empty]; 
Procedures: GAO review: [Empty]. 

Phase of the audit: Internal Control; 
Procedures: Other auditor: [Empty]; 
Procedures: IG review: [Empty]; 
Procedures: GAO review: [Empty]. 

Phase of the audit: Testing; 
Procedures: Other auditor: [Empty]; 
Procedures: IG review: [Empty]; 
Procedures: GAO review: [Empty]. 

Phase of the audit: Reporting; 
Procedures: Other auditor: [Empty]; 
Procedures: IG review: [Empty]; 
Procedures: GAO review: [Empty]. 

Reports on Other Auditorsâ Work: 

.66: The auditor may be asked to issue a report evaluating work done by 
other auditors in a situation where the auditor is not using the work 
of the other auditors. For example, the auditor may be asked to 
evaluate an audit done by a CPA firm. While AU 543, 322, and 336 are 
not directed toward these situations, the guidance in FAM 650 is 
helpful in planning and reporting on those assignments. 

650 A - Summary of Audit Procedures and Documentation for Review of 
Other Auditorsâ Work: 

.01: Table 1 on the following page presents a summary of audit 
procedures that the auditor generally should perform at the entity 
level and for significant assertions, line items, accounts, or 
applications when reviewing the work of other auditors. As discussed in 
FAM 650.36, the three levels of review are high, moderate, or low, as 
determined by the auditorâs professional judgment. 

Table 2 on the next following page presents a summary of documentation 
that the auditor generally should retain from the auditorâs review of 
the work of other auditors. However, the summary does not include work 
to be done by the auditor on other auditor independence, objectivity, 
and qualifications. (See FAM 650.11-.35 for a discussion of that work.) 
Where the other auditor uses equivalent documents, the auditor should 
review those documents. 

.02: In both tables, procedures to be performed and documents to be 
retained at the low level of review are indicated by regular font. The 
moderate level of review includes the low level plus those in bold 
letters. The high level of review includes the moderate level plus 
those in BOLD CAPITALS. 

Table 1: Summary of Audit Procedures from Reviewing Other Auditorsâ 
Work: 

Audit Procedures: 

At entity level: 

1. Communicate with the other auditors: 

* as to the objectives of the work; 
* discuss their procedures and results; 
* Attend key entrance and exit meetings; 
* Coordinate Or Concur In Significant Planning Decisions Before Major 
Work Is Started 

2. Review: 

* audit strategy; 
* scope of work; 
* audit summary memorandum; 
* summary of uncorrected misstatements; 
* analytical procedures; 
* completion checklist; 
* determination of planning and design materiality; 
* representation letters; 
* information systems background; 
* general and application controls; documentation (with assistance from 
IS controls specialist); 
* other key documentation; 

3. Read: 

* other auditorâs report; 
* financial statements and notes; 
* supplementary information; 
* MDA and other accompanying information; 
* Managementâs response; 

For significant assertions, line items, accounts, or applications: 

1. Review: 

* audit procedures (plan); 
* conclusions about significant issues and their resolution (often in 
audit summary); 
* account risk analysis (ARA); 
* specific control evaluations (SCE); 
* cycle memo; 
* flowcharts; 
* determination of tolerable misstatement; 
* sampling plan; 
* other auditorsâ key documentation; 
* high risk accounts, estimates, and judgments; 
* analytical procedures; 
* Evaluation Of Sample Results; 
* Summary Of Uncorrected Misstatements;  

2. Participate In Discussions With Management Personnel And/or Perform 
Supplemental Tests Of The Line Items (Especially Key Items, Estimates 
And Judgments); Compare Conclusions; 

[End of table] 

Table 2: Summary of Documentation from Reviewing Other Auditorsâ Work: 

Documentation: 

Retain: 

1. Auditor prepared: 

* audit strategy; 
* memo documenting entrance and exit conference; 
* Memos Documenting Key Meetings Attended And Discussions With Audited 
Entity Management; 
* results of review of documentation; 
* Supplemental Test Documentation; 
* summary memo; 

2. Other auditor prepared: 

At entity level: 

* other auditorâs report; 
* entityâs final financial statements, notes, and supplementary info; 
* management letter; 
* other auditorâs unadjusted known and likely misstatements, 
consideration of risk of further misstatements, and comparison with 
materiality; 

* audit completion checklist; 

* other auditorâs audit summary memo; 

At line item or assertion level: 

* documentation that evaluates exceptions; 
* other auditorâs documentation evidencing significant judgments and 
conclusions; 

Optional: 

1. Auditor and other preparers: 

* entity profile; 
* audit procedures (plan); 
* account risk analyses; 
* specific control evaluations; 
* sampling plan; 
* trial balance; 
* lead schedules; 
* evaluation of sample results; 
* management representation letter; 
* legal representation letter; 

[End of table] 

650 B - Example Audit Procedures for Using the Work of Others: 

These example procedures are appropriate when using the work of other 
auditors or the work of specialists to perform a full or partial audit 
of financial statements and are applicable to GAO financial statement 
audits. Auditors may use these procedures or a monitoring tool for 
financial audits developed by the Federal Audit Executive Council, a 
subcommittee of the Presidentâs Council on Integrity and Efficiency 
that can be found at 
[hyperlink,http://www.ignet.gov/pande/faec/fsan0906.xls]. 

As stated in FAM 650.08, these procedures depend upon the professional 
judgments that the auditor makes. The auditor should tailor the 
procedures to the circumstances and the planned level of review (high, 
moderate, or low) as discussed in FAM 650.36. The auditor should modify 
or add procedures as necessary, and delete them if not applicable. When 
other auditors or specialists have done only part of an audit, the 
auditor may delete many of the procedures below. The auditor may also 
delete procedures for the low level of review or when the auditor plans 
to issue only a transmittal letter as discussed in FAM 650.09 b. The 
audit procedures are presented in three sections: (1) evaluating 
independence, objectivity, and qualifications for CPA firms and 
specialists; (2) evaluating independence, objectivity, and 
qualifications for government audit organizations; and (3) monitoring 
the work (for all types of other auditors and for specialists). The 
auditor should use the applicable one of the first two sections and the 
third section. The auditor generally should use a separate form for 
each other auditor or specialist. 

Entity: 
Job code: 
Period of audit: 

Step: 1. Evaluating Independence, Objectivity, And Qualifications For 
Cpa Firms And Specialists: General: 
1. Read the statement of work or request for proposal to determine 
whether this contracting document provides sufficient background on the 
audited entity and indicates the objectives of the work, what the 
contractor should include in its proposal, how proposals will be 
evaluated, and how the report will be used; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: Independence and objectivity: 2. Determine whether proposal of 
selected firm includes a representation as to the firmâs independence 
and objectivity; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: Independence and objectivity: 3. If proposal does not include a 
representation as to independence and objectivity, obtain written 
representation from firm; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: Qualifications:
4. Read proposal of selected firm. In reviewing proposal, evaluate the 
overall qualifications of the team performing the work. Review resumes 
and determine for key team members their educational level, 
professional certifications, and professional experience, including 
whether key team members have current knowledge and experience in the 
type of work done; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 5. Review the selected firmâs peer review report, letter of 
comments, and response letter. If the peer review report was issued 
more than three years earlier, obtain documentation relating to the 
firmâs internal quality control policies and procedures or review the 
firmâs inspection program; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 6. Communicate orally or in writing with the other auditors to be 
satisfied that they understand the requirements, the timetable, and the 
report or letter the auditor expects to issue; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 2. Evaluating Independence, Objectivity, And Qualifications For 
Government Auditors: Independence And Objectivity: 
1. For all government audit organizations, obtain written 
representation from an appropriate official that the organization and 
its individual auditors are independent of the entity being audited; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 2. Determine whether the government audit organization meets ONE 
of the criteria in FAM 650.15, or the head meets ONE of the criteria in 
FAM 650.16. If the organization (or its head) meets one of these 
criteria, no further work is needed unless the auditor finds contrary 
evidence as to independence and objectivity in other parts of the 
audit. Indicate the criteria met and document the evaluation of any 
other evidence obtained. (Go to step 6.); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 3. If the government audit organization (or its head) does not 
meet any of the criteria in step 2, determine whether it meets ALL of 
the criteria in FAM 650.18; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 4. Review the government audit organizationâs documentation of 
how it meets the requirements of step 3. Discuss with an appropriate 
official of the organization and consider discussions with quality 
assurance advisors, legal counsel for the organization, and auditorâs 
legal counsel. (Go to step 6.); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 5. If the government audit organization does not meet the 
criteria for organizational independence to report externally, 
determine whether the organization is an independent internal audit 
organization under GAGAS and IIA standards. Determine whether the 
internal auditors are objective for the activities they audit. For the 
audit organization to be considered free from organizational 
impairments, determine if the head of the audit organization meets all 
of the criteria indicated in FAM 650.21; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 6. For government auditors, obtain an understanding of the 
organizationâs policies to enhance the objectivity of individual 
auditors as discussed in FAM 650.23, including
* policies to prohibit auditors from auditing areas where relatives are 
employed,
* policies to prohibit auditors from auditing areas where they were 
recently assigned or are scheduled to be assigned after they complete 
their tour of duty in auditing, and
* policies to require representations as to objectivity and lack of 
conflicts of interest from each auditor; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 7. Prepare a memorandum documenting work performed and 
conclusions reached as to government audit organizationâs independence 
and objectivity; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: Qualifications:
8. Read the latest peer review report or equivalent, letter of 
comments, and the audit organizationâs response as discussed in FAM 
650.28. Note the date of the report and whether it is unqualified. If 
the report is recent (usually within the past year) and unqualified, go 
to step 12; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: Qualifications:
9. If the peer review is not recent, review the latest inspection 
report[Footnote 12], if any, and the organizationâs response as 
discussed in FAM 650.29. Note the date of the report and whether it is 
unqualified. If the inspection is recent (usually in the past year) and 
unqualified, go to step 12; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: Qualifications:
10. If the organization has not had a recent peer review or inspection 
as discussed in FAM 650.31, obtain an overview of the important 
policies and procedures in the functional areas through interviews of 
management and staff and through reading the summary quality control 
document, if any. Consult with the reviewer on the potential effect of 
using work with no recent peer review or inspection before performing 
this step; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: Qualifications:
11. If the peer review or inspection report was qualified or adverse, 
determine whether the quality control system has since been 
strengthened as discussed in FAM 650.30. Review the organizationâs 
action plan for strengthening its quality control system. Evaluate the 
effect of remaining weaknesses in determining the level of review; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: Qualifications: 
12. Inquire how the government audit organization determined staffing 
of the audit. Evaluate the overall qualifications of the team 
performing the work as discussed in FAM 650.33. Review resumes for key 
team members and consider: 
* educational level, professional certifications, and professional 
experience;
* continuing professional education, especially training and current 
knowledge in the type of work done;
* supervision and review of work;
* whether the audit team has adequate sources for consultation and use 
of specialists, especially for audit sampling, audit methodology, and 
review of computer controls; and: 
* quality of documentation, reports, and recommendations; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: Qualifications: 
13. As discussed in FAM 650.35, if the auditor has significant concerns 
about the government audit organization or its teamâs objectivity or 
qualifications, the auditor, in developing the audit plan, may either: 
* ask the other auditors to substitute more objective or highly 
qualified staff members;
* do the work, treating any work done by the other auditors as prepared 
by the audited entity;
* divide the work so that the other auditors test the areas where they 
are qualified and the auditor does the rest of the audit; or
* issue a disclaimer of opinion; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 3. Monitoring The Work (For All Types Of Other Auditors And 
Specialists): 1. As discussed in FAM 650.36, develop a strategy and a 
plan for reviewing the other auditorsâ or specialistsâ work and, if 
necessary, performing supplemental tests of the accounting records. 
Determine the level of review for each line item; 
Done by/date: [Empty]; 

Doc Ref: [Empty]. 

Step: 2. Monitor audit planning (For All Levels Of Review): 
* Review the entity profile.
* Review the audit strategy or equivalent document and audit plan. (For 
Moderate And High Level Of Review)
* Attend entrance meeting and key planning meetings.
* Review the determination of planning materiality and design 
materiality.
* Have an IS controls specialist participate with the auditor in 
reviewing the information resource management background information 
and the documentation for review of general and application controls.
* Document line items and applications to be reviewed.
* For each such line item, review the Account Risk Analyses, the 
Specific Control Analyses, the cycle flowcharts, the cycle memoranda, 
the determination of tolerable misstatement, and the audit plan or 
equivalent documents; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 3. Monitor the execution of the audit for reports following 
example 2 of FAM 650 C or FAM 595 A and/or FAM 595 B Where Level Of 
Review Is High. 
* Attend key meetings, especially those discussing highrisk areas, 
significant estimates and judgments, fraud brainstorming, and the other 
auditorsâ conclusions.
* Discuss key items with audited entity management, especially 
significant estimates and judgments.
* Perform supplemental tests of the accounting records:
-- Generally for high risk and material line items, especially in areas 
involving estimates and judgments or ones which users rely on 
extensively.
-- Generally while the other auditors are at the audited entity 
location and have access to the records.
-- Examine some of the same documents the other auditors examined or 
make own selection or both.
-- Compare results of other auditorsâ work to results of supplemental 
tests.
-- Document scope of supplemental testing and conclusions reached; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 4. Monitor the completion of the audit (items with * are usually 
not necessary for LOW level of review):
* Review the overall analytical procedures.
* *Review the key documentation for the line item and for completing 
the audit; consider evaluations of sample results. (For example, were 
projections appropriate? Was appropriate action taken based on sample 
results?)
* *Determine whether the subsequent events review was updated to the 
date of the auditorâs report.
* Review the audit summary memorandum, conclusions about line items, 
and the summary of uncorrected misstatements.
* Review the audit completion checklist at FAM 1003 (or equivalent 
document).
* Review the management representation letter and the legal 
representation letter.
* *Attend key exit conference(s).
* Read the other auditorsâ report, the financial statements, the notes, 
the other accompanying information, and managementâs response; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 5. Prepare a summary memorandum; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Step: 6. Write the auditorâs report or transmittal letter; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

650 C - Example Reports when Using the Work of Others: 

Example 1 â Transmittal Letters: 

As discussed in FAM 650.09 b, there are two types of transmittal 
letters, one expressing no assurance and one expressing negative 
assurance on the other auditorâs work. Examples of both types are 
presented as follows: 

[Addressee] 

We contracted with the independent certified public accounting firm of 
[name of firm] to audit the financial statements of [name of entity] as 
of [date] and for the year then ended, to provide an opinion [or a 
report] on internal control over financial reporting (including 
safeguarding assets) and compliance with laws and regulations, to 
provide an opinion on whether [entityâs] financial management systems 
substantially complied[Footnote 13] with the requirements of the 
Federal Financial Management Improvement Act of 1996 (FFMIA) (for CFO 
Act agencies), and to report any reportable noncompliance with laws and 
regulations they tested. The contract required that the audit be done 
in accordance with U.S. generally accepted government auditing 
standards, OMB audit guidance, and the GAO/PCIE Financial Audit Manual 
[if required by the contract]. 

In its audit of [name of federal entity], [name of CPA firm] found
* the financial statements were fairly presented, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles, 

* [federal entity] had effective[Footnote 14] internal control over 
financial reporting (including safeguarding assets) and compliance with 
laws and regulations, 

* [entityâs] financial management systems substantially 
complied[Footnote 15] with the requirements of the Federal Financial 
Management Improvement Act of 1996 (FFMIA) (for CFO Act agencies), 
and:[Footnote 16] 

* no reportable noncompliance with laws and regulations tested. [Name 
of CPA firm] also described the following significant matters (if any): 

* [Discuss any significant matters]. 

For transmittal letters expressing no assurance, use the following 
paragraph: 

[Name of CPA firm] is responsible for the attached auditorâs report 
dated [date] and the conclusions expressed in the report. We do not 
express opinions on [name of entity]âs financial statements or internal 
control or on whether [entity]âs financial management systems 
substantially complied with FFMIA (for CFO Act agencies); or 
conclusions on compliance with laws and regulations. 

For transmittal letters expressing negative assurance, use the 
following paragraph: 

In connection with the contract, we reviewed [name of CPA firm]âs 
report and related documentation and inquired of its representatives. 
Our review, as differentiated from an audit in accordance with U.S. 
generally accepted government auditing standards, was not intended to 
enable us to express, and we do not express, opinions on [name of 
entity]âs financial statements or internal control[Footnote 17] or on 
whether [entity]âs financial management systems substantially complied 
with FFMIA (for CFO Act agencies);[Footnote 18] or conclusions on 
compliance with laws and regulations. [Name of CPA firm] is responsible 
for the attached auditorâs report dated [date] and the conclusions 
expressed in the report. However, our review disclosed no instances 
where [name of CPA firm] did not comply, in all material respects, with 
U.S. generally accepted government auditing standards.[Footnote 19] 

Example 2 â Report Concurring with Other Auditorsâ Opinion (Presenting 
Report of Other Auditors after the Auditorâs Report)[Footnote 20]: 

As discussed in FAM 650.09 d, the auditor may use this approach when 
other auditors have reported on financial statements and the auditor 
wants to provide more assurance than what is provided in the 
transmittal letter example 1 above. 

[Addressee] 

Under [citation of statute], we are responsible for auditing [name of 
entity]. To help fulfill these responsibilities, we contracted with 
[name of firm], an independent certified public accounting firm. [Name 
of firm]âs report dated [date] is attached. 

We concur[Footnote 21] with [name of firm]âs report that indicated: 

* the financial statements were fairly presented, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles, 

* [entity] had effective internal control over financial reporting 
(including safeguarding assets) and compliance with laws and 
regulations, 

* [entityâs] financial management systems substantially complied with 
the requirements of the Federal Financial Management Improvement Act of 
1996 (FFMIA) (for CFO Act agencies), and: 

* no reportable noncompliance with laws and regulations it tested. 
Details of their conclusions are in their report. 

Objectives, Scope, and Methodology: 

Management is responsible for (1) preparing the financial statements in 
conformity with U.S. generally accepted accounting principles, (2) 
establishing, maintaining, and assessing internal control to provide 
reasonable assurance that the broad control objectives of 31 U.S.C. 
3512 (c), (d) (commonly known as the Federal Managersâ Financial 
Integrity Act) are met, (3) ensuring that [entity]âs financial 
management systems substantially comply with FFMIA requirements (for 
CFO Act agencies), and (4) complying with applicable laws and 
regulations. 

We are responsible for obtaining reasonable assurance about whether (1) 
the financial statements are presented fairly, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles, and (2) management maintained effective internal control, 
the objectives of which are the following: 

* Financial reporting: Transactions are properly recorded, processed, 
and summarized to permit the preparation of financial statements in 
conformity with U.S. generally accepted accounting principles, and 
assets are safeguarded against loss from unauthorized acquisition, use, 
or disposition. 

* Compliance with laws and regulations: Transactions are executed in 
accordance with laws governing the use of budget authority and with 
other laws and regulations that could have a direct and material effect 
on the financial statements and any other laws, regulations, and 
governmentwide policies identified by OMB audit guidance. 

We are also responsible for (1) testing whether [entityâs] financial 
management systems substantially comply with the three FFMIA 
requirements (for CFO Act agencies), (2) testing compliance with 
selected provisions of laws and regulations that have a direct and 
material effect on the financial statements and laws for which OMB 
audit guidance requires testing, and (3) performing limited procedures 
with respect to certain other information appearing in the Performance 
and Accountability Report. 

To help fulfill these responsibilities, we contracted with the 
independent certified public accounting (CPA) firm of [name of firm] to 
perform a financial statement audit in accordance with U.S. generally 
accepted government auditing standards and OMB audit guidance. We 
evaluated the nature, extent, and timing of the work, monitored 
progress throughout the audit, reviewed the documentation of the CPA 
firm, met with partners and staff members, evaluated the key judgments, 
met with officials of [federal entity being audited], performed 
independent tests of the accounting records, and performed other 
procedures we deemed appropriate in the circumstances. We conducted our 
work in accordance with U.S. generally accepted government auditing 
standards. 

660 â Agreed-Upon Procedures: 

.01: In an engagement to apply agreed-upon procedures, a client engages 
an auditor to perform specific procedures on a subject matter and 
report on the results to assist users in evaluating a subject matter or 
an assertion. Agreed-upon procedures should be performed in accordance 
with GAGAS which incorporates the financial audit and attestation 
standards established by the AICPA. The Statements on Standards for 
Attestation Engagements (SSAE), specifically AT 101, Attest 
Engagements, and AT 201, Agreed-Upon Procedures Engagements, contains 
standards and guidance for these engagements. 

.02: The auditor may perform an agreed-upon procedures engagement on a 
variety of subject matters. The engagement will vary depending on the 
needs of the user. The engagement may assist entity management by 
providing information for making decisions and give report users 
information on important areas. Examples of agreed-upon procedures are: 

* compare payroll information reported to the Office of Personnel 
Management with the entityâs payroll records and general ledger; (Refer 
to OMB audit guidance for additional information); 

* compare entity reconciliations of intragovernmental activity and 
balances with supporting documentation and compare amounts with the 
financial statements and with reports to the Department of the Treasury 
(Treasury); (Refer to OMB audit guidance for additional information); 

* trace tax collections from the master file to deposit confirmations, 
determine whether they were recorded in the appropriate period, and in 
the correct tax class; 

* trace amounts on the entityâs financial statements to an âaccount 
grouping worksheet,â foot the worksheet, read the CFOâs explanation for 
any differences, and compare the explanation with supporting 
documentation; and: 

* examine official receipt documents to determine whether they were 
included in the weekly deposit; compare deposit amounts to amounts 
reported on the statement of funding. 

.03: In agreed-upon procedures engagements, all parties involved, which 
include the report users, the entity responsible for the subject matter 
(which may or may not be the same as the user), and the auditor, should 
clearly understand the procedures to be applied. Since users may have 
different needs, the nature, extent, and timing of agreed-upon 
procedures also may differ. Therefore, the users, and not the auditor, 
assume the responsibility for the sufficiency of the design and extent 
of the procedures since they best understand their own needs, although 
the auditor may assist the user in designing the procedures. 

.04: The auditor should establish and document an understanding with 
the users regarding the nature, extent, and timing of agreed-upon 
procedures to be performed. The auditor may document this understanding 
using an engagement letter to the users, an example of which is 
provided in FAM 660 A. 

.05: The auditor should perform agreed-upon procedures only if the 
subject matter is capable of evaluation against criteria that are 
suitable and available to users. Suitable criteria should have 
objectivity, measurability, completeness, and relevance. The auditor 
should perform procedures that are subject to reasonably consistent 
measurement and the users have agreed on. The auditor should not 
perform overly subjective procedures or use terms with uncertain 
meaning unless they are defined in the agreedupon procedures report. 

.06: The auditor need not perform additional procedures beyond the 
agreedupon procedures. If matters come to the auditorâs attention by 
other means that significantly contradict the subject matter (or 
assertion), the auditor should include these matters in the report. For 
example, if during the course of applying agreed-upon procedures 
regarding an entityâs operation, the auditor becomes aware of a 
material weakness related to the assertion by means other than the 
agreed-upon procedures, the auditor should include this matter in the 
report. The auditor may do this by mentioning the material weakness 
with a footnote reference to another report where it is described in 
detail. 

.07: Where circumstances impose restrictions on the performance of the 
agreed-upon procedures, the auditor should attempt to obtain agreement 
from the users of the report to modify the agreed-upon procedures. When 
agreement cannot be obtained (for example, when the agreed-upon 
procedures are published by a regulatory entity that will not modify 
the procedures), the auditor should describe restrictions in the report 
or withdraw from the engagement. 

Written Representations: 

.08: The auditor generally should determine if a representation letter 
is necessary. The auditor may determine that a representation letter is 
necessary, for example, if (1) the responsible entity is so large there 
is a risk as to whether one person knows whether pertinent information 
has been made available to the auditor, (2) the subject matter depends 
on estimates, judgments, or future events (such as whether the subject 
matter is less objective and fact-based and more subjective), or (3) 
the user of the report believes written representations should be 
obtained. Although generally not required by AT 201 (unless 
specifically required by another attestation standard, such as in a 
compliance engagement) a representation letter may nonetheless be a 
useful means of documenting the responsible entityâs representations. 
FAM 660 B provides an example representation letter for an agreed-upon 
procedures engagement. 

.09: The responsible entityâs refusal to furnish written 
representations the auditor determines to be necessary constitutes a 
scope limitation. In such circumstances, the auditor should do one of 
the following: 
* disclose in the report the inability to obtain representations from 
the responsible entity,
* withdraw from the engagement, or
* change the engagement to another form of engagement (such as to a 
performance audit) with the clientâs consent. 

Documentation: 

.10: In accordance with GAGAS, the auditor should prepare and maintain 
documentation in connection with an agreed-upon procedures engagement 
that is appropriate for the engagement. The auditor should document 
sufficient information to enable an experienced auditor having no 
previous connection with the engagement to ascertain from the 
documentation the nature, extent, timing, and results of procedures 
performed and the evidence that supports the auditorsâ agreed-upon 
procedures report, including its sources and the auditorsâ conclusions. 

.11: Although the quantity, type, and content of documentation varies 
with the circumstances, the auditor should document sufficient 
information to demonstrate that the work was adequately planned and 
supervised and that evidential matter provides a reasonable basis for 
the report as discussed in GAGAS chapter 6. 

.12: The auditor generally should prepare a summary memorandum that 
recaps the work performed, refers to the detailed documentation, 
includes the auditorâs conclusion on whether the work was performed in 
accordance with GAGAS, the attestation standards, and the GAO/PCIE FAM, 
and whether the report is appropriate. FAM 660 C provides an agreed-
upon procedures engagement completion checklist. 

Reporting: 

.13: The auditor should report on the agreed-upon procedures in the 
form of results. The auditor should not provide any opinion or negative 
assurance about whether the subject matter or the assertion is fairly 
stated based on the criteria. The auditor should report the 
identification of the entities that agreed to the procedures and took 
responsibility for the sufficiency of the design and extent of the 
procedures for their purposes, as shown in the example report in FAM 
660 D. 

.14: The auditor should report all results arising from application of 
the agreed upon procedures. The concept of materiality does not apply 
to results reported in an agreed-upon procedures engagement unless the 
users of the report agree to the definition of materiality. This could 
be included in the engagement letter at FAM 660 A. The auditor should 
describe any agreed upon materiality limits in the report. 

.15: The auditor should include a statement indicating that the report 
is intended for the specified users who have agreed upon the procedures 
performed and taken responsibility for the sufficiency of the design 
and extent of the procedures for their needs. However, since 
governmental reports are generally a matter of public record, the 
distribution of the report is not limited and the audit organization 
may provide copies upon request. 

.16: The auditor may have performed agreed-upon procedures on an 
element, account, or item of financial statements and also audited the 
same financial statements. If the audit report on the financial 
statements includes a departure from a standard report, the auditor 
generally should include a reference to the audit report and the 
departure from the standard report in the agreed-upon procedures 
report. 

.17: The auditor also may include explanatory language about such 
matters as the following: 

* stipulated facts, assumptions, or interpretations (including the 
source); 

* description of the condition of records, controls, or data to which 
the procedures were applied; 

* explanation that the auditor has no responsibility to update the 
report; and: 

* explanation of sampling risk. 

.18: The auditor should state the results in definitive, rather than 
qualified, language and avoid vague or ambiguous language. The 
following table provides examples of appropriate and inappropriate 
descriptions of findings. 

Table: Examples of appropriate/inappropriate description of findings: 

Procedures agreed-upon: Based on the total tax liability, select and 
recompute the 50 largest excise tax returns from the quarter ended 
September 30, 20XX, and compare these amounts with the certified audit 
file; Description of findings: Appropriate: Recomputed amounts for the 
selected excise tax returns agreed with the amounts in the certified 
audit file; Description of findings: Inappropriate: Nothing came to our 
attention as a result of applying this procedure. 

Procedures agreed-upon: Select a random sample of 45 Treasury SF-224 
reconciliations; determine if XYZ reported revenue receipts were 
properly classified and reconciled to Treasury FMS records; Description 
of findings: Appropriate: Revenue receipts selected randomly from the 
monthly Treasury SF-224 reconciliation process were properly classified 
and agreed with Treasury FMS records; Description of findings: 
Inappropriate: The revenue receipts approximated the amount shown in 
the Treasury FMS records. 

Procedures agreed-upon: Examine personnel files of 40 individuals 
randomly selected from the timekeeping records for the year; determine 
if all the selected files contain a current and approved Notification 
of Personnel Action (SF-50); Description of findings: Appropriate: 
Thirty of the selected files contained a current and approved 
Notification of Personnel Action. Ten files did not contain a current 
and approved Notification of Personnel Action (list and identify 
exceptions). Based on our sample, we are 95% confident that the 
population deviation is between X and Y; Description of findings: 
Inappropriate: Some of the personnel files did not contain a current 
and approved Notification of Personnel Action. 

Other Report Issues: 

.19: The auditor should address the report to the users who have agreed 
upon the procedures to be performed (see FAM 660.03). The auditor 
should use the date of completion of the agreed-upon procedures as the 
date of the agreed-upon procedures report. If the audit organizationâs 
procedure is to date reports with the issue date, the auditor may state 
the date of completion of the engagement in the report, such as âWe 
completed the agreed-upon procedures on [date].â 

.20: The auditor should obtain entity comments from the entity 
responsible for the subject matter. These comments can be either 
written or oral. If oral comments are obtained the auditor should 
document them in a memo. 

660 A - Example Agreed-Upon Procedures Engagement Letter: 

[Date]: 

Management of ABC Federal Entity: 

Subject: Fiscal Year 20X8 Agreed-Upon Procedures for the Tax Trust Fund 
Dear Management Official: 

This letter responds to your letter of [date] requesting that we assist 
ABC Federal Entity in determining the completeness and accuracy of 
receipts transferred to the tax trust fund. On [date] we met with you 
to discuss the scope and timing of our work. The detailed procedures we 
agree to perform are enclosed. We plan to perform these procedures on 
[provide date(s)]. This letter documents our agreement to perform these 
agreed-upon procedures related to fiscal year 20X8. We will perform 
these procedures in accordance with U.S. generally accepted government 
auditing standards, which incorporate the financial audit and 
attestation standards established by the American Institute of 
Certified Public Accountants (AICPA). We will provide you with a draft 
copy of our report for your review and comment and plan to issue the 
report by [date]. We will meet with you as needed to discuss the agreed-
upon procedures, results, and other issues that may arise. 

The sufficiency of the agreed-upon procedures is solely the 
responsibility of XYZ Federal Entity. Accordingly, we make no 
representation regarding their sufficiency to meet your needs or for 
any other purpose. In addition, because of the nature of agreed-upon 
procedures, the results we obtain will only be applicable to for the 
period they are performed. We are not engaged to perform, and will not 
perform, an examination or audit, the objective of which would be to 
express an opinion on the amount of receipts transferred to the tax 
trust fund for fiscal year 20X8. Accordingly, we will not express such 
an opinion. If we were to perform an examination or audit, other 
matters beyond the scope of our agreed-upon procedures might come to 
our attention. 

The report we will prepare is intended solely for your information and 
use and is not intended to be, and should not be, used by any other 
party. However, our report will be a matter of public record and will 
be provided to others upon request. Unless we hear from you, we will 
assume your concurrence with these procedures and their sufficiency for 
your purposes.[Footnote 22] If you have any questions, please contact 
me at [telephone number and e-mail address] or [alternative contact] at 
[telephone number and e-mail address]. 

Sincerely yours,
[Signed]: 

[Name of Director]: 

Enclosure: 
cc: XYZ Federal Entity: 

Enclosure: 

Agreed-Upon Procedures: 
Tax Receipts and Refunds: 

General: 

a. Compare fiscal year 20X8 tax collections for the ABC tax trust fund 
per XYZâs Statement of Custodial Activity with: 
* the trust fundâs accounting records, and: 
* ABCâs consolidated financial statements. 

b. Obtain explanations and examine supporting documentation for 
differences. 

Sampling: 

a. Use monetary unit sampling (MUS) with an 80-percent confidence level 
to select a sample of ABC tax trust fund tax revenue receipts and 
refunds for fiscal year 20X8. Use $300 million as the tolerable 
misstatement, which is 1 percent of the total revenue collected. Use an 
expected aggregate misstatement of $100 million, or one-third of 
tolerable misstatement. The projected sample size for this population 
is expected to be 40 transactions. 

For the sample items selected: 

* Receipts testing â Compare tax receipts transactions (for example 
cash receipts, federal tax deposit (FTD) receipts, reversals, and 
adjustments) with source documents to determine whether the amounts 
agree, the transactions are recorded in the appropriate period based on 
the transaction date, and they are properly categorized as ABC tax 
trust fund receipts. 

* Refunds testing â Compare refund transactions with the source 
documents (for example, payment vouchers, FTD coupons, tax returns) to 
determine whether the amounts agree, the transactions are recorded in 
the appropriate period based on the transaction date, and they are 
properly categorized as ABC tax trust fund refunds. 

b. Use MUS and the same sampling parameters as above to extract 
statistical samples of total XYZ revenue receipts and refunds for 
fiscal year 20X8. 

For the sample items selected: 

* Test whether the tax receipt or refund amounts and tax category from 
source documentation agrees with amounts recorded for each of the 
revenue receipts or refunds sample items. 

660 B - Example Representation Letter from Responsible Entity on Agreed-
Upon Procedures Engagement [XYZ Entity letterhead]: 

[Date]: 

Dear Auditor: 

In connection with the agreed-upon procedures engagement for XYZâs 
budget execution process for the period from October 1, 20X7 through 
September 30, 20X8, we confirm to the best of our knowledge and belief, 
the following representations made to you in performing these agreed-
upon procedures. 

* We acknowledge responsibility for XYZâs budget execution process. 

* We acknowledge responsibility for selecting the criteria [state 
criteria] and for determining the appropriateness of the criteria for 
our purposes. 

* Our budget execution process is [state assertion about budget 
execution process based on the criteria selected]. 

* We know of no matters that would contradict our assertion about our 
budget execution process. 

* There have been no communications from regulatory or oversight 
agencies concerning our budget execution process or noncompliance with 
budgetary laws or the Antideficiency Act. 

* We have made available to you all records and related data pertaining 
to our budget execution process during the period from October 1, 20X7 
through September 30, 20X8. 

* XYZâs budget execution process is designed to meet the requirements 
of the Antideficiency Act. 

* XYZâs employees check the accounting records and fund status reports 
quarterly to determine whether all source documents that affect the 
appropriation and fund balance have been recorded properly, accurately, 
and timely. 

* XYZâs accounting system provides timely disclosure of total valid 
obligations incurred to date and total budgetary resources available 
for obligations within each apportionment. 

* The system also provides timely disclosure of the authorization or 
creation of commitments, obligations, or expenditures that exceed 
apportionments and allotments. 

* We are not aware of instances of noncompliance with the above-stated 
procedures. 

* We are not aware of instances of fraud involving management, 
employees, or contractor staff that have significant roles in the 
operation of our budget execution process. 

* We have no plans or intentions that would materially affect our 
budgetary process or operations. 

Sincerely yours, 

[signed]: 

Management: 
XYZ Entity: 

660 C â Agreed-Upon Procedures Engagement Completion Checklist: 

Entity: 
Job code: 
Principal report: 

.01: This checklist is a tool to help auditors comply with the 
standards for agreed-upon procedures engagements. No signatures are 
required on the checklist in the planning phase. 

.02: Several of the last questions include steps in GAOâs quality 
control process, GAO Audit Documentation Set, second partner review, 
and reading of the report by the Technical Accounting and Auditing 
Expert (Chief Accountant at GAO) when that person is not the second 
partner. GAO auditors should complete these questions and forms. IG 
auditors and other auditors may use these questions and forms or may 
substitute questions and forms that consider their reporting style and 
quality control. 

Step: 1. Has the audit team documented an understanding with the 
individuals requesting the agreed-upon procedures engagement?; N/A: 
[Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 2. Were appropriate engagement acceptance and risk designation 
procedures followed?; N/A: [Empty]; Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 3. Does the documentation cover the following?
* Independence of professionals working on the engagement.
* The nature of the engagement.
* Identification of the subject matter, the responsible entity, and the 
criteria.
* Identification of the users of the report.
* Auditorâs responsibilities.
* Reference to GAGAS and the attestation standards.
* Agreement on the nature, extent, and timing, of procedures.
* Anticipated reporting.
* Any involvement of a specialist.
* Materiality limits; 
N/A: [Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 4. Was an entrance conference held with the responsible entity?; 
N/A: [Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 5. Has the auditor determined whether a letter of representation 
from the responsible entity is necessary? (Note: This is not a 
requirement.); N/A: [Empty]; Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 6. If part of the procedures, were applicable laws and procedures 
documented?; N/A: [Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 7. Were review responsibilities communicated to individuals on 
the assignment?; N/A: [Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 8. Does the documentation contain the following? a. The scope and 
methodology, including any sampling criteria used and consideration of 
the results of any previous agreed-upon procedures and follow up on any 
known significant findings that directly relate to the agreed-upon 
procedures engagement. b. Any indication of fraud, illegal acts, 
violations of provisions of contracts or grant agreements, or abuse, 
andâif there was such indicationâ the directed procedures performed, 
results obtained, and related communications. c. Descriptions of 
transactions and records examined. d. Documentation of the work 
performed to support reported results. e. Evidence of supervisory 
review; N/A: ; Yes/No: [Empty]; Ref: [Empty]. 

Step: 9. Does the documentation record that the applicable standards 
were followed (AT 101, AT 201, and GAGAS, chapter 6)?; N/A: [Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 10. Does the documentation record a reasonable basis for the 
results of the agreed-upon procedures?; N/A: [Empty]; Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 11. Does the summary memorandum summarize the results of the 
procedures and refer to the documentation?; N/A: [Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 12. Did the auditor document any deviations from the standards? 
Did the director approve the documentation with copies to the 
reviewer?; N/A: [Empty]; Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 13. Was an exit conference held with the responsible entity?; 
N/A: [Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 14. Was the report referenced?; N/A: [Empty]; Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 15. Did the assistant director review the following? a. 
Documentation of the understanding with the individuals requesting the 
procedures and officials of the entity. b. Memorandum of entrance 
conference with the responsible entity. c. Completed work plans and 
procedures. d. Memorandums on key engagement issues. e. Summary of the 
results of the procedures. f. Memorandum of exit conference with the 
responsible entity. g. Deviations from standard reporting language. h. 
Financial schedules/statements. i. Agreed-upon procedures report. j. 
GAO Audit Documentation Set (or equivalent); N/A: [Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 16. Did the audit director review the following? a. Documentation 
of the understanding with the individuals requesting the procedures and 
officials of the entity. b. Summary of results of the procedures. c. 
Memorandum of exit conference with responsible entity. d. Deviations 
from standard reporting language. e. Agreed-upon procedures report. f. 
GAO Audit Documentation Set (or equivalent); N/A: [Empty]; Yes/No: 
[Empty]; 
Ref: [Empty]. 

Step: 17. Did the assistant director or the auditor in charge determine 
that all significant review notes were resolved appropriately?; N/A: 
[Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 18. Did the assistant director initial all documentation bundle 
covers to indicate that all documentation was sufficiently reviewed?; 
N/A: [Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 19. Is the report appropriate as to the following? a. Wording. b. 
Scope of work.
c. GAGAS.
d. Explanatory paragraphs; 
N/A: [Empty]; 
Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 20. Was the report reviewed by the following? a. Office of the 
General Counsel. b. Technical Accounting and Auditing Expert. c. Second 
partner (or equivalent), if not Technical Accounting and Auditing 
Expert; N/A: [Empty]; Yes/No: [Empty]; 
Ref: [Empty]. 

Step: 21. Is the agreed-upon procedures report dated appropriately or 
does the report indicate when the auditor completed the engagement?; 
N/A: [Empty]; Yes/No: [Empty]; 
Ref: [Empty]. 

Note: The auditor should discuss all âNoâ answers in attached 
documentation. If the reason that a question is âNot Applicableâ is not 
obvious, the auditor should document the reason on the checklist or in 
an attachment. 

[End of table] 

Date of completion of the engagement: 

Auditor-in-charge (senior): 

Date: 

Audit Manager: 

Date: 

Assistant Director: 

Date: 

Audit Director: 

Date: 

Second Partnerâs (Or Equivalent) Review Of Agreed-Upon Procedures Work: 

Objective of second partner (or equivalent) review: To objectively 
review significant engagement matters to conclude, based on all facts 
the second partner (or equivalent) has knowledge of, that no matters 
were found that caused the second partner (or equivalent) to believe 
that (1) the procedures were not performed in accordance with GAGAS, 
which incorporate financial audit and attestation standards established 
by the AICPA and (2) the report does not meet professional standards 
and audit organization policies. 

Procedures: Before the report was issued, I performed the following 
procedures: 

* as necessary, discussed significant engagement issues with the audit 
director;
* read documentation of key decisions and consultations;
* read the agreed-upon procedures report; and
* confirmed with the audit director that there are no unresolved 
issues. 

Conclusions: Based on all the relevant facts of which I have knowledge, 
I found no matters that caused me to believe that (1) the agreed-upon 
procedures were not performed in accordance with GAGAS and the AICPAâs 
attestation standards related to agreed-upon procedures engagements and 
(2) the report is not in accordance with professional standards and 
audit organization policies. 

In signing this form, I acknowledge that there have been no personal or 
external impairments to independence regarding my work on this 
engagement. 

Title: 

Signature: 

Date: 

Technical Accounting And Auditing Expertâs Reading Of Agreed-Upon 
Procedures Report: 

Objective of review: When the Technical Accounting and Auditing Expert 
is not the second partner (or equivalent), the Technical Accounting and 
Auditing Expert should read the report. The Technical Accounting and 
Auditing Expert should then sign the conclusions below. 

Conclusions: Based on my reading of the report, I found no matters that 
caused me to believe that (1) the agreed-upon procedures were not 
performed in accordance with GAGAS and the AICPAâs attestation 
standards related to agreed-upon procedures engagements and (2) the 
report is not in accordance with professional standards and audit 
organization policies. 

In signing this form, I acknowledge that there have been no personal or 
external impairments to independence regarding my work on this 
engagement. 

Title: 

Signature: 

Date: 

660 D â Example Agreed-Upon Procedures Report: 

[Date]: 

Management of [Federal Entity]: 

Subject: Applying Agreed-Upon Procedures: Count of Cash and Related 
Items: 

Dear Management Official: 

We have performed the procedures contained in the enclosure to this 
letter, which we agreed to perform and with which you concurred, solely 
to meet your needs for an independent count of cash and cash-related 
items as of September 30, 20XX. 

We conducted the engagement in accordance with U.S generally accepted 
government auditing standards, which incorporate financial audit and 
attestation standards established by the American Institute of 
Certified Public Accountants. You are responsible for the adequacy of 
the procedures to meet your objectives and we make no representation in 
that respect. The procedures we agreed to perform consist of counting 
amounts for cash and related receipts and comparing combined totals to 
the authorized amounts. The enclosure contains the agreed-upon 
procedures and our results. 

We were not engaged to perform, and did not perform, an examination, 
the objective of which would have been to express an opinion on the 
amount of cash on hand. Accordingly, we do not express such an opinion. 
Had we performed additional procedures, other matters might have come 
to our attention that we would have reported to you. We completed our 
agreedupon procedures on [date of completion]. 

We provided a draft of this letter, along with the enclosure, to your 
representatives for review and comment. They agreed with the results 
presented in this letter and its enclosure. 

This letter is intended solely for the use of the management of 
[Federal Entity] and should not be used by those who have not agreed to 
the procedures or have not taken responsibility for the sufficiency of 
the procedures for their purposes. However, the report is a matter of 
public record and its distribution is not limited; thus, we will post 
the report on our Web site and provide copies upon request. If you have 
any questions, please call [name, title, and telephone number]. 

Sincerely yours, 

[Signed]: 

[Name of Director], Director: 

Enclosure: 

Results of Cash Counts: 

Procedures: 

We counted and totaled cash on hand for the petty cash fund as of 
September 30, 20XX. We also listed and totaled the receipts on hand 
evidencing disbursements from the fund. Finally, we compared the 
combined total of cash and receipts available to the amount authorized 
for the fund of $500. 

Results: 

We counted cash totaling $258.96 and scheduled 14 receipts totaling 
$174.85 which accounted for $433.81 of the $500 in authorized petty 
cash funds. In addition, the custodian provided us two separate Expense 
Summary Report and Petty Cash Itemization Sheets and related receipts 
for an additional $65.09, which had been submitted for reimbursement to 
the fund. There remains an unexplained difference (shortage) of $1.10 
between the authorized amount and the total cash and receipts 
evidencing petty cash fund disbursements. 

Section 700: 

Internal Control: 

701 â Assessing Agency Systems with the Federal Financial Management 
Improvement Act (FFMIA)[Footnote 23]: 

.01: Under FFMIA, agencies need to have systems that can generate 
timely, reliable, and useful information with which to make informed 
decisions and to provide accountability. FFMIA requires the 24 CFO Act 
departments and agencies to implement and maintain financial management 
systems that comply substantially with: 

(1) federal financial management systems requirements; (2) applicable 
federal accounting standards; and: (3) the U.S. Government Standard 
General Ledger (SGL) at the transaction level. 

.02: The law also requires auditors to state in their CFO Act financial 
statement audit reports whether entitiesâ financial management systems 
substantially comply with these three FFMIA requirements. OMB provided 
FFMIA implementation guidance to help agencies and their auditors 
determine compliance. This section also provides guidance for assessing 
agency systems with FFMIA. It explains the FFMIA requirements and 
discusses audit issues related to testing for compliance with the act. 
An example audit program is included in FAM 701 A. 

FFMIA Requirements: 

.03: OMB Circular No. A-127, Financial Management Systems, addresses 
the three FFMIA requirements and can be found at www.omb.gov. First, 
regarding federal financial management systems requirements, the 
circular prescribes policies and standards for executive branch 
departments and agencies to follow in developing, operating, 
evaluating, and reporting on financial management systems. In its FFMIA 
implementation guidance, OMB identifies the applicable requirements 
from OMB Circular No. A-127 that the entity and its auditors should 
assess when determining FFMIA compliance. 

The circular also refers to the federal financial management systems 
requirements, a series of publications issued by the Joint Financial 
Management Improvement Program (JFMIP), now issued by the Office of 
Federal Financial Management (OFFM)[Footnote 24] as the source of 
governmentwide requirements for financial management systems software 
functionality. JFMIPâs Framework for Federal Financial Management 
Systems issued in April 2004[Footnote 25] describes the basic elements 
of an integrated financial system, including the core financial system. 
Agency financial management systems fall into four categories: core 
financial systems; other financial and mixed systems (such as 
procurement, property, budget, payroll, and travel systems); shared 
systems[Footnote 26]; and departmental executive information systems 
(systems to provide information to all levels of management.) 

.04: JFMIP/OFFM published systems requirements for the core financial 
system and for some of the mixed or feeder systems which can be found 
at [hyperlink, http://www.fsio.gov/fsio/fsiodata/]. The systems 
requirements are either mandatory (required) or value-added (optional). 
Agencies will use the mandatory functional and technical requirements 
in planning system improvement projects, whereas the agencies may use 
value-added requirements as needed. The core financial management 
system affects all financial event transaction processing because it 
maintains reference tables for editing and classifying data, controls 
transactions, and maintains security. The core financial management 
system consists of six functional areas: general ledger management, 
funds management, payment management, receivable management, cost 
management, and reporting. 

.05: OMB Circular No. A-127 requires agencies to use for agency core 
financial management systems commercial-off-the-shelf (COTS) software 
that has been tested and certified through the JFMIP/Financial Systems 
Integration Office (FSIO)[Footnote 27] software certification process. 
Core financial management system certification does not mean that 
agencies that install qualified software packages will have financial 
systems that are in compliance with FFMIA. Many other factors can 
affect the capability of the systems to comply with FFMIA, including 
modifications made to the JFMIP/FSIOcertified core financial management 
system software, the validity and completeness of data from feeder 
systems, and whether internal controls are effective. The JFMIP/FSIOâs 
certification process does not eliminate or significantly reduce the 
need for agencies to develop and conduct a comprehensive testing effort 
to determine whether the software product meets their requirements and 
is working properly. 

.06: The second requirement of FFMIA is the systemâs use of federal 
accounting standards, promulgated by FASAB. FASAB promulgates federal 
accounting standards after considering the financial and budgetary 
information needs of Congress, executive agencies, and other users of 
federal financial information as well as comments from the public. 
FASAB standards are at www.fasab.gov. FAM 560 describes the 
relationship of the FASAB standards to the hierarchy of U.S. generally 
accepted accounting principles. 

.07: The third requirement of FFMIA is implementing the SGL at the 
transaction level. The SGL provides a uniform chart of accounts and 
guidance for use in standardizing federal agency accounting and 
supports the preparation of standard external reports required by OMB 
and Treasury. Information on the SGL can be found at [hyperlink, 
http://www.fms.treas.gov/ussgl]. The SGL is defined in the latest 
supplement, which is released annually to the Department of the 
Treasuryâs Treasury Financial Manual (TFM). The supplement is composed 
of six major sections: 

(1) chart of accounts,
(2) accounts and definitions,
(3) accounting transactions,
(4) account attributes for GFRS, FACTS I, and FACTS II 
reporting,[Footnote 28] (5) crosswalks to standard external reports, 
and: (6) crosswalks to the closing package. 

.08: Each agency should implement a chart of accounts that is 
consistent with the SGL and meets the agencyâs information needs. OMB 
Circular No. A-127 states that application of the SGL at the 
transaction level means that financial management systems will process 
transactions following the definitions and defined uses of the general 
ledger accounts as described in the SGL. Transaction detail supporting 
SGL accounts are required to be available in the financial management 
systems and directly traceable to specific SGL account codes. In 
addition, the agency should develop criteria for recording financial 
events in all financial management systems that are consistent with 
accounting transaction definitions and processing rules defined in the 
SGL. 

.09: FFMIA requires the CFO Act agency financial statement auditors to 
report (1) whether the entityâs financial management systems 
substantially complied with FFMIA requirements, or (2) instances in 
which the entityâs systems did not substantially comply with the 
requirements (or state that the audit disclosed no instances in which 
the reporting entityâs systems did not substantially comply). Auditors 
who report that agency financial management systems do not 
substantially comply with FFMIA requirements should include in their 
reports: 

(1) The entity or organization responsible for the financial management 
systems that have been found not to be substantially compliant and all 
pertinent facts relating to the noncompliance. 

(2) The nature and extent of the noncompliance including areas in which 
there is substantial but not full compliance. 

(3) The primary reason or cause of the noncompliance. 

(4) The entity or organization responsible for the noncompliance. 

(5) Any relevant comments from any responsible officer or employee. 

(6) A statement with respect to the recommended remedial actions for 
each instance of noncompliance and the entityâs estimated time frames 
for implementing these actions. 

FFMIA as well as OMBâs FFMIA implementation guidance require agencies 
to report whether the agenciesâ financial management systems 
substantially comply with FFMIA requirements. Agencies should prepare 
remediation plans that include resources, remedies, and intermediate 
target dates necessary to bring the agencyâs financial management 
systems into substantial compliance. 

.10: According to OMBâs FFMIA implementation guidance, auditors should 
plan and perform their audit work in sufficient detail to enable them 
to determine the degree of compliance and report on instances of 
noncompliance for all of the applicable FFMIA requirements. The 
guidance describes requirements from OMB Circular No. A-127 that 
agencies should meet to achieve compliance and provides indicators of 
compliance.[Footnote 29] The indicators included in OMBâs 
implementation guidance are examples. The four primary factors OMB 
identifies as critical to assessing compliance with FFMIA are 
determining whether agencies can: 

(1) Prepare financial statements and other required financial and 
budgetary reports using information generated by the financial 
management system(s). 

(2) Provide reliable and timely financial information for managing 
current operations. 

(3) Account for their assets reliably, so that they can be properly 
protected from loss, misappropriation, or destruction. 

(4) Do all of the above in a way that is consistent with federal 
accounting standards and the Standard General Ledger. 

Audit Issues: 

.11: Auditors should design and implement appropriate testing to apply 
the criteria in FFMIA. For example, in performing financial statement 
audits, auditors generally should evaluate the capability of the 
financial management systems to process and summarize financial 
information that flows into agency financial statements. In contrast, 
under FFMIA auditors must assess and report on whether an agencyâs 
financial management systems substantially comply with systems 
requirements. To do this, auditors should determine whether agency 
systems provide complete, accurate, and timely information for managing 
day-to-day operations as discussed in FAM 701.10 and OMB guidance. This 
is based on a Congressional expectation, in enacting FFMIA, that agency 
managers have necessary information to measure performance on an 
ongoing basis rather than just at year-end. 

.12: As a result of the overlapping scope and nature of FFMIA 
assessments and financial statements audits, the auditor may use the 
audit work performed as part of the financial statement audit. In the 
example audit program at FAM 701 A for testing controls for compliance 
with FFMIA, several procedures indicate that the auditor may have 
performed the procedure as part of the financial statement audit; 
whereas, other procedures needed to assess FFMIA compliance require 
additional work not normally performed in financial statement audits. 

.13: While the example audit procedures provides steps the auditor may 
perform, the auditor may tailor the steps to satisfy the objectives or 
intent of the step. Because of the broad scope of federal operations 
and the many variations that can and do flow from such a broad scope, 
the degree of specificity in the example audit program varies. For 
example, each agency will likely use a variety of reports for managing 
operations. These reports may be on line electronically or in hard 
copy. Auditors may use other work that addresses the objectives of the 
example audit procedures. 

.14: As discussed in FAM 350, the auditor need not perform specific 
tests of the systems compliance with FFMIA requirements for agencies 
with longstanding, well-documented financial management systems 
weaknesses that severely affect the systemsâ ability to comply with 
FFMIA. The auditor should evaluate managementâs process for determining 
whether its systems substantially comply with FFMIA and report any 
deficiencies in managementâs process along with previously identified 
problems. 

.15: FAM 580.65-.67 and FAM 595 A provide FFMIA reporting guidance to 
the auditor. FAM 595 B provides guidance to the auditor for reporting a 
systemsâ lack of substantial compliance. FAM 580.35-.37 provides 
guidance to the auditor on reporting for FMFIA. For FISMA 
considerations, the auditor should refer to FAM 260.67-.70 and FAM 
580.38-.39. FAM 1603 provides guidance that GAO auditors should use to 
provide an opinion on compliance with FFMIA. 

701 A â Example Audit Procedures for Testing Systems for Compliance 
with FFMIA: 

Entity: 

Date of review: 

Job code: 

Objective: FFMIA requires the 24 departments and agencies covered by 
the CFO Act to implement and maintain financial management systems that 
comply substantially with (1) federal financial management systems 
requirements, (2) applicable federal accounting standards, and (3) the 
U.S. Government Standard General Ledger (SGL) at the transaction level. 
OMB also requires certain designated entities to determine FFMIA 
compliance. The objective of these audit procedures are to assess 
whether agenciesâ systemsâ comply with FFMIA requirements. 

Procedure: I. Planning (May be combined with the work to plan the 
financial statement audit): A. To understand the FFMIA requirements, 
read:
* Federal Financial Management Improvement Act (FFMIA), P.L. 104-208. 
* Audit Requirements for Federal Financial Statements (OMB Audit 
Guidance). 
* Revised Implementation Guidance for the Federal Financial Management 
Improvement Act (OMB Memorandum, January 4, 2001).
* JFMIP/OFFM Publications of Federal Financial Management System 
Requirements including the Framework and Core Financial System 
Requirements.
* Financial Reporting Requirements (OMB Circular No. A-136).
* FASAB Standards.
* Treasury Financial Manual (TFM) sections related to the SGL (see 
transmittal letter S2--02 and TFM Volume I, Part 2, Chapter 4700).
* Managementâs Responsibility for Internal Control (OMB revised 
Circular No. A-123).
* Financial Management Systems (OMB Circular No. A-127).
* Management of Federal Information Resources (OMB Circular No. A-130).
* Federal Information Security Management Act of 2002 (FISMA), Title 
III, E-Government Act of 2002 Pub. L. No 107-347; Done by/date: 
[Empty]; 
Doc Ref.: [Empty]. 

Procedure: B. Read the prior yearâs audit documentation and audit 
report to identify (1) the auditorsâ FFMIA determinations, (2) reported 
instances of noncompliance with FFMIA, and (3) material weaknesses and 
significant deficiencies related to the entityâs financial management 
systems. 
* Prepare a schedule of the previously identified deficiencies for 
follow up. See FAM 701 B for an example of the schedule; Done by/date: 
[Empty]; 
Doc Ref.: [Empty]. 

Procedure: C. Read the most recent FMFIA, FISMA[Footnote 29], IG, and 
GAO reports and internal control documentation from the financial 
statement audit or other reports related to financial systems. Evaluate 
the impact of any reported weaknesses on the FFMIA assessment. 
* Obtain an update on the status of the issues and document problems 
identified in the schedule in FAM 701 B; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Procedure: D. Read the cycle memoranda for each of the audit cycles 
completed for the current year audit. Document issues related to FFMIA 
compliance in the schedule in FAM 701 B; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Procedure: E. From the work performed in part I (planning), decide 
whether it is necessary to perform the remaining steps. If the 
information gathered indicates âlongstanding, welldocumented financial 
management systems weaknessesâ that preclude compliance with FFMIA 
requirements, then: 1. Document recognition of longstanding, 
welldocumented financial management systems weaknesses and identify the 
source for this conclusion. 2. Obtain and document an understanding of 
managementâs process for determining whether its systems comply with 
FFMIA requirements. Report any deficiencies identified in managementâs 
process. 3. Complete step V (summary), except for completion of the 
schedule in FAM 701 B; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Procedure: II. Testing for Compliance with Federal Financial Management 
Systems Requirements: A. Ask whether the entity has an entity wide 
inventory of its systems. If so, obtain the inventory and any 
supporting documentation; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Procedure: B. From the entityâs inventory of systems, identify the core 
financial management systems and the feeder systems. 1. Document the 
key internal controls and theinformation flows between the core 
financial systems and the feeder systems in a flowchart or narrative. 
(The auditor may perform this step as part of the internal control 
phase). 

a. Determine whether the feeder systems are integrated or interfaced 
with the core financial system. Note: Feeder systems that are 
integrated with the core financial system share data tables. Therefore, 
the entity need not prepare reconciliations. 

b. If the feeder systems interface with the core systems, determine 
whether reconciliations are performed between the systems. If 
reconciliations are performed, determine how often and by whom; assess 
the adequacy of the reconciliation, including follow-up activities and 
supervisory review. 

c. Through interviews with entity management and reading of systems 
documentation, determine if the entityâs systems have detective 
controls (i.e., batch control or hash totals or supervisory reviews) 
and preventive controls (i.e. segregated duties, appropriate 
authorizations, or access controls) to process transactions properly 
and timely. (The auditor may perform this step as part of the internal 
control phase); Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: 2. Using the documentation prepared in step II.B.1 above, 
identify those JFMIP/OFFM financial management systems requirements 
that are applicable to the entityâs operations. For example, for those 
agencies that do not have grant or loan programs, the auditor would not 
need to assess whether JFMIP/OFFM requirements related to grants or 
loans are applicable. Document the results; Done by/date: [Empty]; Doc 
Ref.: [Empty]. 

Procedure: C. Determine whether the entityâs core financial management 
system and the financial portions of its applicable feeder systems, as 
identified in step II.B.2 above, conform to JFMIP/OFFM federal 
financial management systems requirements. 
* Ask whether the entityâs core financial management system is a 
JFMIP/FSIO-certified COTS system.[Footnote 30] If so, ask which version 
of the software is being used and obtain the entityâs FSIO 
certification for that software version. [Agencies replacing software 
to meet core financial system requirements must use JFMIP/FSIO 
certified core financial management systems as required by OMB Circular 
No. A-127 Financial Management Systems, but it is not an automatic 
noncompliance issue.]
* During implementation of a JFMIP/FSIO-certified core financial 
system, agencies can make changes and select options that could 
adversely affect the original certification. Auditors cannot rely 
solely on the original JFMIP/FSIO certification as sufficient evidence 
of compliance with FFMIA. Perform testing to determine whether agency 
specific enhancements to an otherwise JFMIP/FSIO-certified system 
render the system non-compliant; Done by/date: [Empty]; Doc Ref.: 
[Empty]. 

Procedure: 1. Ask whether there have been significant changes in the 
entityâs automated business processes since compliance testing with 
JFMIP/OFFM requirementswere last performed. If so, ask whether the 
entity has performed an assessment of any new functionality using the 
JFMIP/OFFM system requirements documents, GAO checklists, or similar 
tools. Document the results; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: 2. For those agencies with a core financial management 
system that is not a JFMIP/FSIO-certified COTS and for any feeder 
systems, obtain any analyses performed by entity management to support 
its FFMIA and FMFIA assessments that document how the entityâs systems 
conform to the applicable JFMIP/OFFM systems requirements. If 
management has not performed an analysis of systems functionality, go 
to step C.5; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: 3. Select several important functions that management has 
reported as complying with the systems requirements and determine if 
managementâs assessment can be relied upon using JFMIP/OFFM system 
requirement documents, GAO checklists, or other similar tools; Done 
by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: 4. If managementâs results cannot be relied upon for each 
system, assess the functionality of the applicable systems using 
JFMIP/OFFM system requirement documents, GAO checklists or other 
similar tools; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Procedure: 5. Document in FAM 701 B, the instances and related impact 
in which the entityâs systems did not comply with JFMIP/OFFM 
requirements; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: D. Ask line manager if they receive appropriate reports that 
are significant to performing day-to-day management operations. 1. 
Determine the adequacy of reports used to manage day-to-day operations. 
a. For reports that are produced by the entityâs financial management 
systems, ask knowledgeable users, read the entityâs financial 
management systems documentation, and from other audit work, use 
professional judgment to determine if the reports produced by the 
systems are timely, useful, reliable, complete, and appropriately 
summarized for the management level receiving the report. Use 
professional judgment, entity policy, and/or criteria evident from each 
report to determine its timeliness and accuracy. For example, if a 
report is due by the 10th of each month, determine whether it was 
provided by the 10th of each month. If only on-line access is provided 
for important internal reports, through observation, documentation, and 
inquiryâsuch as obtaining systems logs and asking key managers about 
their work habitsâassess whether the reports were available and 
accessed. Through inquiry and observation, assess if management uses 
the reports to manage operations. Ask management what improvements are 
needed in the current reporting methods. Document the results; Done 
by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: D. Ask line manager if they receive appropriate reports that 
are significant to performing day-to-day management operations. 1. 
Determine the adequacy of reports used to manage day-to-day operations. 
a. For reports that are produced by the entityâs financial management 
systems, ask knowledgeable users, read the entityâs financial 
management systems documentation, and from other audit work, use 
professional judgment to determine if the reports produced by the 
systems are timely, useful, reliable, complete, and appropriately 
summarized for the management level receiving the report. Use 
professional judgment, entity policy, and/or criteria evident from each 
report to determine its timeliness and accuracy. For example, if a 
report is due by the 10th of each month, determine whether it was 
provided by the 10th of each month. If only on-line access is provided 
for important internal reports, through observation, documentation, and 
inquiryâsuch as obtaining systems logs and asking key managers about 
their work habitsâassess whether the reports were available and 
accessed. Through inquiry and observation, assess if management uses 
the reports to manage operations. Ask management what improvements are 
needed in the current reporting methods. Document the results; Done 
by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: b. If the reports were not produced by the entityâs 
financial management systems, ask how the reports were prepared and 
perform a similar assessment as described in step D.1.a; Done by/date: 
[Empty]; Doc Ref.: [Empty]. 

Procedure: 2. Determine whether appropriate levels of management 
receive adequate and timely management information. See FAM 903.12 for 
questions related to determining FFMIA systemsâ compliance with SFFAS 
No. 4. a. Using professional judgment and industry best practices, 
identify internal management performance-related information needed for 
managing day-to-day operations. b. Determine whether appropriate levels 
of management receive the information identified in step D.2.a. c. If 
full costing is not used in these management reports, assess whether 
the lack of full cost information affects the usefulness of the 
information. Evaluate managementâs justification that full costing 
would not be beneficial for the internal reports. This may need to be 
assessed on a case-by-case basis; Done by/date: [Empty]; Doc Ref.: 
[Empty]. 

Procedure: 3. Include any deficiencies identified and related impact in 
the schedule shown in FAM 701 B; Done by/date: [Empty]; Doc Ref.: 
[Empty]. 

Procedure: E. Identify the entityâs external reports that are related 
to financial management such as those used for budget formulation and 
execution, fiscal management of entity programs, funds management, 
payments and receipts management, and to support the legal, regulatory, 
and other special requirements of the entity. 1. Through interviews 
with knowledgeable users and reading of the entityâs financial 
management system documentation, determine if the reports are produced 
by the systems. a. For external reports that are tested as part of the 
financial statement audit, include any deficiencies identified and the 
related impact in FAM 701 B. b. For external reports that are not 
tested as part of the financial statement audit, using professional 
judgment select several reports and assess whether the reports are 
reliable, timely, and complete. Include any deficiencies identified and 
the related impact in FAM 701 B; Done by/date: [Empty]; Doc Ref.: 
[Empty]. 

Procedure: 2. As an indicator of systems deficiencies, determine the 
magnitude and type of adjustments made to prepare financial statements 
each quarter and annually; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: F. Determine if the entityâs financial management systems 
track financial events and summarize information to facilitate the 
preparation of auditable financial statements. This determination can 
result from work performed as part of the financial statement audit. 
Document the deficiencies and the related impact in the schedule shown 
in FAM 701 B; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: G. Determine if the financial management systems enable the 
entity to prepare, execute, and report on the entityâs budget in 
accordance with the requirements of OMB Circular No. A-11, Preparation, 
Submission and Execution of the Budget. This determination can result 
from work performed as part of the financial statement audit. Document 
the deficiencies and the related impact in the schedule shown in FAM 
701 B; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: H. Coordinate with an IS controls specialist to determine if 
the entity has implemented and maintains a program to provide adequate 
security for all entity information that is collected, processed, 
transmitted, stored, or disseminated in financial management systems. 
1. Have the IS controls specialist review the annual management testing 
and evaluation of the effectiveness of information security, policies, 
procedures, and practices in accordance with the Federal Information 
Security Management Act of 2002 (FISMA); Done by/date: [Empty]; Doc 
Ref.: [Empty]. 

Procedure: 2. Document the deficiencies and related impact identified 
by the IS controls specialist in the schedule shown in FAM 701 B; Done 
by/date: [Empty]; 
Doc Ref.: [Empty]. 

Procedure: I. Determine if financial management systems include 
internal control to safeguard resources against waste, loss, and 
misuse, and whether reliable data are obtained, maintained, and 
disclosed in system generated reports. The auditor may obtain some of 
the information needed to make this determination from the work 
performed in the internal control phase. The auditor may identify other 
systems internal control weaknesses from other audit reports reviewed 
and steps performed. Document the results in FAM 701 B; Done by/date: 
[Empty]; Doc Ref.: [Empty]. 

Procedure: III. Testing for Compliance with the Federal Accounting 
Standards: A. Determine if the entityâs financial statements are 
compiled in accordance with applicable accounting standards: 
* Determine if any issues reported as part of the financial statement 
audit were related to the lack of the entityâs implementation of the 
accounting standards in their systems or the standards were not 
properly applied because of inadequate or improperly implemented manual 
procedures. Document the results in the schedule shown in FAM 701 B; 
Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Procedure: B. Perform tests to determine if the entityâs cost 
accounting systems: 
* use the entityâs accounting classification elements to identify and 
establish unique cost objects to capture, accumulate, and report costs 
and revenues; 
* allocate and distribute the full cost and revenue of cost objects as 
defined by OMB including services provided by one federal entity to 
another for external reporting; and: 
* transfer cost data directly to and from other cost 
ystems/applications that produce or allocate cost information. Also, 
see step II.D.2 of these audit procedures; Done by/date: [Empty]; Doc 
Ref.: [Empty]. 

Procedure: C. From the deficiencies identified in performing steps in 
FAM 701 A (testing for compliance with federal financial management 
systems requirements) and from tests conducted as part of the financial 
statement audit, determine if the financial systems record and 
summarize transactions in accordance with applicable accounting 
standards. Document the results and the related impact in the schedule 
shown in FAM 701 B; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: IV. Testing for Compliance with the SGL: A. Determine 
whether the entity financial management systems use financial data that 
can be traced directly to SGL accounts to produce reports providing 
financial information for both internal and external reporting. 1. Ask 
entity management and from the documentation prepared in step II.B.1 
above, determine how financial transaction data are summarized from the 
financial systems to the core financial system; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Procedure: 4. Document any deficiencies and the related impact in the 
schedule shown in FAM 701 B; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: B. Ask whether the entity uses a crosswalk from its chart of 
accounts for its core financial management system to the SGL. If so, 
perform tests to determine the accuracy of the crosswalk. 1. Trace all 
SGL accounts to the crosswalk; Done by/date: [Empty]; Doc Ref.: 
[Empty]. 

Procedure: 2. Identify any SGL accounts that are not included in the 
crosswalk. Identify any entity accounts not associated with an SGL 
account in the crosswalk; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: 3. Compare the posting rules used by the system to those 
included in the SGL to determine whether the posting rules used by the 
system conform to the SGL; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: 4. Document deficiencies and the related impact in the 
schedule shown in FAM 701 B; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Procedure: V. Summary: 
A. Summarize the results of the work performed above and assess the 
entityâs compliance with the federal financial management systems 
requirement of FFMIA. 1. Finalize the schedule of the FFMIA 
noncompliances identified in the schedule prepared in FAM 701 B; Done 
by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: 2. Read the entityâs management representation letter 
covering the year under audit to obtain the entity managementâs FFMIA 
determination. a. Document the entity or organization responsible for 
the financial management systems that have been found not to comply. b. 
Document facts pertaining to the: i. nature and extent of the 
noncompliance and areas where there is substantial but not full 
compliance; ii. primary reason or cause of the noncompliance; iii. 
impact of the noncompliance; and: iv. relevant comments from any 
responsible officer or employee. c. Assess the recommended remedial 
actions for each instance of noncompliance and managementâs time frames 
for implementing these actions. Include this assessment in the schedule 
in FAM 701 B; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: 3. After reviewing the nature and extent of deficiencies 
identified, conclude whether the systems deficiencies identified 
constitute lack of substantial compliance with FFMIA requirements. 
Consider the four factors from OMBâs FFMIA implementation guidance when 
drawing this conclusion; Done by/date: [Empty]; Doc Ref.: [Empty]. 

Procedure: 4. Prepare the FFMIA section of the report. See FAM 580.65-
.67 and FAM 595 A, FAM 595 B, and FAM 1603, as appropriate; Done 
by/date: [Empty]; 
Doc Ref.: [Empty]. 

Table: 701 B â Summary Schedule of Instances of Systems Noncompliance 
with FFMIA: 

[See PDF for image] 

[End of table] 

Section 800: 

Compliance: 

802 - General Compliance Checklist: 

.01: The compliance testing section consists of a General Compliance 
Checklist (questionnaire) for identifying laws and regulations for 
compliance testing. It also supplements the laws OMB requires auditors 
of executive departments, agencies and government corporations to test 
for compliance (see FAM 295.01 H) and other laws of general 
applicability auditors may decide to test during federal financial 
audits (see FAM 295.02 H). The compliance supplements provide detailed 
guidance for assessing the effectiveness of compliance controls and 
testing compliance with the significant provisions of each law. .02 The 
auditor generally should complete the General Compliance Checklist 
(Form 802), or equivalent, for federal financial statement audits. With 
the exception of the Antideficiency Act which has no materiality limit, 
the auditor should decide if an individual law is significant for 
purposes of compliance testing. The auditor generally should complete 
compliance supplements only for laws required to be tested (FAM 802.06) 
and for other laws (FAM 802.07) identified for compliance testing on 
the General Compliance Checklist. Use of these documents is described 
below. 

.03: To understand and evaluate compliance controls, the auditor also 
should follow the guidance in FAM 260 on identifying risk factors and 
in FAM 320 on understanding information systems. The FAM also provides 
additional guidance on compliance considerations for all audit phases. 
Instructions For General Compliance Checklist 

.04: The checklist contains a summary of each law. The auditor 
generally should use this checklist or equivalent to determine which of 
these laws are significant for testing compliance, as discussed in FAM 
245. The auditor may indicate whether each law meets the criteria for 
significance by placing a check mark in the appropriate column (yes or 
no). As noted in FAM 295 H, auditors should test certain laws and may 
also test for other laws if they could have a direct and material 
effect on the financial statements. 

.05: The auditor may use estimates or interim information in the 
preliminary column. The final amounts (based on the audited amounts or 
the final amounts of available budget authority) are used to determine 
whether all laws that would be significant in quantitative terms have 
been identified for control and compliance testing. The auditor should 
document the sources of all amounts included in this checklist. If the 
auditor determines the law is significant from a qualitative 
standpoint, the auditor should document the reasons for this 
conclusion. 

.06 Laws required for testing (if applicable)[Footnote 31] contained in 
supplements to the General Compliance Checklist (Form 802) are: 

Law: Antideficiency Act; 
Supplement number: FAM 803. 

Law: Federal Credit Reform Act of 1990 (FCRA); Supplement number: FAM 
808. 

Law: Provisions Governing Claims of the U.S. Government as provided 
primarily in 31 U.S.C. 3711-3720E (Including the Debt Collection 
Improvement Act of 1996 (DCIA); Supplement number: FAM 809. 

Law: Prompt Payment Act; 
Supplement number: FAM 810. 

Law: Pay and Allowance System for Civilian Employees as Provided 
Primarily in Chapters 51-59 of Title 5, U.S. Code; Supplement number: 
FAM 812. 

.07: Other frequently encountered laws contained in supplements to the 
General Compliance Checklist (Form 802) that the auditor may test are: 

Law: Civil Service Retirement Act; Supplement number: FAM 803. 

Law: Federal Employees Health Benefits Act; Supplement number: FAM 803. 

Law: Federal Employeesâ Compensation Act; Supplement number: FAM 803. 

Law: Federal Employeesâ Retirement System Act of 1986; Supplement 
number: FAM 803. 

Entity: 

Period of financial statements: 

Job code: 

Table: 

Description of Law: Antideficiency Act, 31 U.S.C. 1341 and 1517: This 
law imposes restrictions on the amounts of obligations or expenditures 
that agencies may make. As discussed in FAM 250, the auditor should 
obtain information on the entityâs budget authority, from sources such 
as appropriation legislation, and identify all legally binding 
restrictions on budget execution. Does the entity have appropriations 
or funds that are limited to an amount or a specified period of 
availability? OMB audit guidance requires auditors to test for 
compliance with this law. Individual: Preliminary/Final; 
Budget authority: Preliminary/Final; Since the Act has no materiality 
limit, the auditor should complete the compliance supplement at FAM 
803; Yes: [Empty]; No: [Empty]. 

Description of Law: Federal Credit Reform Act of 1990 (FCRA), 2 U.S.C. 
661-661f This law contains numerous provisions relating to the 
recording of activity related to direct loans, loan guarantees, and 
related modifications for budget accounting purposes. The law provides 
that after October 1, 1991, an agency may incur new direct loan 
obligations or make new loan guarantee commitments only to the extent 
that Congress has provided budget authority to cover the costs of the 
loan or loan guarantee. Does the entityâs budget authority available 
during the audit period for direct loan obligations, loan guarantee 
commitments, or any related modifications exceed planning materiality 
or did the auditor determine that the FCRA could have a direct and 
material effect on the entityâs financial statements? OMB audit 
guidance requires auditors to test for compliance with this law. Total 
appropriations or other budget authority available during the fiscal 
year for costs of FCRA activities (direct loans, loan guarantees, and 
related modifications): Preliminary/Final; Planning materiality: 
Preliminary/Final; If yes, complete compliance supplement FAM 808; Yes: 
[Empty]; No: [Empty]. 

Description of Law: Provisions Governing Claims of the U.S. Government, 
Including the Debt Collection Improvement Act of 1996 (DCIA), 31 U.S.C. 
3711-3720E 

These provisions address the collection of amounts owed to the federal 
government. Interest generally accrues from the date that a notice 
stating the amount due and the interest policies is first mailed to the 
debtor. Interest generally accrues at a rate established by the 
Secretary of the Treasury. Administrative costs and penalties shall 
also be charged. 

The provisions also require the entity to take all appropriate steps to 
collect the debt before discharging it and to notify Treasury about 
delinquent debt for administrative offset, collection by a debt 
collection center, or tax refund offset. Entities shall also 
participate in a computer match of delinquent debt with federal 
employees, and when collection actions are terminated, the entity 
holding delinquent debt shall sell it. Provisions also require the 
entity (or entities making loans the government guarantees) to notify 
credit-reporting agencies about delinquent debt and not make or 
guarantee loans to persons who owe delinquent debt. 

Does the cumulative amount of receivables created during the audit 
period that are subject to provisions governing claims of the U.S. 
government, including DCIA, exceed planning materiality? Does the 
amount of receivables at the end of the audit period that are subject 
to provisions governing claims of the U.S. government, including DCIA, 
exceed planning materiality? 

Did the auditor determine that laws governing claims of the U.S. 
government, including the DCIA, could have a direct and material effect 
on the entityâs financial statements? OMB audit guidance requires 
auditors to test for compliance with this law. 

Provisions Governing Claims of the U.S. Government, Including the Debt 
Collection Improvement Act of 1996 (DCIA), 31 U.S.C. 3711-3720E: 

Cumulative amount of receivables created during the audit period that 
are subject to provisions governing claims of the U.S. government, 
including DCIAL: Preliminary/Final; or: Amount of receivables at the 
end of the audit period that are subject to provisions governing claims 
of the U.S. government, including DCIA: Preliminary/Final; Planning 
materiality: Preliminary/Final; If yes, complete compliance supplement 
FAM 809. Note: These provisions of the law generally do not apply to 
amounts payable to the entity under the Internal Revenue Code, the 
Social Security Act, or tariff laws. Those laws contain specific 
provisions for these amounts; Yes: [Empty]; 
No: [Empty]. 

Description of Law: Prompt Payment Act, 31 U.S.C. 3901- 3907: The 
Prompt Payment Act requires federal entities to make payments for 
property or services by the due date specified in the related contract 
or, if a payment date is not specified in the contract, generally 30 
days after the invoice for the amount due is received. If payments are 
not made within the appropriate period, the entity shall pay an 
interest penalty. Also, discounts offered by vendors may be taken only 
during the specified period. If they are taken after the time period 
has expired, an interest penalty shall be paid. Do the entityâs 
payments for property or services subject to the Prompt Payment Act for 
the audit period exceed planning materiality or did the auditor 
determine that the Prompt Payment Act could have a direct and material 
effect on the entityâs financial statements? OMB audit guidance 
requires auditors to test for compliance with this law. Amount of 
payments made for property and services subject to the Prompt Payment 
Act: Preliminary/Final; Planning materiality: Preliminary/Final; If 
yes, complete compliance supplement FAM 810; Yes: [Empty]; No: [Empty]. 

Description of Law: Pay and Allowance System for Civilian Employees, 
provided primarily in Chapters 51-59 of Title 5, U.S. Code: These laws 
require that employees be paid at the appropriate rates established by 
law. Does the entityâs payroll expense for the audit period exceed 
planning materiality or did the auditor determine that the Pay and 
Allowance System for Civilian Employees (as provided primarily in 
Chapters 51-59 of Title 5, U.S. Code) could have a direct and material 
effect on the entityâs financial statements? OMB audit guidance 
requires auditors to test for compliance with this law. Payroll 
expense: Preliminary/Final; Planning materiality: Preliminary/Final; If 
yes, complete compliance supplement FAM 812. The entityâs expense for 
performance awards, cash awards, overtime, travel, transportation, 
subsistence, or allowances for the audit period usually do not exceed 
planning materiality. However, if the auditor determines that these 
items or related provisions of the Pay and Allowance System for 
Civilian Employees are otherwise significant, the auditor should 
consult with the Office of General Counsel (OGC) for specific 
provisions to be compliance tested; If yes, complete compliance 
supplement FAM 810; Yes: [Empty]; No: [Empty]. 

Description of Law: Civil Service Retirement Act, 5 U.S.C. Chapter 83: 
This law provides retirement benefits to employees who were hired prior 
to January 1, 1984. For each employee, the entity withholds a 
percentage of basic pay from the employeeâs compensation and 
contributes an equal amount for retirement. The employee and entity 
amounts are remitted to Treasury. Does the entityâs expense for 
retirement costs under the Civil Service Retirement Act for the audit 
period exceed planning materiality or did the auditor determine that 
provisions of the Civil Service Retirement Act could have a direct and 
material effect on the entityâs financial statements? Expense for 
retirement contributions: Preliminary/Final; Planning materiality: 
Preliminary/Final; If yes, complete compliance supplement FAM 813; Yes: 
[Empty]; No: [Empty]. 

Description of Law: Federal Employees Health Benefits Act, 5 U.S.C. 
Chapter 89: This law provides health insurance coverage to employees 
who elect health insurance benefits. For each employee who elects 
coverage, the entity pays an amount set by OPM for insurance costs. The 
entity portion cannot exceed 75 percent of the insurance cost. The 
employee pays the remainder of the total cost. Information on the 
employee and entity cost of the insurance is published by OPM. The 
entity withholds the amount of the employeeâs portion of the cost from 
the employeeâs pay and remits this amount, along with its own 
contribution, to Treasury. Does the entityâs expense for health 
insurance costs for the audit period exceed planning materiality or did 
the auditor determine that the Federal Employees Health Benefits Act 
could have a direct and material effect on the entityâs financial 
statements? Preliminary Final Expense for health insurance: 
Preliminary/Final; Planning materiality: Preliminary/Final; If yes, 
complete compliance supplement FAM 814; Yes: [Empty]; No: [Empty]. 

Description of Law: Federal Employeesâ Compensation Act (FECA), 5 
U.S.C. Chapter 81: This law provides for the compensation of employees 
injured while performing their duties. Claims are paid out of the 
Federal Employeesâ Compensation Fund. Federal entities are billed 
annually by the fund for claims paid on their behalf. Does the entityâs 
expense for the audit period for benefits paid by the Federal 
Employeesâ Compensation Fund on the entityâs behalf exceed planning 
materiality or did the auditor determine the FECA could have a direct 
and material effect on the entityâs financial statements?; Expense for 
Compensation Fund claims: Preliminary/Final; Planning materiality: 
Preliminary/Final; If yes, complete compliance supplement FAM 816; Yes: 
[Empty]; No: [Empty]. 

Description of Law: Federal Employeesâ Retirement System (FERS) Act of 
1986, 5 U.S.C. Chapter 84: This law provides retirement benefits for 
employees who were hired after December 31, 1983. For each employee, 
the entity withholds a percentage of basic pay from the employeeâs 
compensation and contributes an amount equal to the employing agencyâs 
applicable normal cost percentage less the employee deduction rate for 
retirement. The employee and entity amounts are remitted to Treasury. 
Does the entityâs expense for retirement costs under the FERS Act for 
the audit period exceed planning materiality or did the auditor 
determine that the FERS Act could have a direct and material effect on 
the entityâs financial statements?; Expense for retirement 
contributions: Preliminary/Final; Planning materiality: 
Preliminary/Final; If yes, complete compliance supplement FAM 817; Yes: 
[Empty]; No: [Empty]. 

Description of Law: Other Laws: The auditor should perform the 
following procedures and include references to supporting 
documentation: 1. As described in FAM 245.02, read the list of laws and 
regulations identified by the entity as significant to others. (See .) 
2. With OGC assistance, identify any other laws or regulations that 
have a direct effect on determining financial statement amounts. 
Determine whether the direct effect could be material to the financial 
statements. (See .) 3. Determine whether to test compliance with any 
indirect laws or regulations and make inquiries of management as 
discussed in FAM 245.04-.06. See .) 4. For all laws or regulations 
identified for testing above, identify significant provisions using the 
criteria in FAM 245.02. Test compliance controls and compliance as 
described in FAM 300 and FAM 460. Are any other laws or regulations 
identified for compliance testing? If yes, attach a list of the laws or 
regulations identified to this form and reference it to control and 
compliance work performed; Yes: [Empty]; No: [Empty]. 

Instructions For Compliance Supplements .08: Each compliance supplement 
in FAM 803-817 consists of (1) a compliance summary, (2) compliance 
audit procedures, and (3) notes. 

Compliance Summary: 

.09: For each law identified for compliance testing on the General 
Compliance Checklist, the auditor generally should complete the related 
compliance summary or prepare equivalent documentation. The compliance 
summary is designed to assist the auditor in planning compliance 
control tests and summarizing the results of compliance control tests 
and compliance tests for reporting the results of the work performed. 

.10: The first column of the compliance summary contains a description 
of the specific provisions of the law that have been identified for 
compliance testing, the type of provision, and the reference to the 
law. 

.11: The second column of the compliance summary contains the objective 
related to the specific provision to be used for both compliance 
control and compliance testing. 

.12: In the third column of the compliance summary, the auditor should 
identify the control activities that the entity has in place to achieve 
each objective and document the control activity. If the entity does 
not have a control activity that achieves the objective, the auditor 
should document this condition in the third column. 

.13: The fourth column of the compliance summary is used to indicate 
(Yes or No) whether the control activity is information systems (IS) 
related as described in FAM 270.04. IS controls are those the 
effectiveness of which depends on computer processing. They can 
generally be classified into general, application, and user controls. 
The auditor generally should perform tests of IS controls with 
assistance from an IS specialist. 

.14: The fifth column of the compliance summary indicates whether the 
auditor believes that compliance controls are effective (Yes or No). 
The auditor should design control tests to determine whether the 
control activities that have been identified in the third column are in 
place and operating effectively. A control activity is considered to be 
effective if it achieves the control objective. The auditor should 
provide a reference in the fifth column to the supporting documents of 
the control testing procedures, the control tests, the results of these 
tests, and the auditorâs conclusions on the effectiveness of the 
compliance controls. 

.15: The sixth column of the compliance summary indicates whether the 
auditor has noted any instances of noncompliance (Yes or No). The 
auditor generally should perform compliance tests using the related 
Compliance Audit Procedures in the next paragraph. The auditor should 
provide a reference in the sixth and last column to the supporting 
documents of the results of the compliance tests. 

Compliance Audit Procedures: 

.16: Compliance audit procedures are provided for each law. For each 
law identified for compliance testing on the General Compliance 
Checklist, the auditor generally should perform each step of the 
related compliance audit procedures in the first column. Because the 
subject matter of some laws is closely related to matters the auditor 
will test in other parts of the audit, the auditor may coordinate with 
that other testing and design multipurpose tests. For example, payroll 
compliance testing could be performed using multipurpose tests of 
payroll controls and/or substantive payroll testing. 

The auditor performing the procedure in the first column should initial 
and date in the second column when the procedure is performed. The 
auditor should include a reference to the documentation recording the 
work performed for each step in the third and last column of the 
compliance audit procedures. 

Notes: 

.17: Notes are provided for each compliance supplement to assist the 
auditor in understanding criteria, definitions, exemptions, and 
restrictions of law. The notes also provide guidance to the auditor in 
testing and evaluating controls to achieve the compliance objective. 

803 â Antideficiency Act: 

Note: The auditor may complete this compliance summary or prepare 
equivalent documentation as provisions of the Antideficiency Act are 
applicable to entities receiving federal funds, with no limit on 
materiality. OMB guidance on budget execution, including the 
Antideficiency Act, is included in OMB Circular A-11, Part 4. 

Table: 

[See PDF for image] 

[End of table] 

Note: The auditor may perform these procedures or prepare equivalent 
documentation for the Antideficiency Act as indicated on Form 802 - 
General Compliance Checklist at FAM 802-3. These procedures test 
compliance with the provisions listed on the Compliance Summary for 
this law. 

Name of entity: 

Audit period: 

Reviewed by: 

Table: 

Audit Procedures: 1. List the appropriations or other budget authority 
and the related budget accounts that were identified for compliance 
testing on Form 802 - General Compliance Checklist. Per FAM 802-3, the 
auditor should identify all legally binding restrictions on budget 
execution, from sources such as appropriation legislation. (The auditor 
may coordinate the following tests for compliance with the 
Antideficiency Act with tests of the Statement of Budgetary Resources 
and with tests of expenses.); Done by/date: [Empty]; Doc ref: [Empty]. 

Audit Procedures: 2. As discussed in FAM 460.03, the auditor should 
determine whether the summarized budget information (obligations and 
expenditures) used for compliance tests are reasonably accurate and 
complete. The auditor may obtain assurance through effective controls 
the auditor tests (usually the budget controls) or, if the controls are 
not effective, through substantive testing of budget amounts for 
validity, completeness, cutoff, recording, classification, and 
summarization as described in FAM 495 B. For the accounts listed in 
step 1, document if the auditor will obtain this assurance by testing 
controls (as indicated on Form 803 - Compliance Summary) or if 
substantive tests of the budget information are necessary. If the 
auditor determines that controls are not effective in meeting some or 
all of the budget control objectives listed in FAM 395 F, the auditor 
should perform substantive tests of the budget amounts (obligations and 
expenditures) as discussed in FAM 495 B. The auditor should perform 
substantive tests only for those potential misstatements for which the 
entity does not have effective budget controls; Done by/date: [Empty]; 
Doc ref: [Empty]. 

Audit Procedures: After the auditor is satisfied as to the 
reasonableness of the budget amounts to be used for the compliance 
tests, perform the compliance tests in steps 3 and 4; Done by/date: 
[Empty]; Doc ref: [Empty]. 

Audit Procedures: 3. Compare the actual amounts of recorded obligations 
and expenditures with the related appropriation or other budget 
authority listed in step 1. If the entity does not appear to have 
complied with the provision, perform step 6. (31 U.S.C. 1341(a)(1)(A) ; 
Done by/date: [Empty]; Doc ref: [Empty]. 

Audit Procedures: 4. Compare timing of legal obligations (contractual 
or otherwise) with available appropriation or other budget authority 
listed in step 1. If the entity does not appear to have complied with 
the provision, perform step 6 (31 U.S.C. 1341(a)(1)(B); Done by/date: 
[Empty]; 
Doc ref: [Empty]. 

Audit Procedures: 5. Determine the entityâs legally binding level of 
budget authority (below the appropriation level) that was identified 
during the planning phase. This level is usually the apportionment 
level unless the entity has elected a lower level, such as allotments. 
Compare the amount of actual obligations and expenditures to the 
legally binding level of restrictions on budget authority identified 
for compliance testing (the apportionment or allotment level). If the 
entity does not appear to have complied with the provision, perform 
step 6. (31 U.S.C. 1517(a)); Done by/date: [Empty]; Doc ref: [Empty]. 

Audit Procedures: 6. If the entity does not appear to be in compliance 
based on the results of tests performed, discuss these matters with OGC 
and, when appropriate, the Special Investigator Unit to conclude if 
noncompliance actually has occurred and the implications of such 
noncompliance. For any noncompliance noted: 
* identify the weakness in controls that allowed the noncompliance to 
occur, if not previously identified during control testing;
* report the nature of any weakness in controls and consider 
modification of the opinion on internal control as appropriate (see FAM 
580.32-.61);
* consider the implications of any instances of noncompliance on the 
financial statements; and
* report instances of noncompliance, as appropriate (see FAM 580.67-
.75.); Done by/date: [Empty]; 
Doc ref: [Empty]. 

Audit Procedures: 7. Contact the entity office responsible for 
submitting Antideficiency Act (ADA) violations to the President, 
Congress, and GAO and: 
* Obtain a listing of violations for the year under audit.
* Inquire if all known violations have been included on the list and 
reported.
* For each ADA violation determine if it was reported to the President, 
the Congress, and GAO; Done by/date: [Empty]; Doc ref: [Empty]. 

Audit Procedures: 8. Check GAOâS ADA reporting website: 
http:/www.gap.gov/ada/antideficiencyrpts.htm to identify and obtain 
background about ADA violations reported by the entity and compare 
audit evidence with what the entity reported in ADA violation reports. 
There may be time lags as to when violations are reported, particularly 
at year end; Done by/date: [Empty]; Doc ref: [Empty]. 

Audit Procedures: 9. Document conclusions on compliance with each 
provision on Form 803 - Compliance Summary; Done by/date: [Empty]; Doc 
ref: [Empty]. 

Note 1: Entities are required to establish regulations that provide for 
a system of administrative controls over their execution of budget 
authority (31 U.S.C. 1514(a)). As discussed in FAM 250.03, the entity 
may elect to lower the level at which budget limitations are legally 
binding in these regulations. For example, the entity may elect to 
reduce the legally binding limit on the obligation and expenditure of 
budget funds from the apportionment to the allotment level. The auditor 
should determine the level at which the entityâs legally binding limit 
has been established. 

Note 2: The auditor should consider the results of the evaluation and 
testing of budget controls (FAM 370.11). These controls relate to the 
execution of budget authority and usually are the same controls that 
are used to comply with the Antideficiency Act. Accordingly, additional 
determinations of controls that achieve the compliance objective 
generally is not necessary if the auditor has assessed whether the 
entity achieves all of the budget control objectives listed in FAM 395 
F. The auditor should reference this compliance summary to the budget 
control evaluation and testing and perform any additional procedures 
determined to be necessary to conclude if compliance controls are 
effective. 

808 - Federal Credit Reform Act of 1990: 

Table: 

[See PDF for image] 

[End of figure] 

Note: The auditor may complete these procedures or prepare equivalent 
documentation only if provisions of the Federal Credit Reform Act 
(FCRA) are significant as indicated on Form 802 - General Compliance 
Checklist. These procedures test compliance with the provisions listed 
on the Compliance Summary. OMB guidance on FCRA programs is included in 
OMB Circular No. A-11, part 5, Federal Credit. 

Name of entity: 
Audit period: 
Reviewed by: 

Audit Procedures: 1. List the appropriations or other budget authority 
and the related budget accounts that were identified for compliance 
testing on Form 802 - General Compliance Checklist at FAM 802-4; Done 
by/date: [Empty]; Doc Ref: [Empty]. 

Audit Procedures: 2. As discussed in FAM 460.03, the auditor should 
determine whether summarized budget information (obligations and 
expenditures) used for compliance tests is reasonably accurate and 
complete. The auditor may obtain assurance through effective controls 
the auditor tests (usually the budget controls) or, if the controls are 
not effective, through substantive testing of budget amounts for 
validity, completeness, cutoff, recording, classification, and 
summarization as described in FAM 495 B. For the accounts listed in 
step 1, document if the auditor will obtain assurance by testing 
controls (as indicated on Form 808 - Compliance Summary) or whether 
substantive tests of the budget information are necessary. If the 
auditor determines that controls are not effective in meeting some or 
all of the budget control objectives listed in FAM 395 F, plus the 
supplemental objectives for FCRA listed in FAM 395 F Sup, the auditor 
should perform substantive tests of the budget amounts (obligations and 
expenditures) as discussed in FAM 495 B. The auditor should perform 
substantive tests only for those potential misstatements for which the 
entity does not have effective budget controls. After the auditor is 
satisfied as to the reasonableness of the budget amounts to be used for 
the compliance tests, perform the compliance tests in steps 3 and 4; 
Done by/date: [Empty]; Doc Ref: [Empty]. 

Audit Procedures: 3. For each appropriation account or other budget 
authority listed in step 1, perform the following procedures that are 
applicable for direct and guaranteed loan programs that have a positive 
subsidy (i.e., cash outflows exceed cash inflows); (for direct and 
guaranteed loan programs that have a negative subsidy (i.e., cash 
inflows exceed cash outflows), perform step 4): (a) Compare the amount 
of obligations for direct loans to the amount of the available 
appropriation or other budget authority. (Note: This budget restriction 
is applicable only to obligations for direct loans made on or after 
October 1, 1991.); Done by/date: [Empty]; Doc Ref: [Empty]. 

Audit Procedures: 3. (b) Compare the amount of obligations for 
modifications of direct loan obligations or outstanding direct loans to 
the amount of available budget authority. (Note: The sale of a direct 
loan is considered a modification. Discuss applicability of this budget 
restriction to direct loans and direct loan obligations that were 
outstanding prior to October 1, 1991, with OGC prior to performing 
compliance test.); Done by/date: [Empty]; Doc Ref: [Empty]. 

Audit Procedures: 3. (c) Compare the amount of obligations for loan 
guarantee commitments to the amount of the available appropriation or 
other budget authority. (Note: This budget restriction is only 
applicable to obligations for loan guarantee commitments made on or 
after October 1, 1991.); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 3. (d) Compare the amount of obligations for 
modifications of loan guarantee commitments or outstanding loan 
guarantees to the amount of available budget authority. (Note: Discuss 
applicability of this budget restriction to loan guarantees and loan 
guarantee commitments that were outstanding prior to October 1, 1991, 
with OGC prior to performing compliance test.) (2 U.S.C. 661c(b) and 
(e)) If the amounts of obligations in any of these comparisons exceed 
the available budget authority, the entity may not be in compliance. 
Perform step 5; Done by/date: [Empty]; Doc Ref: [Empty]. 

Audit Procedures: 4. Direct and guaranteed loan programs that have a 
negative subsidy (cash inflows exceed cash outflows) do not receive an 
appropriation. However, such programs often have a loan limit that 
cannot be exceeded, i.e., a maximum number of loans that can be made or 
guaranteed. For these programs, compare the total number and dollar 
volume of loans made to the loan limit in the applicable appropriations 
act or other law. Perform step 5; Done by/date: [Empty]; Doc Ref: 
[Empty]. 

Audit Procedures: 5. If the entity does not appear to be in compliance 
based on the results of tests performed, the auditor should discuss 
these matters with OGC and, when appropriate, the Special Investigator 
Unit to conclude if noncompliance actually has occurred and the 
implications of such noncompliance. For any noncompliance noted, the 
auditor should 
* identify the weakness in controls that allowed the noncompliance to 
occur, if not previously identified during control testing;
* report the nature of any weakness in controls and consider 
modification of the report on internal control as appropriate (see FAM 
580.32-.61);
* consider the implications of any instances of noncompliance on the 
financial statements; and
* report instances of noncompliance, as appropriate (see FAM 580.67-
.75); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 6. Document conclusions on compliance with each 
provision on Form 808 - Compliance Summary; Done by/date: [Empty]; Doc 
Ref: [Empty]. 

Note 1: A direct loan is a disbursement of funds by the government to a 
non-federal borrower under a contract that requires the repayment of 
such funds with or without interest. The term also includes the 
purchase of, or participation in, a loan made by another lender. The 
term does not include the acquisition of a federally guaranteed loan in 
satisfaction of default claims or the price support loans of the 
Commodity Credit Corporation. (2 U.S.C. 661a(1)); 

Note 2: A direct loan obligation is a binding agreement by a federal 
agency to make a direct loan when specified conditions are fulfilled by 
the borrower. (2 U.S.C. 661a(2)); 

Note 3: A loan guarantee is any guarantee, insurance, or other pledge 
with respect to the payment of all or a part of the principal or 
interest on any debt obligation of a nonfederal borrower to a 
nonfederal lender, but does not include the insurance of deposits, 
shares, or other withdrawable accounts in financial institutions. (2 
U.S.C. 661a(3)); 

Note 4: A loan guarantee commitment is a binding agreement by a federal 
agency to make a loan guarantee when specified conditions are fulfilled 
by the borrower, the lender, or any other party to the guarantee 
agreement. (2 U.S.C. 661a(4)); 

Note 5: Appropriations or other budget authority to cover the cost of 
budget obligations for direct loan obligations and loan guarantee 
commitments must be made in advance by Congress. For revolving or other 
funds that otherwise would be available for these budget obligations, 
Congress must enact a limit on the use of such funds for these purposes 
to make them available for use. (2 U.S.C. 661c(b)); 

Note 6: Costs are defined as the estimated long-term cost to the 
government of a direct loan, loan guarantee or modification, calculated 
on a net present value basis, excluding administrative costs and any 
incidental effects on governmental receipts or outlays. These 
calculations are described in further detail under the valuation 
control objective for obligations in FAM 395 F. (2 U.S.C. 661a(5)); 

Note 7: There is an exemption from this requirement for entitlements 
(mandatory programs such as the guaranteed student loan program and the 
VA home loan guaranty program) and credit programs of the Commodity 
Credit Corporation existing on the date of enactment of FCRA (November 
5, 1990). (2 U.S.C. 661c(c)); 

Note 8: Modifications are government actions that alter the estimated 
net present value of a direct loan or loan guarantee for which an 
obligation has been recorded, for example, the sale of a direct loan, 
per SFFAS No. 2, paragraph 53, or a policy change affecting the 
repayment period or interest rate for a group of existing loans. 
(Changes within the terms of existing contracts or through other 
existing authorities are not considered to be modifications. Also, 
âwork outsâ of individual loans, such as a change in the amount or 
timing of payments to be made, are not considered modifications.) The 
effects of these changes should be included in the annual reestimates 
of the estimated net present value of the obligations. Permanent 
indefinite authority is provided by FCRA for these reestimates. 

Note 9: Discuss applicability of this budget restriction to direct 
loans, direct loan obligations, loan guarantees, or loan guarantee 
commitments that were outstanding prior to October 1, 1991, with OGC 
prior to performing control or compliance tests. 

Note 10: The auditor should determine the results of the evaluation and 
testing of budget controls and testing of the Statement of Budgetary 
Resources. These controls relate to the execution of budget authority 
and usually are the same controls that are used to comply with the 
Antideficiency Act and FCRA. Accordingly, additional consideration of 
controls that achieve the compliance objective generally is not 
necessary if the auditor has assessed whether the entity achieves all 
of the budget control objectives listed in FAM 395 F, including the 
supplemental control objectives for FCRA. The auditor should reference 
to the budget control evaluation and testing and perform any additional 
procedures considered necessary to conclude if compliance controls are 
effective. 

809 - Provisions Governing Claims of the U.S. Government (31 U.S.C. 
3711-3720E), Including the Debt Collection Improvement Act of 1996 
(DCIA): 

Note: The auditor may complete this compliance summary or prepare 
equivalent documentation only if provisions governing claims of the 
U.S. government, as provided primarily in sections 3711-3720E of Title 
31, U.S. Code (including provisions of the Debt Collection Improvement 
Act of 1996) are significant, as indicated on Form 802 - General 
Compliance Checklist at FAM 802-5. 

Table: 

[See PDF for image] 

[End of table] 

Note: The auditor may perform these procedures or prepare equivalent 
documentation only if provisions governing claims of the United States 
government as provided primarily in sections 3711-3720E of Title 31, 
U.S. Code (including provisions of the Debt Collection Act of 1996) are 
significant, as indicated on Form 802 - General Compliance Checklist at 
FAM 802-5. These procedures test compliance with the provisions listed 
on the Compliance Summary. 

Name of entity: 
Audit period: 
Reviewed by: 

Audit Procedures: 1. Based on the preliminary assessment of compliance 
control effectiveness (as documented on Form 809 -Compliance Summary), 
select a sample of amounts owedto the entity during or at the end of 
the audit period. (Thesample size will vary based on the expected 
effectiveness of compliance controls, as discussed in FAM 460.02). 
Document the sampling approach using the documentation in FAM 495 E. 
See note 8 regarding sampling efficiencies and completeness of the 
sample population. Sample size: Sample selection method; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 2. For each item selected in step 1 obtain the loan 
file or other supporting documentation and note the following 
information as of the date selected for testing 
* due date of debt;
* amount owed;
* date the notice of the amount due and the interest policies is first 
mailed to the debtor;
* amount of interest accrued and other administrative charges and 
penalties charged, if any; and
* number of days the debt is past due, if any. Perform step 3 if the 
debt is past due. Perform step 4 if the debt is not past due; Done 
by/date: [Empty]; Doc Ref: [Empty]. 

Audit Procedures: 3. If the amount selected is past due: (a) Calculate 
the number of days that interest should be accrued on the debt as of 
the date selected for testing. Interest generally accrues from the date 
that the notice of the amount due is first mailed to the debtor. (See 
note 1.) Compare the auditorâs calculation with the calculation 
performed by the entity and obtain explanation and examine support for 
any differences. (31 U.S.C. 3717(b)); Done by/date: [Empty]; Doc Ref: 
[Empty]. 

Audit Procedures: 3. (b) Determine the interest rate that should be 
used to accrue interest on the debt. The rate is published in the 
Federal Register and should be the rate that was in effect on the date 
that the notice of the amount due is first mailed to the debtor. 
Compare the auditorâs determination of the rate to the rate used by the 
entity and obtain explanation and examine support for any differences. 
(31 U.S.C. 3717(a) and (c)); Done by/date: [Empty]; Doc Ref: [Empty]. 

Audit Procedures: 3. (c) Calculate the amount of interest that should 
be owed as of the date selected for testing using the number of days 
tested in (a) and the interest rate tested in (b). Compare the 
auditorâs calculation to the amount calculated by the entity and obtain 
explanation and examine support for any differences. See notes 2 and 3 
regarding the waiver of interest; Done by/date: [Empty]; Doc Ref: 
[Empty]. 

Audit Procedures: 3. (d) Obtain the entityâs schedule of administrative 
charges and late payment penalties and determine if the appropriate 
amounts were charged to the debtor. See note 3 regarding the waiver of 
these charges. (31 U.S.C. 3717(e) and (f)); Done by/date: [Empty]; Doc 
Ref: [Empty]. 

Audit Procedures: 4. If the debt is not past due, determine through 
examination of the entityâs records whether (a) interest, 
administrative charges, or penalties are not being charged; and: (b) 
the debtor had no outstanding nontax delinquent federal debt at the 
time the loan was obtained. (31 U.S.C. 3720B); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 5. The objectives listed below relate to procedural-
based provisions. As discussed in FAM 460.06, the auditor usually 
performs sufficient procedures in conjunction with tests of compliance 
controls for these proceduralbased provisions to conclude on the 
entityâs compliance without performing additional procedures. The 
auditor should not perform additional procedures to obtain evidence 
regarding compliance with the provisions related to the following 
objectives unless sufficient evidence regarding compliance was not 
obtained during compliance control tests documented on Form 809 - 
Compliance Summary. (a) Claims of more than $100,000 (excluding 
interest, penalties, and administrative costs) are referred to the 
Justice Department for compromise, termination, or suspension. See note 
4. (31 U.S.C. 3711) (b) Claims delinquent for a period of 180 days have 
been referred to Treasury for collection. See notes 5, 6, and 7. (31 
U.S.C. 3711(g)); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 6. If the entity does not appear to be in compliance 
based on: the results of tests performed, the auditor should discuss 
these matters with OGC and, when appropriate, the Special Investigator 
Unit to conclude if noncompliance actually has occurred and the 
implications of such noncompliance. For any noncompliance noted, the 
auditor should: 
* identify the weakness in compliance controls that allowed the 
noncompliance to occur, if not previously identified during compliance 
control testing;
* report the nature of any weakness in compliance controls and consider 
modification of the conclusion on internal control as appropriate (see 
FAM 580.32- .61);
* consider the implications of any instances of noncompliance on the 
financial statements; and: 
* report instances of noncompliance, as appropriate (see FAM 580.67-
.75); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 7. Document conclusions on compliance with each 
provision on Form 809 - Compliance Summary; Done by/date: [Empty]; Doc 
Ref: [Empty]. 

Note 1: Claims are amounts owed to the government, including amounts 
owed for loans insured or guaranteed by the government. The term 
âclaimâ is used interchangeably with the term âdebtâ in this law. (31 
U.S.C. 3701(b)) Interest normally accrues from the date that notice of 
the debt and the agencyâs interest policies is first mailed to the 
debtor. If the agency sends a bill to the debtor in advance of the due 
date and that bill states the interest policies, interest would accrue 
from the due date specified in the bill. The provisions regarding 
accrual of interest and other charges do not apply to the extent that a 
statute, related regulation, loan agreement, or contract provides 
otherwise, or if a claim is under a contract executed befre October 25, 
1982, that is in effect on October 25, 1982. (31 U.S.C. 3717(g)) 
Accrual of interest and penalties under this law does not apply to 
amounts owed by other agencies of the federal government, or to amounts 
payable to the entity under the Internal Revenue Code, the Social 
Security Act, or tariff laws. (31 U.S.C. 3701 (c) and (d)); 

Note 2: The entity shall waive the collection of interest on a claim 
(or any portion of the claim) that is paid within 30 days after the 
date on which interest began to accrue. The agency may extend this 30-
day period. (31 U.S.C. 3717(d)) Interest that is either accrued or 
collected on claims that are paid within the 30-day period would 
usually not be material or otherwise significant for purposes of 
compliance testing. If the auditor considers this provision to be 
significant for compliance testing, this form should be tailored to 
include the appropriate testing procedures. 

Note 3: The entity has the authority to waive the collection of 
interest, penalties, and administrative charges. The entity should 
follow its own regulations when determining whether a waiver is 
appropriate. Such regulations should be in conformity with the 
standards set jointly by the Comptroller General, the Attorney General, 
and the Secretary of the Treasury described in 31 C.F.R. 901.9. (31 
U.S.C. 3717(h)) The entity may increase an administrative claim (debt 
not based on an extension of government credit through direct loans, 
guarantees, or insurance, including fines, penalties, and overpayments) 
annually by the cost of living adjustment in lieu of charging interest 
and penalties. (31 U.S.C. 3717(i)); 

Note 4: Compromise is the term used when an amount less than the total 
amount of the claim is accepted by the entity as payment in full. 
Suspension refers to the temporary deferral of collection activities 
until collection activity is expected to be more successful. 
Termination refers to stopping of collection activities. Only the 
Justice Department has the authority to compromise, terminate, or 
suspend collection on claims that are greater than $100,000 (excluding 
interest, penalties, and administrative charges). Pursuant to 31 C.F.R. 
Parts 902.1 and 903.1, entities generally should use a Claims 
Collection Litigation Report (CCLR) to refer such matters to the 
Justice Department. 

Note 5: Exceptions to the requirement to transfer nontax debt 
delinquent for a period of 180 days to Treasury for collection are (a) 
a debt or claim that: (1) is in litigation or foreclosure; (2) will be 
disposed of under an asset sales program within 1 year after becoming 
eligible for sale, or later than 1 year if consistent with an asset 
sales program and a schedule established by the entity and approved by 
OMB; (3) has been referred to a private collection contractor for 
collection for a period determined by Treasury; (4) has been referred 
by, or with the consent of, Treasury to a debt collection center for a 
period determined by Treasury; or: (5) will be collected under internal 
offset, if such offset is sufficient to collect the claim within 3 
years after the date the debt or claim is first delinquent; and: (b) to 
any other specific class of debt or claim, as determined by Treasury at 
the request of an entity. (31 U.S.C. 3711(g)(2)) Examples include (1) 
debts in bankruptcy meeting the criteria for an automatic stay (11 
U.S.C. 362), (2) foreign debt considered uncollectable by Treasury due 
to foreign diplomacy considerations and affairs of state, (3) debts in 
forbearance or appeals. 

Note 6: Exceptions to the requirement to notify Treasury of nontax debt 
delinquent over 180 days for administrative offset are a claim that has 
been outstanding for more than 10 years or when a statute explicitly 
prohibits using administrative offset or setoff to collect the type of 
claim involved. (31 U.S.C. 3716(e)) Also, this section does not 
prohibit the use of any other administrative offset authority existing. 
(31 U.S.C. 3716(d)) Prior to referring debts to Treasury, an agency 
shall inform the debtor of the amount and nature of the debt (such as 
overpayment, etc.), and actions which may be taken to enforce recovery 
of a delinquent debt. These include (a) offset of any payments which 
the debtor is due, including tax refunds, and salary; (b) referral of 
the debt to a private collection agency; (c) referral of the debt to 
the Department of Justice or agency counsel for litigation; (d) 
reporting of the debt to a credit bureau; (e) reporting of the debt, if 
discharged, to IRS as a potential taxable income. In the future, the 
agency also will need to inform the debtor that the debt may be subject 
to administrative wage garnishment, his/her identity may be published 
or publicly disseminated, and/or the debt may be sold. The notice must 
tell the debtor that he/she has the opportunity (a) to inspect and copy 
records relating to the debt, (b) for a review by the agency; and: (c) 
to enter into a written repayment agreement. 

Note 7: Before an entity refers past-due debt to Treasury for reduction 
of tax refund, it must: (a) notify the person incurring such debt that 
the entity proposes to refer to Treasury for tax refund offset, (b) 
give such person at least 60 days to present evidence that all or part 
of the debt is not past due or not legally enforceable, (c) consider 
any evidence presented by such person and determine that an amount of 
such debt is past due and legally enforceable, (d) satisfy such other 
conditions Treasury may prescribe to ensure the above determination is 
valid and that the entity has made reasonable efforts to obtain 
payment, and: (e) certify that reasonable efforts have been made by the 
entity to obtain payment. (31 U.S.C. 3720A(b)) Treasury issues 
regulations prescribing the times at which entities shall submit 
notices of past-due legally enforceable debts, the manner of submitting 
them, and the information to be contained in them. The regulations also 
specify the minimum amount of debt that may be referred for tax refund 
offset and the fee the entity shall pay to reimburse Treasury for its 
costs. 

Note 8: If the auditor uses multipurpose testing for the compliance 
test and/or compliance control test and/or a substantive test of 
accounts or loans receivable details, the sample items for the 
compliance test and/or compliance control test should be selected using 
the sampling method used for the substantive test as described in FAM 
430. Otherwise, the auditor should select items using attribute 
sampling as discussed in FAM 460.02. As with all sampling applications, 
the auditor should determine the completeness of the test population. 
For efficiency, the auditor should use records that were tested for 
validity, accuracy, and completeness (as well as the other financial 
statement assertions) in conjunction with substantive tests of the 
population. 

810 - Prompt Payment Act: 

Note: The auditor may complete this compliance summary or prepare 
equivalent documentation only if provisions of the Prompt Payment Act 
are significant as indicated on Form 802 - General Compliance Checklist 
at FAM 802-7. OMB guidance on the Prompt Payment Act is included in 5 
C.F.R. Part 1315. 

Table: 

[See PDF for image] 

[End of figure] 

Note: The auditor may complete this program or prepare equivalent 
documentation only if provisions of the Prompt Payment Act are 
significant as indicated on Form 802 - General Compliance Checklist at 
FAM 802-7. These procedures test compliance with the provisions listed 
on the Compliance Summary. OMB Guidance on the Prompt Payment Act is 
included in 5 C.F.R. Part 1315. 

Name of entity: 
Audit period: 
Reviewed by: 

Audit Procedures: 1) Based on the preliminary assessment of compliance 
control effectiveness (as documented on Form 810 - Compliance Summary), 
select a sample of payments from throughout the audit period. (The 
sample size will vary based on the expected effectiveness of compliance 
controls as discussed in FAM 460.02.) Document the sampling approach 
using the documentation in FAM 495 E. See note 6 regarding sampling 
efficiencies and completeness of the population. Sample size: Sample 
selection method; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 2) For each item selected in step 1, obtain the 
supporting documentation for the payment such as the invoice voucher 
package. a) Document the following items in the documentation: 
* invoice number;
* payee;
* invoice amount;
* invoice date;
* invoice receipt date (or other date used for determining compliance 
with this law - see step 2(b));
* payment date;
* amount of interest penalty paid, if any;
* amount of discount taken, if any; and
* appropriation account(s) charged for the expenditure and interest 
penalty, if any. b) For each item selected, note whether the payment 
was made by the required due date. The required due date may be the 
date specified in the contract or, if a date is not specified, 30 days 
after receipt of the invoice (31 U.S.C. 3903(a)(1)(A) and (B)). If 
payment is for meat or meat food products, perishable agricultural 
products, dairy products or construction contracts, consult with OGC to 
determine payment due date. Specific payment due dates to avoid 
interest penalties are established by law for these items. (31 U.S.C. 
3903(a)(2), (3), (4), and (6)) The invoice receipt date is the later of 
(1) the date the entityâs designated representative or office actually 
receives a proper invoice or (2) the 7th day after the date on which, 
in accordance with the terms and conditions of the contract, the 
property is actually delivered or performance of the services is 
actually completed (unless the entity accepted the property or services 
before the 7th day or a longer acceptance period is specified in the 
contract). If the date of actual invoice receipt is not indicated, the 
entity must use the invoice date. (31 U.S.C. 3901(a)(4)(A) and (B)) If 
the payment was made on or prior to the payment due date, perform step 
3. If the payment was made after the payment due date, perform step 4. 
If a discount was taken, perform step 5; Done by/date: [Empty]; Doc 
Ref: [Empty]. 

Audit Procedures: 3) If the payment was made on or prior to the payment 
due date, and no discount was taken, determine that no interest penalty 
was paid. (Note: If the entity did not take advantage of a discount for 
which it was eligible or if an interest penalty was paid when it was 
not owed, the auditor generally should determine the cause of these 
items for purposes of reporting findings.); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 4) If the payment was made after the payment due 
date, determine whether a) an interest penalty was paid; b) the amount 
of the interest penalty was properly calculated; and c) the interest 
penalty was paid out of the appropriation used to pay the related 
expenditures. Review the accounting codes indicated on the expense 
voucher. Determine whether the accounting codes used to record the 
interest penalty are the same as those used for the related expenditure 
and whether the codes and amounts agree with those recorded in the 
budgetary accounting records. (See step 6 regarding proper 
summarization of amounts.) (31 U.S.C. 3902 (a), (b), and (f).) 
Investigate any differences between the amount of interest penalty 
calculated by the auditor and the amount paid by the entity, including 
any instances when an interest penalty was owed but not paid. See note 
5. Investigate any instances when the proper appropriation account was 
not charged. See note 2 regarding the interest rate to be used. See 
notes 3 and 4 regarding the period the penalty should cover; Done 
by/date: [Empty]; Doc Ref: [Empty]. 

Audit Procedures: 4) If the payment was made after the payment due 
date, determine whether a) an interest penalty was paid; b) the amount 
of the interest penalty was properly calculated; and c) the interest 
penalty was paid out of the appropriation used to pay the related 
expenditures. Review the accounting codes indicated on the expense 
voucher. Determine whether the accounting codes used to record the 
interest penalty are the same as those used for the related expenditure 
and whether the codes and amounts agree with those recorded in the 
budgetary accounting records. (See step 6 regarding proper 
summarization of amounts.) (31 U.S.C. 3902 (a), (b), and (f).) 
Investigate any differences between the amount of interest penalty 
calculated by the auditor and the amount paid by the entity, including 
any instances when an interest penalty was owed but not paid. See note 
5. Investigate any instances when the proper appropriation account was 
not charged. See note 2 regarding the interest rate to be used. See 
notes 3 and 4 regarding the period the penalty should cover; Done 
by/date: [Empty]; Doc Ref: [Empty]. 

Audit Procedures: 6) Consider the procedures performed on the entityâs 
budget controls over summarization of expenditure balances as discussed 
in FAM 395 F. If the auditor has assessed the entityâs controls as 
effective in achieving the control objective of summarization of 
expenditure balances, further procedures are not necessary to obtain 
assurance as to whether interest penalties are paid out of the proper 
appropriation account. If the auditor has assessed the controls as 
ineffective, the auditor should perform procedures to determine if the 
entity has properly summarized the expenditure balances as described in 
FAM 495 B; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 7) If the entity does not appear to be in compliance 
based on the results of tests performed, the auditor should discuss 
these matters with OGC and, when appropriate, the Special Investigator 
Unit to conclude if noncompliance actually has occurred and the 
implications of such noncompliance. For any noncompliance noted, the 
auditor should: 
* identify the weakness in compliance controls that allowed the 
noncompliance to occur, if not previously identified during compliance 
control testing;
* report the nature of any weakness in compliance controls and consider 
modification of the opinion on internal control as appropriate (see FAM 
580.32-.61);
* consider the implications of any instances of noncompliance on the 
financial statements; and
* report instances of noncompliance, as appropriate (see FAM 580.67-
.75); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 8) Document conclusions on compliance with each 
provision on Form 810 - Compliance Summary; Done by/date: [Empty]; Doc 
Ref: [Empty]. 
Audit Procedures: 8) Document conclusions on compliance with each 
provision on Form 810 - Compliance Summary; Done by/date: [Empty]; Doc 
Ref: [Empty]. 

Note 1: The required due date is generally the date specified in the 
contract or, if a date is not specified, 30 days after receipt of the 
invoice (31 U.S.C. 3903(a) (1) (A) and (B)) If payment is for meat or 
meat food products, perishable agricultural products, dairy products or 
construction contracts, consult with OGC to determine payment due date. 
Specific payment due dates to avoid interest penalties are established 
by law for these items. (31 U.S.C. 3903(a) (2), (3), (4), and (6)) The 
invoice receipt date is established as the later of (1) the date the 
entityâs designated representative or office actually receives a proper 
invoice or (2) the 7th day after the date on which, in accordance with 
the terms and conditions of the contract, the property is actually 
delivered or performance of the services is actually completed, unless 
the entity accepted the property or services before the 7th day or a 
longer acceptance date is specified in the contract. If the date of 
actual invoice receipt is not indicated, the entity must use the 
invoice date. (31 U.S.C. 3901(a) (4) (A) and (B)) 

Note 2: Interest shall be calculated at the rate set by the Secretary 
of the Treasury under section 12 of the Contract Disputes Act of 1978 
(41 U.S.C. 611) that is in effect at the time the entity accrues the 
obligation to pay a late payment interest penalty. The rates are 
published in the Federal Register. (31 U.S.C. 3902(a)) 

Note 3: The interest penalty shall be paid for the period beginning on 
the day after the required payment date and ending on the date on which 
payment is made. (31 U.S.C. 3902(b)) An interest penalty not paid after 
any 30-day period shall be added to the principal amount of the debt, 
and a penalty accrues thereafter on the combined amount of principal 
and interest. (31 U.S.C. 3902(e)) 

Note 4: A payment is deemed to be made on the date a check for payment 
is dated or an electronic transfer is made.(31 U.S.C. 3901(a) (5)) 

Note 5: The temporary unavailability of funds to make a timely payment 
due for property or services does not relieve the entity head of the 
obligation to pay interest penalties under this law. (31 U.S.C. 
3902(d)) 

Note 6: If the auditor uses multipurpose testing for the complianceest 
and/or compliance control test and/or a substantive test of payments 
details, the sample items for the compliance test and/or compliance 
control test should be selected using the sampling method used for the 
substantive test as described in FAM 430. Otherwise, the auditor should 
select items using attribute sampling as discussed in FAM 460.02. 

As with all sampling applications, the auditor should consider the 
completeness of the test population. For efficiency, the auditor should 
consider using records that were tested for validity, accuracy, and 
completeness (as well as the other financial statement assertions) in 
conjunction with substantive tests of the population. 

Note: The auditor may complete these procedures or prepare equivalent 
documentation only if provisions of the Pay and Allowance System for 
Civilian Employees, as provided primarily in Chapters 51-59 of Title 5, 
U.S. Code, are significant as indicated on Form 802 - General 
Compliance Checklist at FAM 802-8. These procedures test compliance 
with the provisions listed on the Compliance Summary. 

Name of entity: 
Audit period: 
Reviewed by: 

Note: These tests are closely related to procedures performed for 
substantive tests of payroll expense details and multipurpose testing 
in this situation is strongly encouraged. 

Audit Procedures: 1) Based on the preliminary assessment of compliance 
control effectiveness (as documented on Form 812 -Compliance Summary), 
select an appropriate sample of disbursements from the payroll records 
throughout the audit period. (The sample size will vary based on the 
expected effectiveness of compliance controls as discussed in FAM 
460.02). Document the sampling approach using the documentation in FAM 
495 E. See note 2 regarding sampling efficiencies and completeness of 
the population. Sample size: Sample selection method; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 2) For each item selected in 1, note the following 
information: 
* employee name;
* pay period (number and dates);
* amount of gross pay for the period;
* pay rate;
* total hours worked; and
* number of hours worked at regular pay and other pay (i.e., overtime, 
premium pay, etc.); Done by/date: [Empty]; Doc Ref: [Empty]. 

Audit Procedures: 3) For each item selected in 1, obtain the employeeâs 
personnel file and note the following in effect for the pay period 
selected: 
* the employeeâs grade and step and
* the employeeâs pay rate; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 4) For each item selected in 1 a) Calculate the 
amount of gross pay using the hours worked and the employeeâs pay rate 
indicated on the payroll records. Compare the amount of gross pay 
calculated by the auditor to the amount shown on the payroll records 
for the selected pay period and obtain explanation and examine support 
for any differences. Note: To convert basic annual amount to a daily, 
weekly or biweekly amount, divide the annual rate by 2,087 for an 
hourly rate. Multiply the hourly rate by number of either daily hours, 
40 for weekly, or 80 for biweekly amounts. (5 U.S.C. 5504) b) Compare 
the employeeâs pay rate in the payroll records to the appropriate pay 
rate for the employeeâs approved grade and step on the pay schedules 
established by executive order. (Use the approved grade and step 
indicated in the employeeâs personnel records for this test.) Obtain 
explanation and examine support for any differences between the actual 
pay rate for the period selected and the authorized amounts. (5 U.S.C. 
5332, 5343, and 5383) If the employeeâs pay is not set by these pay 
schedules, determine whether the amount paid is properly authorized; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 5) If the entity does not appear to be in compliance 
based on the results of tests performed, the auditor should discuss 
these matters with OGC and, when appropriate, the Special Investigator 
Unit to conclude if noncompliance actually has occurred and the 
implications of such noncompliance. For any noncompliance noted, the 
auditor should: 
* identify the weakness in compliance controls that allowed the 
noncompliance to occur, if not previously identified during compliance 
control testing; 
* report the nature of any weakness in compliance controls and consider 
modification of the opinion on internal control as appropriate (see FAM 
580.32-.61); 
* consider the implications of any instances of noncompliance on the 
financial statements; and: 
* report instances of noncompliance, as appropriate (see FAM 580.67-
.75); Done by/date: [Empty]; Doc Ref: [Empty]. 

Audit Procedures: 6) Document conclusions on compliance with each 
provision on Form 812 - Compliance Summary; Done by/date: [Empty]; Doc 
Ref: [Empty]. 

Audit Procedures: 6) Document conclusions on compliance with each 
provision on Form 812 - Compliance Summary; Done by/date: [Empty]; Doc 
Ref: [Empty]. 

Note 1: To convert basic annual amount to a daily, weekly, or biweekly 
amount, divide the annual rate by 2,087 for an hourly rate. Multiply 
the hourly rate by number of either daily hours, or 40 hours for 
weekly, or 80 hours for biweekly amounts. (5 U.S.C. 5504); 

Note 2: If the auditor uses multipurpose testing for the compliance 
test and/or compliance control test and a substantive test of payroll 
expense details, the sample items for the compliance test and/or 
compliance control test should be selected using the sampling method 
used for the substantive test. Otherwise, the auditor should select 
items using attribute sampling, as discussed in FAM 460.02. As with all 
sampling applications, the auditor should consider the completeness of 
the population. For efficiency, the auditor should consider using 
records that were tested for validity and completeness (as well as the 
other financial statement assertions) in conjunction with substantive 
tests of payroll or other payroll related compliance tests. 

Note 3: If the entity outsources payroll processing, the entity remains 
responsible for compliance. Dividing responsibility for payroll 
processing activities between the entity and the service organization 
could make payroll testing more complicated, although the auditor 
should perform the same testing. The auditor may accomplish this 
testing with the assistance of the service organizationâs auditor, who 
may issue an internal control report on the service organization under 
AU 324 (SAS 70). Another approach may be for the service organizationâs 
auditor to assist the entityâs auditor by performing agreed-upon 
procedures at the service organization (e.g., substantive testing) 
under AT 201 (see FAM 660). 

813 - Civil Service Retirement Act, 5 U.S.C. Chapter 83 Note: The 
auditor may complete this compliance summary or prepare equivalent 
documentation only if provisions of the Civil Service Retirement Act 
are significant as indicated on Form 802 - General Compliance Checklist 
at FAM 802-9. 

Table: 

[See PDF for image] 

[End of table] 

Name of entity: 
Audit period: 
Reviewed by: 

Audit Procedures: 1. Based on the preliminary assessment of compliance 
control effectiveness (as documented on Form 813 - Compliance Summary), 
select a sample of expense amounts for individualsâ gross pay from the 
payroll disbursement records for the audit period for employees covered 
by the Civil Service Retirement Act system (CSRS). (See note 1.) (The 
sample size will vary based on the expected effectiveness of compliance 
controls, as discussed in FAM 460.02). Document the sampling approach 
using the documentation in FAM 495 E. See note 3 regarding sampling 
efficiencies and completeness of the population. These tests should be 
coordinated with other tests of payroll-related expenses and with the 
agreed-upon procedures agency auditors perform for the Office of 
Personnel Management (OPM), per OMB audit guidance, if performed. 
Sample size
Sample selection method; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 2. For each selection made in 1, document the 
following for the pay period selected: 
* the amount withheld for the cost of retirement benefits;
* the amount of basic pay; and
* if indicated in the payroll disbursement records, document the 
retirement plan under which the withholdings were made (CSRS or FERS). 
(Only employees covered by CSRS should be included in this compliance 
test. See FAM 817 for the FERS compliance test.); Done by/date: 
[Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 3. For each item selected in 1, obtain the employeeâs 
personnel file and note the following:
* employee hire date,
* amount of basic pay, and
* the retirement plan under which the employee is covered; Done 
by/date: [Empty]; 
Doc Ref: [Empty]. 

4. For each selection made in 1
(a) Compare the amount of basic pay indicated in the employeeâs 
personnel file with the amount indicated in the payroll records and 
obtain an explanation and examine support for any differences. (This 
procedure would be performed only if not already performed with other 
testing.) (b) Calculate the amount of the withholdings for retirement 
costs based on 7 percent of basic pay for most executive branch 
employees (see note 2 for percentages for other employees) for the 
selected pay period and document the amount in the documentation. 
Compare to the actual amount withheld for the selected pay period and 
obtain an explanation and examine support for any differences. (5 
U.S.C. 8334(a)(1)) (c) Determine whether the entity contributed an 
equal amount for the employeeâs retirement for the selected pay period. 
Obtain explanation and examine support for any differences between the 
employee and entity contributions. (5 U.S.C. 8334(a)(1)); Done by/date: 
[Empty]; 
Doc Ref: [Empty]. 

5. Determine whether amounts contributed by the entity are charged to 
the appropriation or fund used to pay the employee for the selected pay 
period by performing the following procedures: (a) Review the 
accounting codes indicated on the supporting documentation. (b) 
Determine whether the accounting codes used to record the entity 
contribution are the same as those used for the related payroll 
expenditure and whether the codes and amounts agree with those recorded 
in the budgetary accounting records. (This step assumes other payroll 
testing would have included checking that the codes represent the 
proper appropriation.) (c) Consider the procedures performed on the 
entityâs budget controls over summarization of expenditure balances as 
discussed in FAM 395 F. If the auditor has assessed the entityâs 
controls as effective in achieving the control objective of 
summarization of expenditure balances, further procedures are not 
necessary to obtain assurance as to whether the entityâs contributions 
are paid out of the proper appropriation account. If the auditor has 
assessed the controls as ineffective, the auditor should perform 
procedures to determine whether the entity has properly summarized the 
expenditure balances as described in FAM 495 B. (5 U.S.C. 8334 (a)(1)); 
Done by/date: [Empty]; Doc Ref: [Empty]. 

6. Determine whether the entity has effective internal controls over 
the proper summarization of (a) the amounts withheld from employees for 
retirement costs under the law, and (b) the entity contributions for 
remittance to Treasury. If the entity does not have effective controls 
for summarization, test the summarization of the totals that include 
the items selected for testing in step 1; Done by/date: [Empty]; Doc 
Ref: [Empty]. 

7. Compare the combined totals of employee withholdings and entity 
contributions that include each selection made in step 1 to the deposit 
made to Treasury and the remittance sent to OPM and obtain an 
explanation and examine support for any differences. The funds should 
be deposited in the Treasury to the credit of the Civil Service 
Retirement and Disability Fund. (5 U.S.C. 8334(a)(2)); Done by/date: 
[Empty]; 
Doc Ref: [Empty]. 

8. If the entity does not appear to be in compliance based on the 
results of tests performed, the auditor should discuss these matters 
with OGC and, when appropriate, the Special Investigator Unit to 
conclude if noncompliance actually has occurred and the implications of 
such noncompliance. For any noncompliance noted, the auditor should
* identify the weakness in compliance controls that allowed the 
noncompliance to occur, if not previously identified during compliance 
control testing;
* report the nature of any weakness in compliance controls and consider 
modification of the opinion on internal control as appropriate (see FAM 
580.32- .61);
* consider the implications of any instances of noncompliance on the 
financial statements; and
* report instances of noncompliance, as appropriate (see FAM 580.67-
.75); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

9. Document conclusions on compliance with each provision on Form 813 - 
Compliance Summary; Done by/date: [Empty]; Doc Ref: [Empty]. 

Note 1: Employees employed before January 1, 1984, are generally 
covered by the Civil Service Retirement Act (CSRS) and on and after 
that date by the Federal Employeesâ Retirement System Act (FERS) , 
although some CSRS employees may have opted for coverage under FERS. 
Note 2: The percentage to be withheld for the service period after 
December 31, 2000, for (1) most executive branch employees is 7 
percent; (2) Congressional employees, firefighters, and law enforcement 
personnel is 7.5 percent; and (3) Members of Congress is 8 percent. (5 
U.S.C. 8334(a)(1)) Note 3: If the auditor uses multipurpose testing for 
the compliance test and/or compliance control test and a substantive 
test of payroll expense details, the sample items for the compliance 
test and/or compliance control test should be selected by the auditor 
using the sampling method used for the substantive test. Otherwise, the 
auditor should select items using attribute sampling, as discussed in 
FAM 460.02. 

As with all sampling applications, the auditor should consider the 
completeness of the population. For efficiency, the auditor should 
consider using records that were tested for validity and completeness 
(as well as the other financial statement assertions) in conjunction 
with substantive tests of payroll or other payroll related compliance 
tests. 

Note 4: If the entity outsources payroll processing, the entity remains 
responsible for compliance. Dividing responsibility for payroll 
processing activities between the entity and the service organization 
could make payroll testing more complicated, although the auditor 
should perform the same testing. The auditor may accomplish this 
testing with the assistance of the service organizationâs auditor, who 
may issue an internal control report on the service organization under 
AU 324 (SAS 70). Another approach may be for the service organizationâs 
auditor to assist the entityâs auditor by performing agreed-upon 
procedures at the service organization (e.g., substantive testing) 
under AT 201 (see FAM 660). 

Table: 

[See PDF for image] 

[End of figure] 

Name of entity: 
Audit period: 
Reviewed by: 

Audit Procedures: 1. Based on the preliminary assessment of compliance 
control effectiveness (as documented on Form 814 - Compliance Summary), 
select a sample of expense amounts for individualsâ gross pay from the 
payroll disbursement records for the audit period. (The sample size 
will vary based on the expected effectiveness of compliance controls, 
as discussed in FAM 460.02). Document the sampling approach using the 
documentation in FAM 495 E. See note 2 regarding sampling efficiencies 
and completeness of the population.
The auditor should coordinate these tests with other tests of payroll-
related expenses and with the agreedupon procedures agency auditors 
perform for OPM, per OMB audit guidance, if performed. Sample size
Sample selection method; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 2. For each selection made in step 1, document the 
employee, the pay period selected, and the amount withheld for the pay 
period selected, if any, for the cost of health insurance. If 
available, document the health plan enrollment code; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 3. For each selection made in step 1, obtain the 
employeeâs personnel file and note whether the employee elected health 
insurance coverage for the period to which payroll disbursement 
relates. Such coverage should be indicated on OPM form SF 2809. If the 
employee did not elect health insurance coverage, ask why amounts are 
being withheld for the cost of insurance and determine whether any 
entity contributions are being made inappropriately as well; Done 
by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 4. If the employee identified in step 3 elected 
coverage,perform the following steps: (a) Obtain the schedule of health 
insurance costs for all plans published by OPM. Using the enrollment 
code for the plan selected by the employee on OPM form SF 2809, 
calculate the employeeâs portion of the health insurance cost and 
record it in the documentation. Compare it to the amount actually 
withheld for the selected pay period and obtain an explanation and 
examine support for any differences. (5 U.S.C. 8906(d)); 
(b) For each employee in (a), determine the appropriate amount of the 
entityâs contribution for its share of health insurance costs by using 
the OPM schedule of costs. Compare it to the amount actually 
contributed by the entity for the employeeâs health insurance for the 
selected pay period and obtain an explanation and examine support for 
any differences. (See note 1 for part-time career employees.) (5 U.S.C. 
8906(b)(1)); 
(c) For each employee in (b), determine if amounts contributed by the 
entity are charged to the appropriation or fund that is used to pay the 
employee for the selected pay period by performing the following 
procedures: (1) Review the accounting codes indicated on the supporting 
documentation. (2) Determine whether the accounting codes used to 
record the entity contribution are the same as those used for the 
related payroll expenditure and whether the codes and amounts agree 
with those recorded in the budgetary accounting records. (This step 
assumes other payroll testing would have included checking that the 
codes represent the proper appropriation.); 
3. For each selection made in step 1, obtain the employeeâs personnel 
file and note whether the employee elected health insurance coverage 
for the period to which payroll disbursement relates. Such coverage 
should be indicated on OPM form SF 2809. If the employee did not elect 
health insurance coverage, ask why amounts are being withheld for the 
cost of insurance and determine whether any entity contributions are 
being made inappropriately as well; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 5. Determine whether the entity has effective 
controls over the proper summarization of the amounts withheld from 
employees for health insurance costs under this law and the entity 
contributions for remittance to Treasury. If the entity does not have 
effective controls for summarization, test the summarization of the 
totals that include the items selected for testing in step 1; Done 
by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 6. Compare the total cost of health insurance on the 
entityâs records (employee and employer portions) for the selected pay 
period to the deposit made to Treasury and the documentation sent to 
OPM and obtain an explanation and examine support for any differences. 
The funds should be deposited in the Treasury to the credit of the 
Employees Health Benefits Fund. (5 U.S.C. 8909); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 7. If the entity does not appear to be in compliance 
based on the results of tests performed, the auditor should discuss 
these matters with OGC and, when appropriate, the Special Investigator 
Unit to conclude if noncompliance actually has occurred and the 
implications of such noncompliance. For any noncompliance noted, the 
auditor should: 
* identify the weakness in compliance controls that allowed the 
noncompliance to occur, if not previously identified during compliance 
control testing;
* report the nature of any weakness in compliance controls and consider 
modification of the opinion on internal control as appropriate (see FAM 
580.32-.61);
* consider the implications of any instances of noncompliance on the 
financial statements; and
* report instances of noncompliance, as appropriate (see FAM 580.67-
.75); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 8. Document conclusions on compliance with each 
provision on Form 814 - Compliance Summary; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 8. Document conclusions on compliance with each 
provision on Form 814 - Compliance Summary; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Note 1: For part-time career employees, the biweekly entity 
contribution shall be calculated on a prorata basis based on the ratio 
of number of scheduled parttime hours to the number of scheduled 
regular hours for an employee serving in a comparable position on a 
full-time basis. (5 U.S.C. 8906(b) (3)) 

Note 2: If the auditor uses multipurpose testing for the compliance 
test and/or compliance control test and a substantive test of payroll 
expense details, the sample items for the compliance test and/or 
compliance control test should be selected using the sampling method 
used for the substantive test. Otherwise, the auditor should select 
items using attribute sampling, as discussed in FAM 460.02. As with all 
sampling applications, the auditor should consider the completeness of 
the test population. For efficiency, the auditor should consider using 
records that were tested for validity and completeness (as well as the 
other financial statement assertions) in conjunction with substantive 
tests of payroll or other payroll related compliance tests. 

Note 3: If the entity outsources payroll processing, the entity remains 
responsible for compliance. Dividing responsibility for payroll 
processing activities between the entity and the service organization 
could make payroll testing more complicated, although the auditor 
should perform the same testing. The auditor may accomplish this 
testing with the assistance of the service organizationâs auditor, who 
may issue an internal control report on the service organization under 
AU 324 (SAS 70). Another approach may be for the service organizationâs 
auditor to assist the entityâs auditor by performing agreed-upon 
procedures at the service organization (e.g., substantive testing) 
under AT 201 (see FAM 660). 

816 - Federal Employees' Compensation Act (FECA), 5 U.S.C. Chapter 81: 

Note: The auditor may complete this compliance summary or prepare 
equivalent documentation only if provisions of the Federal Employeesâ 
Compensation Act are significant as indicated on Form 802 - General 
Compliance Checklist at FAM 802-10. 

Table: 

[See PDF for image] 

[End of figure] 

Note: The auditor may complete these procedures or prepare equivalent 
documentation only if provisions of the Federal Employeesâ Compensation 
Act are significant as indicated on Form 802 - General Compliance 
Checklist at FAM 802-10. These procedures test compliance with the 
provisions listed on the Compliance Summary for this law. 

Audit Procedures: Note: The provisions identified for testing are 
proceduralbased provisions. As discussed in FAM 460.06, sufficient 
procedures usually are performed by the auditor in conjunction with 
tests of compliance controls for these procedural-based provisions to 
conclude on the entity's compliance without performing additional 
procedures. The auditor should not perform additional procedures to 
obtain evidence regarding compliance with the provisions related to the 
following objectives unless sufficient evidence regarding compliance 
was not obtained during compliance control tests documented on Form 
816 - Compliance Summary; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 1. Reference to conclusions on compliance controls on 
Form 816 - Compliance Summary and indicate whether any additional 
procedures are necessary; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 2. If the entity does not appear to be in compliance 
based on the results of tests performed, the auditor should discuss 
these matters with OGC and, when appropriate, the Special Investigator 
Unit to conclude if noncompliance actually has occurred and the 
implications of such noncompliance. For any noncompliance noted, the 
auditor should
* identify the weakness in compliance controls that allowed the 
noncompliance to occur, if not previously identified during compliance 
control testing;
* report the nature of any weakness in compliance controls and consider 
modification of the opinion on internal control as appropriate (see FAM 
580.32- .61);
* consider the implications of any instances of noncompliance on the 
financial statements; and
* report instances of noncompliance, as appropriate (see FAM 580.67-
.75); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 3. Document conclusions on compliance with each 
provision on Form 816 - Compliance Summary; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Note 1: A statement showing the total cost of benefits and other 
payments made from the Employeesâ Compensation Fund during the 
preceding July 1 through June 30 expense period on account of the 
injury or death of employees or individuals under the jurisdiction of 
the entity is required to be provided by the Secretary of Labor to the 
entity by August 15 of each year. (5 U.S.C. 8147); 

Note 2: Entities not dependent on an annual appropriation shall make 
the required deposit to Treasury from funds under its control during 
the first 15 days of October after receipt of the statement showing the 
costs paid on the entity's behalf. (5 U.S.C. 8147) 

817 â Federal Employeesâ Retirement System Act of 1986 (FERS), 5 U.S.C. 
Chapter 84: 

Note: The auditor may complete this compliance summary or prepare 
equivalent documentation only if provisions of the Federal Employeesâ 
Retirement System Act of 1986 are significant as indicated on Form 
802 - General Compliance Checklist at FAM 802- 10. 

Table: 

[See PDF for image] 

[End of table] 

Note: The auditor may complete these procedures or prepare equivalent 
documentation only if provisions of the Federal Employeesâ Retirement 
System Act of 1986 are significant as indicated on Form 802 - General 
Compliance Checklist at FAM 802-10. 

These procedures are designed to test compliance with the provisions 
listed on the Compliance Summary. 

Name of entity: 
Audit period: 
Reviewed by: 

Audit Procedures: 1. Based on the preliminary assessment of compliance 
control effectiveness (as documented on Form 817 - Compliance Summary), 
select a sample of expense amounts for individualsâ gross pay from the 
payroll disbursement records for the audit period for employees covered 
by the Federal Employeesâ Retirement System (FERS). (See note 1.) (The 
sample size will vary based on the expected effectiveness of compliance 
controls as discussed in FAM 460.02). Document the sampling approach 
using the documentation in FAM 495 E. See note 4 regarding sampling 
efficiencies and completeness of the sample population.
The auditor should coordinate these tests with other tests of payroll-
related expenses and with the agreedupon procedures agency auditors 
perform for OPM, per OMB audit guidance, if performed. Sample size
Sample selection method; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 2. For each selection made in 1, document the 
following for the pay period selected: 
* the amount withheld for the cost of retirement benefits,
* the amount of basic pay, and
* if indicated in the payroll disbursement records, document the 
retirement plan under which the withholdings were made (CSRS or FERS). 
(Only employees covered by FERS should be included in this compliance 
test. See FAM 813 for the CSRS compliance test.); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 3. For each item selected in 1, obtain the employee's 
personnel file and note the
* employee hire date,
* amount of basic pay, and
* the retirement plan under which the employee is covered; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 4. For each selection made in 1 (a) Compare the 
amount of basic pay indicated in the employeeâs personnel file with the 
amount indicated in the payroll records and obtain an explanation and 
examine support for any differences. (This procedure would be performed 
only if not already performed as part of other testing.)
(b) Calculate the amount of the withholdings for retirement costs based 
on 0.8% of basic pay for most employees (see note 2 for percentages for 
certain employees) for the selected pay period and record the amount in 
the documentation. Compare to the actual amount withheld for the 
selected pay period and obtain an explanation and examine support for 
any differences. (5 U.S.C. 8422(a)(1))
(c) Determine whether the entity contributed the correct amount for the 
employeeâs retirement for the selected pay period. Obtain an 
explanation and examine support for any differences between the entity 
contributions and the amount calculated using OPMâs normal cost 
percentage. (5 U.S.C. 8423(a)(1) and 5 U.S.C. 8401(23)); Done by/date: 
[Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 5. To determine if amounts contributed by the entity 
are charged to the appropriation or fund used to pay the employee for 
the selected pay period: (a) Review the accounting codes indicated on 
the supporting documentation.
(b) Determine whether the accounting codes used to record the entity 
contribution are the same as those used for the related payroll 
expenditure and whether the codes and amounts agree to those recorded 
in the budgetary accounting records. (This step assumes other payroll 
testing would have included checking that the codes represent the 
proper appropriation.)
(c) Consider the procedures performed on the entityâs budget controls 
over summarization of expenditure balances as discussed in FAM 395 F. 
If the auditor has assessed the entityâs controls as effective in 
achieving the control objective of summarization of expenditure 
balances, further procedures are not necessary to obtain assurance as 
to whether the entityâs contributions are paid out of the proper 
appropriation account. If the auditor has assessed the controls as 
ineffective, the auditor should perform procedures to determine whether 
the entity has properly summarized the expenditure balances as 
described in FAM 495 B. (5 U.S.C. 8423(a)(1)); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 6 . Determine whether the entity has effective 
controls over the proper summarization of the amounts withheld from 
employees for retirement costs under this law and the entity 
contributions for remittance to Treasury. If the entity does not have 
effective controls for summarization, test the summarization of the 
totals that include the items selected for testing in step 1; Done 
by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 7. Compare the combined totals of employee 
withholdings and entity contributions that include each selection made 
in step 1 to the deposit made to Treasury and the remittance sent to 
OPM and obtain explanation and examine support for any differences. The 
funds should be deposited in the Treasury to the credit of the Civil 
Service Retirement and Disability Fund. (5 U.S.C. 8422(c) and 5 U.S.C. 
8401(6)); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 8. If the entity does not appear to be in compliance 
based on the results of tests performed, the auditor should discuss 
these matters with OGC and, when appropriate, the Special Investigator 
Unit to conclude if noncompliance actually has occurred and the 
implications of such noncompliance. For any noncompliance noted, the 
auditor should
* identify the weakness in compliance controls that allowed the 
noncompliance to occur, if not previously identified during compliance 
control testing;
* report the nature of any weakness in compliance controls and consider 
modification of the conclusion on internal control as appropriate (see 
FAM 580.32- .61);
* consider the implications of any instances of noncompliance on the 
financial statements; and
* report instances of noncompliance, as appropriate (see FAM 580.67-
.75); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 9. Document conclusions on compliance with each 
provision on Form 813 - Compliance Summary; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures: 9. Document conclusions on compliance with each 
provision on Form 813 - Compliance Summary; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Note 1: Employees may be covered by the Civil Service Retirement Act 
(CSRS) or the Federal Employeesâ Retirement System Act (FERS), 
generally depending on their employment dates. Generally, employees 
hired after January 1, 1984 are in FERS.
Note 2: For most employees, the percentage to be withheld is 0.8 
percent (7 percent less the Social Security tax rate). For 
congressional employees, Members of Congress, and law enforcement 
officers, firefighters, air traffic controllers, and nuclear materials 
couriers, the withholding rates are higher. (See 5 U.S.C. 8422(a)(1).)
Note 3: The Office of Personnel Management (OPM) computes the normal 
cost percentage. For example: for FY 2008 it is 11.2 percent for 
regular employees. OPM lists the percentages in its Benefits 
Administration Letters, accessible on its Internet site, 
http://www.opm.gov/asd/htm/bal06.htm (where the 2 digits after "bal" 
represent the calendar year of the letters). (5 U.S.C. 8401(23)) Note 
4: If the auditor uses multipurpose testing for the compliance test 
and/or compliance control test and a substantive test of payroll 
expense details, the sample items for the compliance test and/or 
compliance control test should be selected using the sampling method 
used for the substantive test. Otherwise, the auditor should select 
items using attribute sampling, as discussed in FAM 460.02.
As with all sampling applications, the auditor should consider the 
completeness of the test population. For efficiency, the auditor should 
consider using records that were tested for validity and completeness 
(as well as the other financial statement assertions) in conjunction 
with substantive tests of payroll or other payroll related compliance 
tests. Note 5: If the entity outsources payroll processing, the entity 
remains responsible for compliance. Dividing responsibility for payroll 
processing activities between the entity and the service organization 
could make payroll testing more complicated, although the same testing 
should be performed. The auditor may accomplish that testing with the 
assistance of the service organization's auditor, who may issue an 
internal control report on the service organization under AU 324 (SAS 
70). Another approach may be for the service organization's auditor to 
assist the entityâs auditor by performing agreed-upon procedures at the 
service organization (e.g., substantive testing) under AT 201 (see FAM 
660). 

[End of section] 

Section 900: 
Substantive Testing: 

902 - Related Parties, Including Intragovernmental Activity and 
Balances: 

.01: This section provides guidance on the procedures that the auditor 
should perform with respect to related parties, as described in FAM 280 
and FAM 550. Additionally, in determining whether related party 
activities are properly accounted for and disclosed in the financial 
statements, the auditor should consult AU 334, which provides general 
guidance on related parties relationships and transactions. Further, 
the American Institute of Certified Public Accountants (AICPA) has 
issued a toolkit for accountants and auditors titled Accounting and 
Auditing for Related Parties and Related Party Transactions.[Footnote 
31] This toolkit includes selected authoritative accounting and 
auditing literature, an illustrative audit program, disclosure 
checklist, confirmation letter, and letter to other auditors and is 
available at the AICPAâs website at [hyperlink, http://www.aicpa.org]. 

.02: The U.S. government in its entirety is an economic entity and 
federal entities are components of the U.S. government. Therefore, 
transactions between federal entities are considered intragovernmental 
(Note: Federal Accounting Standards Boardâs (FASAB) Statements of 
Financial Accounting Standards (SFFAS) refers broadly to the cost of 
goods and services between federal entities as âinter-entityâ costs). 
Within the U.S. government, many reporting entities rely on other 
federal entities to help them achieve their missions and fulfill their 
operating objectives. These arrangements may be voluntary, stipulated 
by law, or established by mutual agreement of the entities involved and 
may not be carried out on an armâs-length basis. In many cases, the 
entity receiving goods or services reimburses the providing entity in 
accordance with an agreed-upon price, which may or may not represent 
fair value. However, frequently one entity provides goods or services 
to another entity free of charge (without reimbursement) and the cost 
of such activity is paid by appropriated funds of the providing entity. 
For example, the General Services Administration (GSA) routinely 
provides property management services and contract award and 
administration to other entities without charge. 

.03: In addition, certain federal entities can significantly influence 
the operating policies of the transacting entities. For example, the 
Office of Management and Budget (OMB) provides budget, policy and/or 
general management guidance to other federal entities. The Office of 
Personnel Management (OPM) helps federal civilian entities recruit 
nationwide; sets human resources management rules with the federal 
entitiesâ involvement; administers systems for setting federal 
compensation and benefits; manages federal employee health and life 
insurance programs; and operates retirement programs for federal 
employees. 

.04: In the U.S. government, the most significant related parties are 
other governmental entities. Other possible related parties outside of 
the federal government include states, members of entityâs management, 
and individuals and companies with which members of management may be 
related. State and local governments are technically not related 
parties, since under the constitution they have powers independent of 
the federal government. However, the procedures for related parties may 
also be useful for state and local governments. 

.05: The auditor should make inquiries about the possible existence of 
related parties with material activity and balances that could affect 
the financial statements, including intragovernmental activity and 
balances. The auditor should also inquire about the possible existence 
of related parties involving members of management that may be a 
sensitive conflict-of-interest issue involving potential misuse of 
government assets. The identification of related parties and activity 
and balances is important because (1) U.S. GAAP requires disclosure of 
material related-party transactions and certain control relationships, 
(2) fraudulent financial reporting and misappropriation of assets have 
been facilitated by the use of undisclosed related parties, and (3) 
distorted or misleading financial statements may result in the absence 
of adequate disclosure. 

.06: Financial statement users need related party information to make 
informed judgments. If parties are related, the transactions between 
them may not be based on an armâs-length relationship. For example, 
certain goods or services may be donated or be at an amount that does 
not represent fair value, thus affecting the cost of the receiving 
entityâs operations. In addition, an entity may have transactions with 
another entity based on a common control situation, such as when the 
entity controls or can significantly influence the management or 
operating policies of the transacting entity. In these cases, the 
financial statements need to disclose the nature of the relationship 
since this control relationship could result in operating results or 
financial positions significantly different from those that would have 
been achieved in the absence of such relationship. 

.07: Disclosures include the nature of the relationship between the 
entity and its related parties, a description of the transactions, 
including donations, dollar amounts of transactions that occurred 
during the period, and amounts due to or from related parties as of the 
end of the period. Disclosures may aggregate similar transactions by 
type. In cases of common control relationships, the nature of the 
control relationship is disclosed even if there are no transactions 
between the entities. Related party transactions between components of 
the audited entity that are eliminated in consolidation are not 
disclosed in the consolidated financial statements. However, if 
separate statements of the components are issued, the disclosures are 
presented in the separate component statements. 

.08: The following sections discuss intragovernmental activity and 
balances, and other related parties. 

Intragovernmental Activity and Balances: 

.09: Intragovernmental amounts represent activity and balances within 
or between federal entities. Intradepartmental amounts are activity and 
balances within the same department (a department here means any 
department, agency, administration or other entity designated by OMB as 
a financial reporting entity that is not part of a larger financial 
reporting entity other than the government as a whole). 
Interdepartmental amounts are activity and balances between two 
different departments. The intradepartmental and interdepartmental 
amounts are subsets of intragovernmental activity and balances. FASAB 
uses various terms to define intragovernmental activities. As discussed 
in FAM 902.02, SFFAS No. 4 refers to these activities broadly as inter-
entity costs. SFFAS No. 30 refers to intra-departmental inter-entity 
costs to describe activities within the same department, while 
activities between two different departments are inter-departmental 
inter-entity costs. FASAB Interpretation No. 6 uses âdepartmentâ to 
refer to any department, agency or other financial reporting entity 
that is not part of a larger reporting entity other than the government 
as a whole. The terminology used in FAM 902 is consistent with FASAB 
usage of the terms intra-departmental and inter-departmental 
activities. 

.10: Common examples of intragovernmental activities include: 
* Goods and services provided from one federal entity to another (trade 
transactions), costs incurred, and reimbursable costs (including both 
interdepartmental and intradepartmental activity).
* Transfers between entities based on agreements or legislative 
authority, expended appropriations, taxes and fees collected, 
collections for others, accounts receivable from appropriations, 
transfers payable, and custodial revenue (including both 
interdepartmental and intradepartmental activity).
* Investments in federal securities issued by Treasuryâs Bureau of the 
Public Debt, including interest accruals, interest income and expense, 
and amortization of premiums and discounts.
* Borrowings from the Treasury and the Federal Financing Bank, 
including interest accruals, interest income, and expenses.
* Costs of litigation paid by the Treasury Judgment Fund[Footnote 32] 
(including both interdepartmental and intradepartmental activity). 
* Transactions with OPM relating to employee benefit programs such as 
Federal Employeesâ Retirement System, Civil Service Retirement System, 
and federal employeesâ life insurance and health benefits programs, 
that include routine payments, imputed financing, and accruals.
* Transactions with the Department of Labor (Labor) relating to the 
Federal Employeeâs Compensation Act (FECA) that include routine 
payments to Labor. 

.11: Intradepartmental activities and balances (within the same 
department) are eliminated at the departmentâs consolidated financial 
statements level. Interdepartmental activities and balances (between 
federal entities) are eliminated at the U.S. governmentâs consolidated 
financial statements level. Accounting and Reporting Guidance 

.12: In accounting for and reporting of related parties, including 
intragovernmental activity and balances, see FASAB accounting 
standards, the Financial Standards Accounting Board (FASB) financial 
accounting standards (FAS), OMB reporting guidance contained in OMB 
Circular No. A-136, and Treasury accounting and reporting guidance 
contained in the Treasury Financial Manual (TFM). FAM 902.14-.20 
illustrate these relevant documents in more detail. 

.13: SFFAS No. 4, Managerial Cost Accounting Concepts and Standards, 
and related interpretations, address the accounting standards for inter-
entity cost activities. SFFAS No. 5, Accounting for Liabilities of the 
Federal Government, addresses inter-entity liabilities, including 
federal debt, pensions and retirement benefits. Also, SFFAS No. 7, 
Accounting for Revenue and Other Financing Sources and Concepts for 
Reconciling Budgetary and Financial Accounting, as amended, addresses 
inter-entity revenue and requires disclosure of the nature of 
intragovernmental exchange transactions in which an entity provides 
goods or services at a price less than full cost or does not charge a 
price at all. In accordance with SFFAS No. 4, as amended by SFFAS No. 
30, effective for periods beginning after September 30, 2008, the costs 
of program outputs include the costs of services provided by other 
entities whether or not the providing entity is fully reimbursed. 
Additionally, each entityâs full cost is to incorporate the full cost 
of goods and services that it receives from other entities. The entity 
providing the goods or services has the responsibility to provide the 
receiving entity with information on the full cost of services either 
through billing or other advice. The reporting entities are also to 
consult with the funding and administering agencies, such as OPM, for 
information needed to properly record inter-entity costs. SFFAS No. 4 
directs OMB to designate the costs of goods and services 

received from other entities that are to be recognized and to issue 
guidance identifying these costs.[Footnote 33] 

.14: FASB FAS No. 57, Related Party Disclosures, defines related 
parties and provides examples of related party transactions and general 
guidance on disclosures of transactions between related parties in the 
private sector. Footnote disclosures include disclosure of the nature 
of the relationship between the entity and its related parties, a 
description of the transactions, including donations, dollar amounts of 
transactions that occurred during the period, and amounts due to or 
from related parties as of the end of the period. 

.15: OMB Circular No. A-136, Financial Reporting Requirements, states 
that federal entities are to
* report intragovernmental assets separately from transactions with 
non- Federal entities (entities outside the federal government) on the 
balance sheet; disclose intragovernmental assets separately from other 
non-entity assets; identify intragovernmental liabilities covered by 
budgetary resources and those not covered by budgetary resources (such 
as accrued annual leave); and separately report intragovernmental 
liabilities,
* disclose intragovernmental costs and revenue transactions separately 
from those made with the public and describe the criteria used for the 
cost/revenue classification. Disclosure is to include an explanation 
that makes it clear to the reader that the intragovernmental expenses 
relate to the source of goods and services purchased by the reporting 
entity and not to the classification of related revenue, and
* reconcile intragovernmental balances and transactions at least 
quarterly and submit intragovernmental balance information as a note 
disclosure in the special purpose financial statements. OMB also has 
issued a memorandum titled Business Rules for Intragovernmental 
Transactions that requires agencies to use this A-136 methodology in 
accounting for certain intragovernmental transactions, which should 
help in reconciliation. 

.16: To emphasize entity managementâs responsibility for identifying 
intragovernmental transactions and balances and reconciling data with 
other entities, specific representations are included in the management 
representation letter for intragovernmental activity. These 
representationsof transactions, and reconciliation (or inability to 
reconcile) with entities providing the goods or services (see FAM 
1001). If such disclosure is included in the financial statements and 
the auditor believes that the disclosure is either not supported by 
management, or if management refuses to disclose related party 
transactions, the auditor generally should express a qualified or 
adverse opinion because of the inadequate disclosure, depending on 
materiality, and include the necessary disclosures in a separate 
paragraph of the audit report. 

.17: TFM section âFederal Intragovernmental Transactions Processâ and 
Treasuryâs Federal Intragovernmental Transactions Accounting Policies 
Guide (Treasury Guide) provides governmentwide procedures for federal 
entities to account for and reconcile transactions occurring within and 
between each other. The procedures in this guidance does not apply to 
transactions between federal entities and nonfederal entities. Further 
information is available at the Treasury/Financial Management Serviceâs 
(FMS) web site at [hyperlink, http://www.fms.treas.gov]. 


.18: The TFM also includes procedures for CFO Act departments to 
reconcile and confirm intragovernmental activity and balances as of and 
for the fiscal year ended September 30. Each departmentâs CFO is to 
provide the departmentâs Inspector General (IG) with representations 
indicating whether the department completed the reconciliation. In 
addition, the department is to describe noncompliance with the 
reconciliation requirements. The auditor should include this 
representation in the management representation letter (see FAM 1001). 

.19: The Treasury Guide provides detailed information on accounting and 
reconciling intragovernmental balances. According to the guide, 
entities are to identify trading partners[Footnote 35] for all 
intragovernmental transactions and accumulate detail and summary 
information for each activity by trading partner from their accounting 
records. The trading partner code may be incorporated (1) as part of 
account coding classification, or (2) in the customer/vendor 
identification code in accounts receivable and payable systems. These 
codes are the same as the Treasury index agency code used by the 
Treasury to prepare the governmentwide consolidated financial 
statements. If the two-digit Treasury index agency code is not adequate 
to identify the trading partner, entities may expand the partner code 
to components below the department level and communicate these codes to 
their trading partners. 

.20: The Treasury Guide also indicates that federal entities are to use 
the Standard General Ledger (SGL) account attributes to indicate the 
nature of account balances and to identify intragovernmental 
transactions. For example, the federal âFâ and nonfederal âNâ 
attributes used in conjunction with an SGL account in the Federal 
Agenciesâ Centralized Trial Balance System (FACTS) I submissions enable 
Treasury/FMS to prepare elimination entries for the governmentwide 
financial statements. When the federal attribute âFâ is used with an 
SGL account, a trading partner is to be designated for each transaction 
posted to the account. 

Continuing Issues from Prior Year Audits: 

.21: Prior year audits of federal entity financial statements have 
identified numerous instances where entities did not identify, 
summarize, or reconcile intragovernmental activity and balances by 
trading partner. Controls over the intragovernmental transactions were 
not adequate. For example, one department instructed its components to 
make buyerâs intragovernmental transaction amounts agree with sellerâs 
information without requiring an adequate reconciliation or 
verification if goods or services were provided. Similar issues were 
also identified concerning activity and balances within the same entity 
(intradepartmental). Accordingly, there was no assurance that the 
entity records contained balances that are fairly presented. This has 
been a material weakness at the U.S. government consolidated financial 
statement level in that entity intragovernmental accounts do not 
completely eliminate in consolidation. 

Intragovernmental Payment and Collection (IPAC) System: 

.22 IPAC is the primary method used by most federal entities to 
electronically bill and/or pay for services and supplies within the 
U.S. government. IPAC is used to communicate to Treasury and the 
trading partner agency that the online billing and/or payment for 
services and supplies has occurred. IPAC, however, is not intended to 
be a control over the intragovernmental transactions (reciprocal 
accounts). IPAC was not designed as an accounting system and does not 
require trading partners to record transactions at the same time or in 
the same amounts. In addition, unreconciled IPAC differences could 
affect the existence and completeness of intragovernmental activity and 
balances. 

.23: The IPAC billing entity initiates an IPAC transaction either as a 
collection or a payment. The IPAC customer entity receives an IPAC 
transaction either as a payment or a collection. Monthly, the Treasury 
compares the customer and billing amounts from Statement of 
Transactions (FMS 224) reported by the entity with the IPAC data. If 
there is a difference, a Statement of Differences (SOD),[Footnote 36] 
including a detailed list of all transactions charged or credited to a 
particular agency location code, is generated monthly. The SOD is an 
Internet application of the Government On-Line Accounting Link 
Information Access System II (GOALS II/IAS). 

Entities are to investigate the differences and make any necessary 
corrections on their next Statement of Transactions. 

.24: The auditor generally should test the entityâs IPAC reconciliation 
procedures to determine if the entity performs the reconciliation and 
researches and resolves differences reflected on the Statement of 
Differences properly and timely. The auditor may coordinate the 
procedures with Fund Balance with Treasury (FBWT) audit procedures to 
assess the effectiveness of the entityâs IPAC reconciliation (see FAM 
921). .25 The auditor generally should also design audit procedures to 
understand whether the entity uses other systems (EFT, check, standard 
forms used to transfer funds between appropriations, credit cards, 
etc.) in addition to the IPAC system to process intragovernmental 
activity and balances. The auditor generally should determine whether 
these systems affect the accuracy of intragovernmental activity and 
balances. (See audit procedures below and FAM 902 C.)
Audit Procedures
.26 The auditor should identify the risk of material misstatement in 
determining the nature, extent, and timing of procedures for auditing 
intragovernmental activity and balances and in evaluating the results 
of these procedures. Throughout the audit, the auditor evaluates the 
possible existence of material intragovernmental activity and balances 
that could affect the financial statements. The auditor also evaluates 
information concerning material intragovernmental activity and balances 
to determine the adequacy and appropriateness of financial statement 
disclosures. .27 During the planning phase, the auditor should assess 
inherent, fraud, and control risk. The auditor evaluates several 
conditions to assess inherent risk related to intragovernmental 
activity and balances. For example, inherent risk may exist because of 
the nature of the intragovernmental activity, such as a significant 
volume or dollar amount of transactions, number of trading partners, or 
complexity of transactions. The auditor should also assess the impact 
of the risk of material misstatement on control testing and substantive 
procedures. The auditor should determine whether similar conditions 
continue to exist and should understand managementâs response to such 
conditions. .28 In understanding the entity, including its internal 
control, the auditor should obtain an understanding of management 
responsibilities and the relationship of each component to the total 
department and of each department to other departments. The auditor 
should also obtain an understanding of the entityâs operations to 
identify, respond to, and resolve accounting and auditing problems 
early in the audit. This includes:
* knowledge of the entityâs trading partners,
* the nature of intragovernmental transactions that occur,
* the volume and dollar amount of transactions, and
* managementâs attitude and awareness with respect to reconciliations 
of intragovernmental activity and balances. 

.29: The auditor should evaluate the design of the entityâs internal 
control over intragovernmental activity and balances and whether the 
design was implemented. This begins with the auditor identification of 
policies and procedures that pertain to the entityâs ability to record, 
process, summarize, and report intragovernmental activity and balances 
by trading partner. A good design emphasizes the importance of 
identifying and classifying intragovernmental transactions by trading 
partner when they are initiated and on all documentation thereafter. 
Without this initial identification, the entityâs accounting system may 
not be able to adequately track intragovernmental activity and 
balances. 

.30: Without proper and timely reconciliation of intragovernmental 
activity and balances, misstatements in these account balances at the 
component and/or department level could materially affect the balances 
at the governmentwide level (as well as at the department or component 
level). In addition, when preparing consolidated financial statements, 
the preparer eliminates intragovernmental activity and balances within 
and between departments or components. Because the amounts reported for 
entity trading partners for certain intragovernmental accounts could be 
significantly out of balance, the preparer would not be able to 
eliminate these accounts in the consolidated financial statements. The 
auditor may advise the entity about the need for monthly confirmation 
and reconciliation of these transactions with trading partners, as 
annual or quarterly reconciliations may not be sufficient to detect and 
resolve misstatements promptly. 

.31: If the auditor determines that the entityâs reconciliation control 
for intragovernmental transactions is not effectively designed and 
implemented, the auditor should consider the effect on the risk of 
material misstatement. Where intragovernmental transactions are or 
could be material, significant additional work is usually necessary to 
express an unqualified opinion. In those cases where the auditor finds 
significant deficiencies or material weaknesses in the 
intragovernmental reconciliation control and no other mitigating 
controls exist, the auditor must disclose this in the report or opinion 
on internal controls (FAM 580). 

.32: OMB audit guidance requires that agreed-upon procedures be 
performed by entities where there is evidence and a history of systemic 
or recurring problems in accounting, reporting, or reconciling 
intragovernmental balances, beginning with the third quarter of fiscal 
year 2007. These procedures are intended to assist with accounting for 
and eliminating intragovernmental activity and balances in the 
preparation of department and governmentwide financial statements and 
reports. 

.33: To avoid duplicate procedures, the auditor should consider the 
agreedupon procedures performed by the entity in the above paragraph 
when designing the tests for intragovernmental activity and balances. 
Examples of the account risk analysis (ARA), specific control 
evaluation (SCE), and audit procedures for the audit of 
intragovernmental activity and balances are in FAM 902 A, FAM 902 B, 
and FAM 902 C, respectively. The ARA, SCE(s), and audit procedures 
generally are customized by the auditor for the particular entity. For 
example, if the auditor determines that the intragovernmental accounts 
receivable line item is significant, the auditor generally should 
prepare a separate ARA, SCE(s), and audit procedures forthe 
intragovernmental accounts receivable account and its related 
accounting applications. (Note that a single SCE for a line-
item/accountrelated accounting application is presented. There are 
likely transactionrelated accounting applications listed on the ARA 
that also would have SCEs.) In addition, for efficiency, the auditor 
may coordinate tests of intragovernmental activity and balances with 
tests of nonfederal activity and balances.
Other Related Parties 

.34: To effectively plan and perform an audit, the auditor generally 
should understand the entityâs organization and its characteristics. 
The auditor generally should identify the possible existence of other 
related parties and other related party transactions throughout the 
audit and determine whether they are properly accounted for and 
disclosed (see FAM 902.07). As indicted at FAM 902.04-.05, other 
related party transactions may involve members of entityâs management, 
and individuals and companies with which members of management may be 
related. While these transactions are usually not material to the 
entityâs financial statements, there may be a sensitive conflict-of-
interest issue involving the potential misuse of government assets. 

.35: The auditor may inquire of management, review major contracts or 
agreements, and read financial disclosure statements. The auditor 
should document the names of related parties so audit staff members are 
aware of them as they conduct the audit. Tests of transactions with 
such parties may be coordinated with sensitive payments work, as 
discussed in FAM 280.05. 

.36: In addition to the procedures on related parties, the auditor also 
may inquire about other parties that may not be related parties, but 
that the entity may wish to disclose because of a public perception 
that they might be related, although professional standards do not 
require disclosure if the parties are not related (as defined in AU 
334). FAM 902 C provides examples of audit procedures for other related 
parties as well as for intragovernmental activity and balances. The 
auditor may customize the steps for the particular audited entity. 

Practice Aids: 

.37: The following practice aids are presented as appendixes:
* FAM 902 A â Example Account Risk Analysis (ARA),
* FAM 902 B â Example Specific Control Evaluation (SCE), and
* FAM 902 C â Example Audit Procedures; 

902 A - Example Account Risk Analysis for Intragovernmental Activity 
and Balances: 

Table: 

[See PDF for image] 

[End of table] 

902 C â Example Audit Procedures for Intragovernmental and Other 
Related Partiesâ Activity and Balances: 

Entity: 
Period of financial statements: Job code: 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: I. Planning Phase Obtain an understanding of the 
entity and its operations, including its internal controls that are 
significant to the audit of intragovernmental and other related party 
activity and balances (see FAM 220) by
1) Obtaining an understanding of significant accounting and auditing 
issues by reading the entityâs prior yearâs accountability and 
auditorsâ reports; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 2) Identifying the entityâs accounting and 
reporting requirements and applicable auditing standards for 
intragovernmental and other related party activity and balances by 
reading
a) SFFAS No. 4, Managerial Cost Accounting Concepts and Standards; 
SFFAS No. 5, Accounting for Liabilities of the Federal Government; 
SFFAS No. 7, Accounting for Revenue and Other Financing Sources and 
Concepts for Reconciling Budgetary and Financial Accounting; Statement 
of Financial Accounting Standards No. 57, Related Party Disclosures; AU 
Section 334, Related Parties; AU Section 558, Required Supplementary 
Information; OMB bulletin on Form and Content of Agency Financial 
Statements; Treasury/ Financial Management Serviceâs (FMS) Federal 
Intragovernmental Transactions Accounting Policies Guide; and Treasury 
Financial Manual section âFederal Intragovernmental Transactions 
Process.â; 
b) The entityâs internal procedures for identifying, accounting, 
reconciling and reporting intragovernmental and other related party 
activity and balances; 
c) The entityâs process for identifying, classifying, and reporting 
intragovernmental activity and balances requiring elimination at the 
consolidated departmentwide or governmentwide level; Done by/date: 
[Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 3) To identify the impact of systems/methods for 
processing, accounting, and financial reporting of intragovernmental 
and other related party activity and balances, perform the following 
procedures a) Interview the entityâs key management about processes, 
for example, the systems/methods that are used to process 
intragovernmental and other related party activity and balances (e.g., 
IPAC, credit cards, standard forms used to transfer funds between 
appropriations, and others). b) Obtain estimates of the approximate 
number and dollar amount of intragovernmental and other related party 
activity and balances (this could be based on the prior year) that are 
processed by each significant system/method (see FAM 270). c) Consider 
coordinating this work with the audit of like nonfederal activity and 
balances (i.e., similar transactions by the entity with parties other 
than other federal entities); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 4) To identify the intragovernmental and other 
related party activity and balances, perform the following procedures
a) Ask entity management to identify i) The names of all related 
parties (intragovernmental and others) and whether there were 
transactions with them during the period. Other possible related 
parties outside of government might be individuals and companies with 
which members of
management may be related or otherwise be able to significantly 
influence the management or operating policies; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 4) To identify the intragovernmental and other 
related party activity and balances, perform the following procedures
a) Ask entity management to identify i) The names of all related 
parties (intragovernmental and others) and whether there were 
transactions with them during the period. Other possible related 
parties outside of government might be individuals and companies with 
which members of
management may be related or otherwise be able to significantly 
influence the management or operating policies. ii) The nature and 
terms of all significant activities and balances. For example, (1) for 
a seller entity,
(a) Obtain information on the types of significant revenues, any markup 
percentage(s) over full cost, and the settlement/payment due date. (b) 
Inquire as to how the full cost of products and services sold is
determined.
(2) for a buyer entity,
(a) Inquire about the minimum
requirements (business rules) that must be met before an
intragovernmental trading partner may provide goods or services.
(3) Inquire as to any amounts that are in dispute at year-end; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 4) To identify the intragovernmental and other 
related party activity and balances, perform the following procedures
a) Ask entity management to identify i) The names of all related 
parties (intragovernmental and others) and whether there were 
transactions with them during the period. Other possible related 
parties outside of government might be individuals and companies with 
which members of
management may be related or otherwise be able to significantly 
influence the management or operating policies; iii) Determine whether 
the audited entity receives services without reimbursement or for less 
than full reimbursement. For example, donated services, such as space 
or detailed employees. If so, ask if the entity is complying with U.S. 
GAAP and/or OMB requirements with respect to accounting and reporting 
treatment of these transactions. Also, if applicable, ask about the 
approximate fair value and/or financial statement disclosure for such 
goods and/or services.
iv) Determine whether the entity centrally maintains contracts, 
agreements, and other documentation for the terms of all significant 
transactions with related parties. Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 4) To identify the intragovernmental and other 
related party activity and balances, perform the following procedures
a) Ask entity management to identify i) The names of all related 
parties (intragovernmental and others) and whether there were 
transactions with them during the period. Other possible related 
parties outside of government might be individuals and companies with 
which members of
management may be related or otherwise be able to significantly 
influence the management or operating policies; iii) Determine whether 
the audited entity receives services without reimbursement or for less 
than full reimbursement. For example, donated services, such as space 
or detailed employees. If so, ask if the entity is complying with U.S. 
GAAP and/or OMB requirements with respect to accounting and reporting 
treatment of these transactions. Also, if applicable, ask about the 
approximate fair value and/or financial statement disclosure for such 
goods and/or services.
iv) Determine whether the entity centrally maintains contracts, 
agreements, and other documentation for the terms of all significant 
transactions with related parties; b) Review, if any
i) Entity policy for advance approval of related party transactions by 
senior management. ii) Entity policy for requiring disclosure by 
employees to appropriate officials of potential conflicts of interest, 
such as related party transactions by employees of the entity. Also 
determine if summaries of such transactions are communicated to 
financial management for its consideration. iii) Vendor and customer 
master file listings, major contracts, and IPAC activity for 
intragovernmental or other related parties. Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 5) Provide audit staff with the names of known 
intragovernmental and other related party trading partners, a 
description of the nature of significant transactions with each, and 
such other information as considered necessary to assist them in 
planning and performing other sections of the audit; Done by/date: 
[Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 6) Summarize results of the Planning Phase; Done 
by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 7) Document the auditorâs preliminary assessment 
of risk of material misstatement related to intragovernmental and other 
related party activities and balances in the ARA form (FAM 902 A) or 
equivalent; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 7II. Internal Control Phase Understand and 
document the design of the internal control for identifying, accounting 
for, eliminating, and reporting intragovernmental and other related 
party activity and balances (existence, completeness, valuation, rights 
and obligations, presentation and disclosure) (see FAM 320). Also 
determine if the design has been implemented. 1) Determine through 
inquiry of management, walkthroughs, review of prior yearsâ 
documentation and other means, how and when the entity identifies 
intragovernmental and other related party transactions. a) Determine 
whether the entity identifies transactions by trading partner when they 
are initiated and on all documentation thereafter. b) If the entity 
uses trading partner codes, determine the relationship of such codes to 
other document identifiers such as vendor codes. For example, trading 
partner codes may be integral to each vendor code, or it may be 
necessary to crosswalk vendor codes to a file of trading partner codes. 
c) If the entity does not use trading partner codes, determine how the 
entity identifies, analyzes, and accumulates intragovernmental activity 
and balances. For example, the entity may derive such amounts through 
off-line manual processes after the fact.
d) Determine when the entity recognizes each significant category of 
intragovernmental and other related party transactions. For example, 
when an invoice is received, when processed through IPAC, when goods or 
services are received, when notified by the seller that an agreed-upon 
stage of completion has been achieved. Determine whether the entityâs 
policy in recording intragovernmental and other related party 
transactions is appropriate. e) Determine whether the entity and its 
trading partners use consistent reciprocal ledger accounts[Footnote 37] 
and categories of activity and balances for recording and reconciling 
such amounts. If so, ask what processes are in place to provide 
management with reasonable assurance that trading partners are 
recognizing reciprocal transactions in the same period, for the same 
amount, and by consistent or compatible accounting methods.
f) Determine if the entity complies substantially with the SGL at the 
transaction level as it applies to intragovernmental activity and 
balances. (Note: The SGL accounts used should include attributes for 
intragovernmental activity and balances that identify (a) that these 
accounts contain intragovernmental transactions (e.g., attribute âFâ), 
and (b) the trading partner (e.g., Treasury trading partner code â20â).)
g) Identify policies and procedures for confirming intragovernmental 
and other related party activity and balances with trading partners. h) 
Determine how often the entity reconciles its related party activity 
and balances with its trading partners. Also inquire as to whether 
adjustments identified as necessary through the reconciliation process 
have been properly recognized in the financial records. If not, ask 
why. If the entity did not perform reconciliations, ask why not; Done 
by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 7II. Internal Control Phase Understand and 
document the design of the internal control for identifying, accounting 
for, eliminating, and reporting intragovernmental and other related 
party activity and balances (existence, completeness, valuation, rights 
and obligations, presentation and disclosure) (see FAM 320). Also 
determine if the design has been implemented. 1) Determine through 
inquiry of management, walkthroughs, review of prior yearsâ 
documentation and other means, how and when the entity identifies 
intragovernmental and other related party transactions. a) Determine 
whether the entity identifies transactions by trading partner when they 
are initiated and on all documentation thereafter. b) If the entity 
uses trading partner codes, determine the relationship of such codes to 
other document identifiers such as vendor codes. For example, trading 
partner codes may be integral to each vendor code, or it may be 
necessary to crosswalk vendor codes to a file of trading partner codes. 
c) If the entity does not use trading partner codes, determine how the 
entity identifies, analyzes, and accumulates intragovernmental activity 
and balances. For example, the entity may derive such amounts through 
off-line manual processes after the fact.
d) Determine when the entity recognizes each significant category of 
intragovernmental and other related party transactions. For example, 
when an invoice is received, when processed through IPAC, when goods or 
services are received, when notified by the seller that an agreed-upon 
stage of completion has been achieved. Determine whether the entityâs 
policy in recording intragovernmental and other related; e) Determine 
whether the entity and its trading partners use consistent reciprocal 
ledger accounts1 and categories of activity and balances for recording 
and reconciling such amounts. If so, ask what processes are in place to 
provide management with reasonable assurance that trading partners are 
recognizing reciprocal transactions in the same period, for the same 
amount, and by consistent or compatible accounting methods.
f) Determine if the entity complies substantially with the SGL at the 
transaction level as it applies to intragovernmental activity and 
balances. (Note: The SGL accounts used should include attributes for 
intragovernmental activity and balances that identify (a) that these 
accounts contain intragovernmental transactions (e.g., attribute âFâ), 
and (b) the trading partner (e.g., Treasury trading partner code â20â).)
g) Identify policies and procedures for confirming intragovernmental 
and other related party activity and balances with trading partners. h) 
Determine how often the entity reconciles its related party activity 
and balances with its trading partners. Also inquire as to whether 
adjustments identified as necessary through the reconciliation process 
have been properly recognized in the financial records. If not, ask 
why. If the entity did not perform reconciliations, ask why not; i) 
Determine whether selling and buying entities have established 
processes to facilitate the timely reconciliation of activity and 
balances. (Note: The selling entity is typically responsible for 
furnishing detailed transaction information to facilitate 
reconciliation.)
j) Inquire as to the entityâs year-end cut-off procedures related to 
intragovernmental and other related party activity. Determine if 
procedures are designed to provide assurance that intragovernmental 
activities occurring in the current period are recorded in the current 
period. (Use the above trading partner procedures to detect cutoff 
errors in the reconciliation process.) k) Identify the entityâs 
policies and procedures for intra-entity elimination.
l) Determine whether the entity maintains transaction logs or detailed 
records of transactions to identify the postings to SGL accounts and to 
facilitate the reconciliation process. Determine if the logs include 
sufficient information to enable identification and location of 
supporting documents.
m) Determine whether the entity reviews and approves monthly account 
analyses of intragovernmental accounts, examines budget-toactual, and 
performs trend analyses.
2) Coordinate with the results of audit procedures for other cycles to 
determine if the entity has internal control deficiencies related to 
intragovernmental and other related party activity and balances. For 
example, to determine if the entity has control issues related to 
intragovernmental activity and balances, coordinate with the results of 
FBWT audit procedures to determine if the entity has issues on its 
FBWT/IPAC reconciliation such as material unreconciled amounts and aged 
unreconciled IPAC differences. 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 3) Perform walkthroughs of processes for 
identifying, accounting, reconciling, confirming, eliminating, and 
reporting intragovernmental and other related party activity and 
balances to obtain or update the auditorâs understanding of these 
procedures and preliminarily assess the effectiveness of the design of 
these controls. a) Walkthrough the process from initiation to recording 
in the general ledger and inclusion in the financial statements or 
elimination for each significant type of intragovernmental and other 
related party activity and balances. b) Walk through the 
management/entity approval process of payments to trading partners. 
(Note: Prior audits have identified instances where payment controls 
for intragovernmental transactions were not sufficient. For example, 
the seller entity made payments to trading partners without verifying 
whether goods or services were provided.)
c) Identify and document any differences in processing nonfederal and 
intragovernmental and other related party activities and balances. d) 
If the entity performs reconciliations of intragovernmental activity 
and balances with trading partners during the year, walk through both 
interim and year-end reconciliation processes.
4) Prepare or update the cycle memorandum (FAM 390), flowcharts (FAM 
395 H and I), ARA form (FAM 902 A) and SCE form (FAM 902 B), or 
equivalents.) Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: III. Testing Phase: A. Intragovernmental 
accounts: 
For intragovernmental accounts, if the auditor preliminarily determines 
that the entityâs reconciliation and confirmation controls with trading 
partners are effectively designed and placed in operation, the auditor 
generally should test the entityâs policies and procedures to determine 
if the reconciliation and confirmation controls are effective and if 
intragovernmental balances appear reasonable. 1) If material 
differences exist in intragovernmental activity and balances, prepare 
an agreed-upon procedures report beginning with third quarter 2007. 
(See Treasury TFM; OMB audit guidance on Intragovernmental Balances: 
Supplementary and Agreed-Upon Procedures (AUP), sections 13.32 and 
13.33; and FAM 660.) 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 2) Compare the amounts in the reconciliations to 
supporting documentation. 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 3) Trace the adjustments, if any, identified in 
the reconciliation process to the entityâs financial records. Done 
by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 4) Compare the amounts, excluding intra-
departmental activity and balances, in the audited department 
consolidated financial statements to such amounts in the departmentâs 
final FACTS I or FACTS Notes reports to FMS.
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 5) If necessary, the auditor may design 
additional procedures to achieve financial audit objectives. For 
example: Reconciliation/confirmation (existence, completeness, 
valuations, rights and obligations, and classification); 
* According to OMBâs Circular A-136, Financial Reporting Requirements, 
entities are required to reconcile intragovernmental balances and 
transactions at least quarterly. Test reconciliations to determine if 
the entityâs reconciliation control is effective throughout the year 
and each trading partner has a separate reconciliation.
* This reconciliation/confirmation also may be used for within entity 
reconciliation/confirmation (intraentity). a) Determine the 
completeness of the population by comparing the trading partners on the 
reconciliations and confirmation forms to subsidiary records or the 
entityâs trading partner list obtained during the planning phase. b) 
For each reconciliation/confirmation: i) Determine if the 
reconciliation/confirmation was reviewed and approved by appropriate 
personnel.
ii) Compare total amounts and SGL accounts of the activity and balances 
reported on the reconciliation/confirmation form with the general and 
subsidiary ledger accounts, and the total amounts to audited financial 
statements and footnote disclosures. If differences are found, document 
each such difference. Determine the potential impact on the financial 
statements and post the differences identified to the Schedule of 
Uncorrected Misstatements (FAM 595 C-4); iii) Test whether the entity 
used appropriate SGL accounts and whether these SGL accounts include 
the proper attribute(s) to indicate that they result from 
intragovernmental transactions. For example, when the federal attribute 
âFâ is used with an SGL account, a trading partner should be designated 
for each transaction posted to the account. Entities can modify SGL 
accounts listed on the form to be more specific.
iv) Determine whether the entity is using the reciprocal accounts 
delineated in the FMS Guide. Entities should use these accounts to 
account for intragovernmental activity and balances in the specified 
categories. Use of these reciprocal accounts will facilitate the 
reconciliation and confirmation process. v) For fiduciary activity and 
balances, compare amounts on the reconciliation forms to amounts on the 
Intragovernmental Fiduciary Confirmation System. (Note: Fiduciary 
activity and balances include loans from the Federal Financing Bank and 
Bureau of Public Debt, investments with Bureau of Public Debt, Federal 
Employeesâ Compensation Act transactions with DOL, and employee benefit 
transactions with OPM. The seller entityâ Bureau of Public Debt, 
Treasury, Federal Financing Bank, DOL, and OPMâshould make balances 
information and other details available through the Intragovernmental 
Fiduciary Confirmation System for the buyer entitiesâ use in 
reconciling amounts to their records. The Intragovernmental Fiduciary 
Confirmation System is the official confirmation system for federal 
entities that engage in fiduciary intragovernmental transactions with 
Bureau of Public Debt, Federal Financing Bank, OPM, and DOL.); vi) For 
transfers, test whether
(1) the classification of transfers as expenditure or nonexpenditure is 
proper, and
(2) the accounting and reporting are appropriate.
vii) For trust fund transfers such as highway and airport trust funds, 
also test whether the trust fund amounts are properly accounted for and 
maintained in accordance with laws that established these funds. (Note: 
Test either by the trust fund auditor or as agreed-upon procedures by 
the auditor who audits the entity that collects the revenue for it.) 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: Reconciliation adjustments and differences (all 
intragovernmental categories)
Exhibit I to FAM 902 C provides an illustration of a reconciliation 
tool that may be used to summarize reconciling items and prove amounts 
between a buyer and a seller entity.
b) Determine whether adjustments, if any, are supported and timely by
i) Tracing adjustments and reconciling items identified in the 
reconciliation process to the entity general and subsidiary ledgers. 
ii) Examining adjustments and supporting documents to determine if
(1) The entity timely and properly performed the research and 
identified causes for differences.
(2) The adjustments are agreed upon by both entities and made to proper 
SGL accounts. Examples of adjustments and reconciling items are:
(a) Adjustments in estimated
accruals: For example, the seller entity has recorded unbilled
revenue and the buyer entity was not timely advised of the
estimated accrual.
(b) Adjustments due to timing
differences: For example, timing differences caused by a buyer
entityâs delay in recording IPAC transactions into proper SGL
accounts.
(c) Reconciling item for capitalization of assets: For example, the 
buyer entity purchased property and
equipment or inventory and
recorded them as assets. 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 5) If necessary, the auditor may design 
additional procedures to achieve financial audit objectives. For 
example: Reconciliation/confirmation (existence, completeness, 
valuations, rights and obligations, and classification); iii) Obtain or 
prepare aging of outstanding unadjusted reconciling amounts for all 
significant intragovernmental balance sheet accounts. Identify old 
and/or unusual reconciling items and obtain explanations from the 
entity; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: iv) Review final yearend reconciliation for any 
accounting policy differences and determine if the entity explains the 
causes of these differences on the final reconciliation. The causes of 
these differences might be differences in accounting standard 
requirements such as different amortization methods for discounts and 
premiums. For example, one trading partner may use the interest method 
and the other trading partner may use the straight-line method to 
amortize discounts/premiums. However, there should be no material 
unresolved differences on the final year-end reconciliation forms and 
entities should resolve all differences with their trading partners; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: v) Determine the extent of unadjusted 
differences at year-end and assess their materiality on the financial 
statement line item and the overall financial statements; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: vi) If adjustments are made subsequent to the 
completion of the confirmations (during the audit period), determine if 
the entity revised the reconciliation and confirmation and submitted 
the updated data to FMS; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 6) Summarize the results of testing by 
concluding on the effectiveness of the entityâs reconciliation and 
confirmation controls. Propose any adjustments on the Schedule of 
Uncorrected Misstatements (FAM 595 C); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 7) Determine whether to change the risk of 
material misstatement and revise audit procedures based on the results 
of testing; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: B. Intragovernmental activity and balances: For 
intragovernmental activity and balances, if the auditor preliminarily 
determines that the entityâs reconciliation/ confirmation control with 
trading partners is not appropriately designed, or if the 
reconciliations and/or confirmations are not performed by the entity, 
determine the effect on substantive procedures and on the audit report. 
Determine whether to modify the audit opinion when no reconciliation 
and other mitigating controls exist, and to disclose a significant 
deficiency or material weakness in internal controls. When 
intragovernmental activity and balances are material, significant 
additional work may also be necessary to express an unqualified opinion 
on the financial statements, such as:
1) Coordinating work with auditor testing other related line items and 
test existence, completeness, valuation, rights and obligations, and 
classification of intragovernmental activity and balances by a) 
Determining in conjunction with cash receipts, revenues, and accounts 
receivable testing, if intragovernmental accounts receivable were 
collected subsequent to test date. Examine supporting documentation for 
the posting of collections to the cash records and determine if 
intragovernmental revenues and receivables were included in nonfederal 
balances. b) Testing completeness of intragovernmental activity and 
balances by reviewing vendor and customer master files to determine if 
intragovernmental vendors and customers are properly included in 
intragovernmental accounts. c) Sending confirmation requests to trading 
partners for both balance sheet and net cost activity and balances. If 
the risk of material misstatement is assessed as high, apply similar 
confirmation procedures to nonfederal accounts. Cut off test (existence 
and completeness) d) Determine if there are unrecorded transactions and 
if the transactions are recorded in the correct period by
i) Coordinating with the FBWT audit team to review results of the FBWT 
reconciliation tests. For example, review IPAC transactions 
reconciliations and the recording of IPAC transactions in accounting 
systems; consider how timely and whether appropriate; review IPAC 
transactions after 9/30âsubsequent billing and collecting 
transactionsâto determine unrecorded transactions at 9/30. ii) 
Searching for unrecorded revenue, accounts receivable, purchases, and 
accounts payable (completeness). For example
(1) To search for unrecorded revenue and accounts receivable, select 
invoices for trading partners recorded in the xx-day period subsequent 
to year-end. Trace the selected invoices to shipping records or 
evidence of service performance. Determine whether the revenue and 
accounts receivable were recorded in the correct period. Alternatively, 
select from shipping records to trading partners prior to year-end and 
trace to invoices.
(2) To test the completeness of amounts recorded as accounts payable at 
the balance-sheet date, select disbursements after the end of the audit 
period and test if the amounts were recorded in payables; Done by/date: 
[Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 2) Review the test results of other related line 
items to determine if there are issues related to existence, 
completeness, valuation, rights and obligations, and classification in 
the tested accounts and transactions and the impact on the 
intragovernmental activity and balances. In testing these other 
accounts, consider whether items tested were from trading partners; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 3) Summarize results of testing and propose any 
adjustments on the Schedule of Uncorrected Adjustments (FAM 595 C-4); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 4) Determine whether to change the risk of 
material misstatement and revise audit procedures based on the results 
of testing; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: C. Control and substantive tests of detailsâ 
other related parties
Determine the purpose, nature, and extent of material other related 
party transactions and their effect on the financial statements. 
Coordinate with sensitive payments work, including executive 
compensation, travel, official entertainment funds, unvouchered 
expenses, and consulting services (see FAM 280.05).
1) Based on the work performed during the planning and internal control 
phases, determine and document the methodology used to select the 
transactions for testing by either
a) examining all transactions, or b) performing a Monetary Unit 
Sampling (MUS), or c) performing a Classical Variables Estimation 
Sampling, or
d) another method (describe); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 2) For the selected transactions, a) examine 
documentation such as invoices, contracts, agreements, and receiving 
and shipping reports;
b) determine whether the transactions have been properly approved;
c) confirm transaction terms and amounts with the other party to the 
transaction; and d) test the compilation of amounts that may be 
disclosed in the financial statements for reasonableness; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 3) Summarize results of testing and propose any 
adjustments on the Schedule of Uncorrected Adjustments (FAM 595 C-4); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 4) Determine whether to change the risk of 
material misstatement and revise audit procedures based on the results 
of testing; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: C. Control and substantive tests of detailsâ 
other related parties
Determine the purpose, nature, and extent of material other related 
party transactions and their effect on the financial statements. 
Coordinate with sensitive payments work, including executive 
compensation, travel, official entertainment funds, unvouchered 
expenses, and consulting services (see FAM 280.05).
1) Based on the work performed during the planning and internal control 
phases, determine and document the methodology used to select the 
transactions for testing by either
a) examining all transactions, or b) performing a Monetary Unit 
Sampling (MUS), or c) performing a Classical Variables Estimation 
Sampling, or
d) another method (describe); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 2) For the selected transactions, a) examine 
documentation such as invoices, contracts, agreements, and receiving 
and shipping reports;
b) determine whether the transactions have been properly approved;
c) confirm transaction terms and amounts with the other party to the 
transaction; and d) test the compilation of amounts that may be 
disclosed in the financial statements for reasonableness; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 3) Summarize results of testing and propose any 
adjustments on the Schedule of Uncorrected Adjustments (FAM 595 C-4); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 4) Determine whether to change the risk of 
material misstatement and revise audit procedures based on the results 
of testing; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: D. Substantive analytical procedures (FAM 475) 
Perform analytical procedures to assess whether balances are reasonable 
and reflect appropriate activities (existence and completeness). If the 
entity performs reconciliation and confirmation of intragovernmental 
activity and balances and the auditor places reliance on those tests of 
details, less rigorous, supplemental analytical procedures may be used 
to increase the auditorâs understanding of intragovernmental activity 
and balances after performing tests of details in Testing, step III.A, 
above. However, in the absence of adequate reconciliation and 
confirmation controls, some or all of these procedures may be necessary 
to obtain sufficient evidence, if possible. For example, 1) Develop 
expectations of the accounts payable and receivable balances overall or 
for all significant trading partners in light of the payment cycle 
during the year. Then, compare the recorded balance overall or by 
trading partner to the expected amount and investigate differences in 
the recorded balance if differences exceed an amount such that the 
total uninvestigated difference for all trading partners, including 
those not selected, does not exceed the limit; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 2) Develop expectations of recorded 
intragovernmental revenue overall or for all significant trading 
partners based on independent data; for example, consider using trading 
partnersâ orders. Then compare the expectations to the recorded revenue 
amounts and investigate differences in the recorded balance if 
differences exceed an amount such that the total uninvestigated 
difference for all trading partners, including those not selected, does 
not exceed the limit; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 3) Examine accounting records, for example, 
accounts receivable and payable, for large, unusual, or nonrecurring 
activity or balances. For example, consider expectations as to the 
types of intragovernmental activity and balances and trading partners 
based on the planning work. Then, examine significant 
unexpected/unusual intragovernmental activity and balances and 
intragovernmental activity or balances with unexpected trading 
partners. Document the definition of significant; Done by/date: 
[Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 4) Summarize the results of testing and 
determine if adjustments are necessary; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: E. Elimination (existence, completeness, and 
valuation)
Test consolidation/elimination for transactions occurring within the 
entity (intra-entity) to determine whether the elimination is 
appropriate and supportable. 1) Obtain a list of each component 
entityâs intra-entity transactions identified for elimination and each 
component entityâs reconciliation of its intra-entity activity and 
balances with its respective trading partners. This step may be done in 
conjunction with the test of reconciliation (see step III.A above); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 2) Review the entityâs eliminating journal 
entries and supporting documentation for elimination entries of the 
entitywide consolidated financial statements. Determine whether 
elimination journal entries are a) approved by management, and
b) supported by schedules summarizing the SGL accounts that are 
combined to total the amounts eliminated; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 3) Summarize results of testing; Done by/date: 
[Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 4) Determine whether to change the risk of 
material misstatement and revise audit procedures based on the results 
of testing; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: IV. Reporting Phase To determine if the 
presentation and disclosures of intragovernmental and other related 
party balances comply with U.S. GAAP and OMB requirements: 1) Determine 
whether financial reports are prepared in accordance with the OMB 
Circular No. A-136, Financial Reporting Requirements. For example, a) 
Review the balance sheet and determine whether it is properly 
classified and line items are correctly reported as intragovernmental 
or nonfederal. b) Read the notes to the financial statements to 
determine if intragovernmental amounts and the related federal trading 
partners for assets, liabilities, earned revenue from trade (buy/sell) 
transactions and nonexchange revenue are disclosed.
c) Read disclosures for the Statement of Net Cost in the notes to the 
departmentwide financial statements and determine if the department 
includes a separate disclosure of intragovernmental gross cost and 
earned revenue by budget functional classification. Determine whether 
gross cost and earned revenue are net of intradepartment transactions 
(consolidated); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 2) Read the entitywide financial statements and 
notes and compare the reported intragovernmental and other related 
party (if any) activity and balances with the test results; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 3) Request that the entityâs management include, 
in the representation letter, representations related to 
intragovernmental and other related party activity and balances. (See 
FAM 1001 for guidance.); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 4) Communicate with trading partner entitiesâ 
auditors (with entity permission) to determine whether issues 
identified by the other auditors affect the auditorâ s conclusions on 
intragovernmental transactions; Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 5) Read the various current period Agreed-Upon 
Procedures (AUP) reports to consider whether the findings will affect 
the auditorâs conclusion and/or if additional procedures need to be 
performed. For example,
* The AUP report on employee withholdings and employer contributions 
that are reported on the Report of Withholdings and Contributions for 
Heath Benefits, Life Insurance and Retirements. This AUP report is to 
assist OPM in assessing the reasonableness of the Retirement, Health 
Benefits, and Life Insurance Withholdings/Contributions and 
Supplemental Semiannual Headcount report submitted to OPM (see OMB 
audit guidance); Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 6) Summarize the results and propose any 
adjustments on the Schedule of Uncorrected Adjustments (FAM 595 C- 4); 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Audit Procedures for Intragovernmental and Other Related Partiesâ 
Activity and Balances: 7) Conclude whether intragovernmental and other 
related party activity and balances have been adequately accounted for 
and properly disclosed in the financial statements; 
Done by/date: [Empty]; 
Doc Ref: [Empty]. 

Figure: 

[See PDF for image] 

[End of figure] 

903 - Auditing Cost Information: 

.01: FAM 903 provides general guidance for auditors in identifying cost 
information and planning audit procedures. The auditor should 
coordinate these procedures with procedures on auditing various line 
items and accounts. The auditor is generally concerned about cost 
information because: 

* The auditor should obtain sufficient evidence to determine whether 
costs are presented fairly in entity financial statements and are 
appropriately classified. Proper classifications of costs at the entity 
level also contribute to proper classification of costs in the 
consolidated financial statements of the U.S. government. 

* For CFO Act agencies and components designated by OMB, the auditor 
must evaluate whether agency financial management systems substantially 
comply with the three requirements of FFMIA. 

* Although the auditor does not opine on the MD&A, cost information is 
important to the MD&A, particularly as it relates to developing 
performance measures.[Footnote 38] The relevant accounting standard for 
cost information is SFFAS No. 4, Managerial Cost Accounting, as amended 
by SFFAS No. #30, Inter-Entity Cost Implementation. These standards 
have relevance both to external financial reporting and to cost 
information for internal management reporting. 

The Impact of SFFAS No. 4 and SFFAS No. 30: 

.02: SFFAS No. 4 establishes the concepts and standards for providing 
reliable and timely information on the full cost of federal programs, 
their activities, and outputs. The objectives of managerial cost 
information specified in SFFAS No. 4 are: 

* To provide program managers with relevant and reliable information 
relating costs to outputs and activities. With this information, 
program managers should understand the costs of the activities they 
manage. The cost information should assist them in improving 
operational efficiency. 

* To provide relevant and reliable cost information to assist Congress 
and executives in making decisions about allocating federal resources, 
authorizing and modifying programs, and evaluating program performance. 

* To provide consistency between costs reported in general purpose 
financial reports and costs reported to program managers. This includes 
standardizing terminology to improve communication among federal 
organizations and users of cost information. 

.03: The first two objectives primarily address the managerial use of 
cost information in improving operating efficiency and cost 
effectiveness, making planning and budgeting decisions, and measuring 
performance. The third objective primarily addresses external financial 
reporting, which can be achieved by reporting cost information in 
financial statements that is consistent with costs generated by the 
cost accounting process. Because of the differences in the three 
objectives, some requirements in SFFAS No. 4 are relevant to managerial 
decision making and operations improvement, while some requirements are 
relevant to external financial reporting. 

.04: The cost accounting concepts section of SFFAS No. 4 (paragraphs 41-
66) establishes the overall goals of cost accounting for federal 
agencies. Managerial cost accounting should be a fundamental part of 
the financial management system and, to the extent practicable, be 
integrated with the other parts of the system. Managerial costing 
should use a basis of accounting, recognition, and measurement that is 
appropriate for the intended purpose. Cost information developed for 
various purposes should be drawn from a common data source, and output 
reports should be reconcilable to each other. 

.05: The five fundamental standards for managerial cost accounting set 
forth in SFFAS No. 4 (paragraphs 67-162) are important for the auditor. 
These standards will lead to the development of accurate and consistent 
cost information for internal and external reporting by federal 
agencies. The five standards are: 

* Requirement for cost accounting: Each reporting entity is to 
accumulate and regularly report the cost of its activities for 
management information. 

* Responsibility segments: Management of each reporting entity is to 
define and establish responsibility segments and report the costs of 
each segmentâs outputs. 

* Full costs: Reporting entities are to report the full costs of 
outputs, which is the total amount of resources used to produce the 
output, including direct and indirect costs. 

* Inter-entity costs: Each entityâs costs are to incorporate the full 
cost of goods and services received from other entities. As directed by 
SFFAS No. 4, paragraph 110, OMB has designated, in its Circular No. A-
136, Financial Reporting Requirements, the costs of goods and services 
received from other entities to be recognized. SFFAS No. 30, effective 
for reporting periods beginning after September 30, 2008, requires full 
implementation of this inter-entity cost provision. 

* Costing methodology: The costs of resources that directly or 
indirectly contribute to the production of outputs are to be 
accumulated and assigned to outputs using appropriate methodologies. 
(FAM 903.07.) 

Audit Procedures for Financial Statement Opinion: 

.06 As part of understanding the entityâs operations, the auditor 
generally should obtain an overview of how the entity applies FASAB 
cost standards. This may be done by inquiry, observation, and 
walkthrough procedures. The auditor generally should determine what 
substantive testing procedures of the cost accounting system are 
appropriate and may coordinate testing with other control and 
substantive procedures. Based on the understanding of entity 
operations, the auditor should determine whether the statement of net 
costs is designed to include all costs of entity programs. Also, in 
testing the statement of net costs, the auditor generally should test 
the financial statement assertions related to costs, including whether 
expenses are properly classified in the statement of net costs. 
Consistent with FAM 395 B, examples of subassertions related to costing 
are: 

Existence Or Occurrence: 

* Occurrence/Validityâ(1) Recorded costs, underlying goods and services 
received, and related processing procedures are authorized by federal 
laws, regulations, and management policy. (2) Recorded costs are 
approved by appropriate individuals in accordance with managementâs 
general or specific criteria. (3) Recorded costs exist for goods and 
services received and are properly classified. 

* CutoffâCosts recorded in the current period represent goods and 
services received during the current period. 

* Summarizationâ(1) The summarization of recorded costs is not 
overstated. (2) Costs are assigned to appropriate classifications in 
the financial statements. 

Completeness: 

* Transaction completenessâAll valid costs are recorded and properly 
classified. 

* CutoffâAll goods and services received in the current period are 
recorded in the current period. 

* SummarizationâThe summarization of recorded costs is not understated. 

Accuracy/valuation: 

* AccuracyâCosts are recorded at correct amounts. 

* ValuationâCosts are valued in the financial statements using an 
appropriate valuation basis. 

* MeasurementâCosts included in the financial statements are properly 
measured. 

* Presentation And Disclosure: 

- Account classificationâCost accounts are properly classified and 
described in the financial statements. 

- ConsistencyâCosts in financial statements are based on accounting 
principles that are applied consistently from period to period. 

- DisclosureâFinancial statements and footnotes contain all information 
required to be disclosed. 

.07: SFFAS No. 4 discusses three methods of assigning costs: directly 
tracing costs, assigning costs on a cause-and-effect basis, and 
allocating costs on a reasonable and consistent basis. Although the 
standard discusses these three methods in relation to assigning costs 
to responsibility segments and outputs, the methods are also applicable 
to assigning costs to financial statement line items in the statement 
of net costs, generally by program, and in the notes by budget 
functional classification. The different methods of assigning costs may 
require different auditing procedures for determining whether costs are 
properly classified in the statement of net costs by program. 

.08: For directly traced costs (such as materials used in production or 
employees who worked on an output), the auditor generally should test 
whether costs were assigned to the appropriate program and/or budget 
functional classification. 

.09: In some cases, costs may be assigned on a cause-and-effect basis, 
by grouping costs into cost pools where an intermediate activity may be 
a link between the cause and the effect. For example, an information 
technology department may provide support to other departments. The 
information technology department may assign costs to other departments 
on a causeand- effect basis by first assigning costs to an intermediate 
activity, such as hardware installation or software design. The costs 
in these pools may then be further assigned to other departments based 
on their use of these technical services.
In auditing these types of costs, the auditor generally should test 
whether costs are assigned to the appropriate cost pool (hardware 
installation, software design), and also whether costs are 
appropriately summarized in the pool. When costs are assigned to other 
departments, the auditor generally should test whether costs assigned 
are based on appropriate usage information, whether cost assignments 
are reasonable and consistent, and whether they are mathematically 
accurate. 

.10: If it is not economically feasible to either directly trace or 
assign costs on a cause-and-effect basis, the entity may allocate 
costs. This is commonly done with costs such as general management, 
depreciation, rent, maintenance, security, and utilities used in common 
by various segments. 

These costs are generally accumulated in cost pools and allocated to 
segments or outputs (or programs or budget functional classifications) 
using a cost driver such as number of employees, square footage of 
office space, or amount of direct costs incurred in segments. In 
auditing these allocated costs, the auditor generally should test 
whether the costs are assigned to the appropriate cost pool and 
summarized appropriately. The auditor also generally should determine 
whether the allocation basis is reasonable and consistent, whether the 
mathematical allocation is correct, and whether an allocation is 
appropriate in the circumstances. 

.11: The entity exercises professional judgment in determining the line 
item and programs to include in its statement of net costs. The auditor 
generally should consider whether such classifications are reasonable 
in the circumstances.
Federal Financial Management Improvement Act of 1996 (FFMIA) 

.12: For audits of the CFO Act agencies and components identified by 
OMB audit guidance, the auditor must evaluate whether agency financial 
management systems substantial comply with the three requirements of 
FFMIA (see FAM 100.02 and FAM 701). To determine compliance with SFFAS 
No. 4 and SFFAS No. 30 for the purposes of FFMIA, the auditor generally 
should ask the following questions (which relate to the standards 
discussed in FAM 903.05) 

* Does the agency regularly accumulate and report the full cost of its 
activities to management? 

* Has the agency defined its major programs and responsibility segments 
for the purpose of delineating costs? 

* Does the agency properly accumulate full costs by those programs and 
segments? 

* Has the agency accounted for the full costs (including inter-entity 
costs) of products, services, or outputs to be externally reported at 
the entitywide level? 

* Has the agency accounted for the full cost of resources that 
contribute to the production of outputs by individual responsibility 
segment using appropriate costing methodologies? (See FAM 903.07) 

* Has the agency reported full costs in the year-end financial 
statements on the accrual basis of accounting? 

* Are costs reported for external financial reporting and those 
reported for internal management reporting consistent and reconcilable? 

* Is the reported management cost information consistent, timely, and 
comprehensive? 

* Is the cost information reported in such a manner that management can 
determine answers to appropriate questions about costs of outputs or 
outcomes? 

* How does management determine whether costs are appropriate? 

* How does management determine compliance with FFMIA? The auditor 
generally should combine this inquiry with the procedures in FAM 
903.06, and consider the outcome in concluding about compliance with 
the cost accounting requirements under FFMIA. Also, the auditor 
generally should review evidence supporting managementâs assertions in 
response to these questions, as further discussed in FAM 701, Assessing 
Compliance of Agency Systems with FFMIA. Managementâs Discussion and 
Analysis (MD&A) 

.13: The auditor does not provide an opinion on the MD&A and this 
information is unaudited. Thus, the auditorâs main concern is 
consistency of this information, rather than testing the reliability of 
the cost data in the MD&A. The auditor generally should read the MD&A 
for consistency with the financial statements and with the auditorâs 
knowledge of the entity. The auditor generally limits testing to data 
in the financial statements, as discussed in FAM 903.06, not the MD&A. 
The auditor may use analytical procedures to determine the 
reasonableness of cost data in the MD&A. Based on this comparison, the 
auditor should determine whether additional testing is needed. 

Cost Reports: 

.14: Costs reported in internal and external entity reports are 
expected to be consistent, but may differ in the degree of detail and 
reporting frequency. Cost information for management generally requires 
more frequent and timely reporting. It also may require more specific 
and detailed information regarding the costs of individual activities 
or outputs. By comparison, external reports are generally less 
frequent, and the cost information more aggregated, such as on a 
suborganization or program basis. 

.15: Entity level information, including cost data, generally becomes 
more summarized at the U.S. government consolidated financial statement 
level, or does not apply to the consolidation. In some cases, the 
consolidation refers readers to individual agency financial statement 
reports for further details in specific areas. 

921- Auditing Fund Balance with Treasury (FBWT): 

.01: FAM 921 provides guidance to the auditor when auditing FBWT 
accounts. However, significant changes are anticipated in this area 
over the next several years as Treasury is developing and implementing 
the Government Wide Accounting (GWA) system, which is discussed further 
in FAM 921.11. Implementation of the GWA system by federal entities is 
expected to vary considerably and auditors should determine the effects 
of this early in the audit as discussed in FAM 921.12. 

.02: The FBWT account (SGL account 1010) is an asset account, unique to 
the U.S. government, representing unexpended spending authority. 
Entities record their budget spending authority in FBWT accounts with 
an offsetting amount to unexpended appropriations â SGL account series 
3100. Similar to cash in commercial bank accounts, FBWT amounts 
increase as funds are collected and decrease as amounts are paid, 
although noncash transactions adjust the balances, primarily as a 
result of budgetary activity. Most entities have several FBWT accounts 
funded by different types of appropriations[Footnote 39] that are 
included in the financial statement FBWT line item. 

.03: Federal agencies may also maintain other types of FBWT accounts, 
such as for collections pending litigation, amounts awaiting 
determination of the proper accounting disposition, or monies being 
held by the entity in the capacity of a banker or agent for others, 
such as non-entity, trust, or escrow accounts. Certain funds may also 
be earmarked for specific purposes or restricted as to use. Entities 
may also have FBWT balances in clearing or suspense accounts as a 
result of unidentified and unclassified transactions. 

.04: In the federal government, Treasury serves as the central banker. 
Most entities use the banking services provided by Treasuryâs Financial 
Management Service (FMS), and therefore do not keep cash in commercial 
bank accounts. Some entities have authority to disburse funds on their 
own behalf and maintain separate commercial bank accounts in U.S. or 
foreign currency. However, these agencies still maintain FBWT accounts 
to track the status of their spending authority. 

.05: Regular reconciliation of entity FBWT records with Treasury 
records is a key control in maintaining the accuracy and reliability of 
entity fund balance records. Effective reconciliations serve as a 
detection control for identifying unauthorized and unrecorded 
transactions at the entities and at Treasury. Effective reconciliations 
are also important in preventing entity disbursements from exceeding 
appropriated amounts and providing an accurate measurement of the 
status of available resources. 

.06: Treasury maintains and provides appropriation, fund, and receipt 
account ledgers to entities. This includes a roll forward of the 
previous monthâs balance, the current monthâs cash activity reported by 
the entity, and other account activity such as supplemental 
appropriations, rescissions, nonexpenditure transfers, and activity 
reported by other entities. These Treasury account ledgers can be used 
by entities for comparison to their records to account for all 
transactions. 

.07: Treasury also provides entities with detailed reports of cash 
receipt and disbursement transactions reported by the Federal Reserve, 
commercial banks, other federal entities, and the FMS regional 
financial centers. These reports can be used by entities to reconcile 
FBWT and most likely will be affected by implementation of the GWA 
system discussed in FAM 921.11- .12. 

FBWT Accounting and Reporting Information: 

.08: To obtain a further understanding of entityâs accounting and 
reporting for FBWT, the auditor may refer to: 

* Treasury Financial Manual, Volume 1, part 2, chapter 5100 â 
Reconciling Fund Balance with Treasury accounts, (see link at 
[hyperlink, http://fms.treas.gov/fundbalance)]. 

* OMB Circular No. A-136, Financial Reporting Requirements. 

* SFFAS No. 1, Accounting for Selected Assets and Liabilities. 

* Entity accounting policies and procedures for FBWT accounts. 

FBWT Audit Issues: 

.09: Since most assets, liabilities, revenues, and expenses stem from 
or result in cash transactions, misstatements in the receipt or 
disbursement activity recorded in the FBWT account affects the accuracy 
of year-end FBWT balances. It also affects the accuracy of several 
entity financial statements, including the Balance Sheet, the Statement 
of Net Cost, and the Statement of Budgetary Resources. Further, it 
affects the integrity of entity budget execution reports and various 
U.S. government accounts and reports. 

.10: It is important for entities to establish processes to properly 
record and reconcile transaction activity in their FBWT accounts 
because without effective reconciliations of FBWT receipt and 
disbursement activity, the amount of funds available for expenditure by 
each appropriation may contain material misstatements. Entities should 
avoid arbitrarily adjusting accounts to the amounts reported by 
Treasury and/or recorded differences in suspense accounts without 
adequately researching the causes of the differences. Unreconciled 
differences recorded in suspense accounts could represent transactions 
that have not been properly recorded by the entity to the appropriate 
accounts. 

Additionally, it is important for entities to reconcile their FBWT 
account balances timely because this task becomes more difficult as 
time passes and erroneous or fraudulent transactions may not be 
identified to take appropriate actions. TFM Volume 1, part 2, chapter 
5100 states that entities should perform monthly reconciliations of 
their FBWT accounts. 

.11 Treasury is developing the Government Wide Accounting (GWA) system, 
to be implemented over the next several years. The GWA system will 
eliminate the two-step reporting processes used by federal entities and 
Treasury by transitioning from a monthly to a daily process of 
reporting receipt and disbursement transactions to Treasury. This daily 
classification of activity will eliminate the need for federal entities 
to submit a monthly Statement of Transactions. The monthly Statement of 
Differences reports that formerly resulted from this two-step 
classification process will also be eliminated. Additionally, similar 
to commercial on-line banking, the GWA system can provide federal 
entities with a daily account statement of their FBWT accounts via the 
Internet. Treasury continues to use âindependentâ sources of entity 
FBWT activity, such as commercial banks, other federal entities, and 
Treasuryâs FMS regional financial centers, to calculate federal entity 
FBWT balances. 

.12 Implementation of the GWA system by federal entities is expected to 
vary and auditors should determine the effects of this early in the 
audit. The changing environment during this transition period increases 
the audit risk associated with FBWT. To design effective and efficient 
audit procedures during this transition period, auditors should fully 
understand the status of GWA system implementation at their respective 
federal entity and the processes and procedures used by their 
particular entity during the year of audit. 

.13 Treasury also plans to discontinue the use of certain suspense 
(âFâ) accounts used by entities to record unreconciled receipt and 
disbursement transactions. Auditors will need to design procedures to 
test whether entities have properly reconciled and classified the 
suspense items that were recorded in these discontinued accounts. Some 
entities will be granted waivers to continue using the suspense 
accounts and auditors will need to ensure that all of the 
reconciliations, aging, and CFO confirmation of balance requirements 
for these suspense accounts are accurately performed by the entity. 
Auditors will also need to fully understand their entityâs procedures 
for tracking and recording suspense type items going forward and design 
audit procedures to adequately test and assess the impact of the 
suspense items on the FBWT at year-end. 

FBWT Audit Approach: 

.14: Auditors should obtain and fully document their understanding of 
entity FBWT accounts, accounting systems, procedures, and the FBWT 
control environment, including the information technology processing 
and security controls over systems that report or transact FBWT 
activities or balances, to determine the level of audit procedures 
required. 

.15: Auditors should design FBWT audit procedures that include tests of 
the receipt and disbursement activity that flows through the accounts 
and the FBWT balances. These procedures should include steps to 
determine whether the entity: 

* properly and timely records receipt and disbursement activity in 
their FBWT accounts; 

* researches and resolves the underlying causes of differences between 
amounts reported by Treasury and entity records, including the receipt 
and disbursement activity flowing through the FBWT accounts, as well as 
the monthly account balances, and makes the proper adjustments; and: 

* timely and properly clears suspense account balances. 

.16: Auditors should determine the magnitude of the entityâs gross 
unreconciled differences at year-end by analyzing their aggregate 
absolute values and resulting impact on the financial statements. Since 
each difference represents a potential misstatement, the roll-up and 
netting of charges and credits can significantly understate the total 
outstanding differences. 

Audit Procedures: 

.17: Audit procedures for the FBWT will vary by entity and auditors 
should use their professional judgment to design audit programs for 
their particular entity after considering the type of FBWT accounts, 
materiality, audit risks, and the internal control environment. Over 
the next several years as entities implement the GWA system, auditors 
may consider the example audit procedures provided below to audit FBWT, 
as well as developing new procedures to audit the GWA system. 

Planning and Internal Control Phase: 

.18: To obtain an understanding of the entityâs environment, internal 
control over FBWT accounts and reconciliation process in the planning 
and internal control phase of the audit, the auditor may perform steps 
to: 

* Review accounting and reporting information on FBWT at FAM 921.08. 

* Read prior year audit documentation, financial statements, and 
related audit reports to determine if there were any audit issues, 
significant deficiencies, or material weaknesses related to FBWT. 

* Interview entity key staff about its FBWT procedures and controls in 
place. 

* Determine how the entity disburses funds for both payroll and 
nonpayroll transactions, either through FMS regional finance centers, 
other entity disbursing centers, on its own behalf, or a combination of 
ways. 

* Obtain an understanding of the significant accounting systems and 
controls used in reporting and accounting for FBWT transactions. 

* Identify FBWT line item general ledger accounts. 

* Obtain an understanding and walkthrough entity internal controls over 
its FBWT reconciliation process and determine whether reconciliation 
controls have been placed in operation. 

* Inquire how the entity tracks and reports differences between its 
FBWT records and Treasuryâs FBWT records. 

* Identify suspense and clearing accounts used by the entity containing 
unreconciled differences and determine if transactions are identified 
and removed from these accounts to the proper accounts in a timely 
manner. 

* Determine if the entity has a process or system for aging 
unreconciled differences. 

* Determine whether the entity is properly accounting for the FBWT line 
item in accordance with U.S. GAAP by having the entity complete FAM 
2010, Checklist for Federal Accounting. 

Testing Phase: 

.19: In the testing phase of the audit, the auditor may design an audit 
program that includes steps to determine whether the entity: 

* Properly and timely records receipt and disbursement activity in its 
FBWT accounts. 

* Researches and resolves the underlying causes of differences between 
amounts reported by Treasury and entity records, (including the receipt 
and disbursement activity flowing through the FBWT accounts and the 
account balances each month) and makes the proper adjustments. 

* Timely and properly investigates clearing and suspense account 
balances. 

* Reconciles its FBWT accounts and performs procedures to determine the 
materiality of gross unreconciled differences at year-end by analyzing 
the aggregate absolute values and resulting impact on the financial 
statements. (Since each difference represents a potential misstatement, 
the roll-up and netting of charges and credits can significantly 
understate the total outstanding differences). 

* Includes and presents nonexpenditure transactions such as 
appropriation warrants, transfers, and rescissions. 

* Discloses the status of accounts, such as open, expired, or canceled 
and whether the account is appropriately included in the FBWT line 
item. 

Reporting Phase: 

.20: To assess whether the presentation of the financial statements and 
footnote disclosures for the FBWT line item are in accordance with U.S. 
GAAP, the auditor may determine whether the entity has: 

* Disclosed and explained material unreconciled differences in the 
notes to the financial statements. 

* Disclosed material unreconciled differences that were written off by 
the entity during the fiscal year in the notes to the financial 
statements. 

* Disclosed material restrictions. 

* Concluded that proposed audit adjustments are either booked or were 
determined to be immaterial and were attached to the management 
representation letter (see FAM 1001). 

* Determined that the entity is properly reporting and disclosing the 
FBWT line item in accordance with U.S. GAAP by having the entity 
complete FAM 2020, Checklist for Federal Reporting and Disclosure. .21 
Other audit procedures for FBWT may include tests of entity: 

* fund controls, 

* reconciliations of proprietary and budgetary amounts, 

* compliance with applicable laws and regulations, and 

* year-end reporting to Treasury and OMB. 

.22: These audit procedures are not intended to be all inclusive. They 
do not include all audit work over FBWT accounts, such as: 

* cash on deposit bank accounts and petty cash (imprest) funds, 

* tests of controls over check stock for entities that still write 
checks instead of EFT, and: 

* steps to test the specific requirements and/or compliance with 
regulations and laws related to certain types of FBWT accounts, such as 
those mentioned above in FAM 921.03. 

Practice Aids: 

.23: The following practice aids are presented as appendixes to FAM 921 
to assist the auditor in auditing FBWT as follows: 

* FAM 921 A â Treasury Processes and Reports Related to FBWT 
Reconciliation. 

* FAM 921 B â Example Account Risk Analysis (ARA) for FBWT. 

* FAM 921 C - Example Specific Control Evaluation (SCE) for FBWT. A 
single SCE of the line item/account-related accounting application for 
FBWT is presented. There are transaction-related accounting 
applications listed on the ARA that affect FBWT, such as cash receipts 
and cash disbursements, which would require transaction related SCEs. 

921 A - Treasury Processes and Reports Related to FBWT Reconciliation: 

A. Verification of Collections and EFT Disbursements These FBWT 
processes and reports are subject to change by the implementation of 
the GWA system discussed in FAM 921.11-.12. 

Table: 

[See PDF for image] 

*CASHLINK II processes will be migrating to successor systems such as 
Transaction Reporting System (TRS) and Treasury General Account Deposit 
Reporting Network (TGAnet) system.
**STAR performs core central accounting functions as the system of 
record and the GWA system serves as a conduit to feed information in 
and out. The two systems work in tandem to perform all of the central 
accounting functions, although the GWA system is expected to replace 
the STAR functionality. 

[End of figure] 

Table: B. Verification of Disbursement Data: 

[See PDF for image] 

[End of table] 

Table: 921 B - Example Account Risk Analysis for Fund Balance with 
Treasury 

[See PDF for image] 

[End of table] 

Entity: 

Date of Financial Statements: 

Accounting application: 

Fund Balance with Treasury: 

Specific Control Evaluation: 

Preparer: 

Date: 

(Line Item/Account-Related): 

Reviewer: 

Date: 

Table 921 C - Example Specific Control Evaluation for Fund Balance with 
Treasury: 

[See PDF for image] 

[End of figure] 

931 â Auditing Heritage Assets and Stewardship Land: 

.01: Heritage assets are real and personal tangible federal property, 
plant, and equipment (PP&E) that is unique for one or more of the 
following reasons: 

* Historical or natural significance. 

* Cultural, educational, artistic (or aesthetic) importance. 

* Significant architectural characteristics. Heritage assets consist of 
two types. Collection type heritage assets involve objects gathered and 
maintained for exhibition and would include such examples as museum 
collections, art collections, and library collections. 

Non-collection type heritage assets would include such examples as 
parks, memorials, monuments, and buildings. 

.02: Stewardship land is public land and land rights owned by the 
federal government, much of it acquired when the nation was formed. It 
does not include land acquired for or used in connection with general 
PP&E. Examples of stewardship land include land used as national 
forests and parks, and land used for wildlife and grazing. It excludes 
natural resources (for example, minerals, timber, and petroleum) 
related to the land. 

.03: Heritage assets may in some cases be used to serve two purposesâa 
heritage function and general government operations. In cases where a 
heritage asset serves two purposes, the heritage asset should be 
considered a multi-use heritage asset if the predominant use of the 
asset is in general government operations. For example, the main 
Treasury building in Washington, DC is used primarily as an office 
building. This multi-use asset would be considered general property, 
capitalized on the balance sheet, and depreciated. Heritage assets 
having an incidental use in government operations are not multi-use 
heritage assets; they are simply heritage assets. 

.04: SFFAS No. 29, Heritage Assets and Stewardship Land, issued on July 
7, 2005, changed the classification of information reported for 
heritage assets and stewardship land provided by SFFAS No. 6 and SFFAS 
No. 8. Previously, reporting components of this federal property (e.g., 
unit balances, additions, withdrawals, methods of acquisition and 
withdrawal) was presented as unaudited RSSI. However, under SFFAS No. 
29, most information about heritage assets and stewardship land is 
reclassified to the audited basic financial statements, except for 
condition information that is presented as unaudited RSI. SFFAS No. 29 
also requires additional audited disclosures about the federal entityâs 
stewardship policies and an explanation of how heritage assets and 
stewardship land relate to the entityâs mission. 

.05: Per SFFAS No. 29, entities must reference a note on the balance 
sheet that discloses information about heritage assets and stewardship 
land but no dollar amount is shown. At a minimum, entities are to 
present in note disclosure a description of major categories of assets, 
physical unit information for the end of the reporting period, physical 
units added and withdrawn during the reporting period, and a 
description of the methods of acquisition and withdrawal. 

Entities are also required to disclose information about stewardship 
policies and an explanation of how heritage assets and stewardship land 
relate to the mission of the entity. The standard also includes 
disclosure requirements applicable to the U.S. government-wide 
financial statements which must provide a general discussion of 
heritage assets and stewardship land and direct users to the applicable 
entitiesâ financial statements for more detailed information on these 
assets. 

.06: SFFAS No. 29 will be phased-in for reporting periods after 
September 30,
2005, (FY 2006 through 2008). Full implementation of SFFAS No. 29 is 
effective for periods after September 30, 2008, (FY 2009) although 
early adoption is encouraged.
Accounting and Reporting Information 

.07: To obtain a further understanding of entity accounting and 
reporting for Heritage Assets and Stewardship Land, the auditor may 
refer to: 

* SFFAS No. 6, Accounting for Property, Plant and Equipment, 

* SFFAS No. 8, Supplementary Stewardship Reporting (SFFAS 29 rescinds 
Chapter 2 and Chapter 4), 

* SFFAS No. 14, Amendments to Deferred Maintenance Reporting, 

* SFFAS No. 29, Heritage Assets and Stewardship Land, 

* FASAB Technical Release 9, Implementation Guide for SFFAS No. 29: 
Heritage Assets and Stewardship Land (Feb 20, 2008), 

* OMB Circular No. A-136, Financial Reporting Requirements, and 

* entity accounting policies and procedures. Audit Issues. 

.08: Entity financial statements, particularly DOD, have disclosed 
material weaknesses in accounting for federal PP&E. This includes 
identification of physical quantities by type of asset, cost/valuation, 
depreciation (if general property, except land), condition, and 
recording transactions in the proper period. 

Audit Approach/Strategy 

.09: The auditor should develop their audit approach/strategy by 
identifying the extent of heritage assets and stewardship land at the 
entity they are auditing. The auditor should then obtain and fully 
document their understanding of this property in the entityâs accounts, 
accounting systems, and related policies and procedures. The auditor 
should also understand the control environment for this property, 
including the information technology processing and security controls 
over systems that report or transact activities or balances, to 
determine the level of audit procedures required. 

Audit Plan/Procedures: 

.10: Heritage assets and stewardship land will vary by entity and 
auditors should use their professional judgment to design the audit 
plan/procedures for their particular entity after considering the type 
of accounts, materiality, audit risks, and the internal control 
environment. From fiscal years 2006 through 2008, as entities implement 
SFFAS No. 29, auditors may consider the example audit procedures 
provided below to audit this property, as well as a basis to develop 
new procedures. 

Planning Phase: 

.11: To obtain an understanding of entity heritage assets and 
stewardship land in the planning phase of the audit, the auditor may: 

* Obtain an understanding of significant accounting and auditing 
issues, read the entityâs prior yearâs accountability and auditorsâ 
reports. 

* Read applicable SFFAS and OMB Circular No. A-136 guidance for 
accounting, reporting, and disclosing heritage assets and stewardship 
land. 

* Understand and document the entityâs stewardship policies for 
identifying heritage assets and stewardship land separate from multiuse 
heritage assets and other general PP&E, and indicate how the 
designation of heritage assets and stewardship land relate to the 
entityâs mission. 

* Understand and document the entityâs procedures for identifying, 
categorizing, accounting, reconciling and reporting heritage assets and 
stewardship land. Note that SFFAS No. 29 allows the entity flexibility 
in designating categories by determining a meaningful level of 
aggregation for reporting and selecting physical units aligned with 
those categories based on the entityâs mission, types of heritage 
assets, and how it manages those assets. 

* Understand and document the entityâs methodology for acquisition and 
withdrawal of heritage assets and stewardship land during the reporting 
period. 

* Understand and document the methodology used to account for deferred 
maintenance (although unaudited RSI) on heritage assets and stewardship 
land during the reporting period. 

* Identify and understand the impact of systems/methods for 
classifying, accounting, and processing of transactions related to 
heritage assets and stewardship land by interviewing the entityâs key 
personnel and its systems and methods for processing transactions. 

* Provide sufficient time for the entity to respond to documentation 
requests, as some records may be housed in field offices or other 
locations. 

* Coordinate, through the audit liaison, with non-financial staff, such 
as cultural resource personnel, as heritage assets are non-financial 
assets.
* Acquire expertise related to the assets they are auditing. 

Internal Control Phase: 

.12: To understand the internal controls the entity has in place for 
identifying, accounting, and reporting heritage assets and stewardship 
land, the auditor may: 

* Determine through inquiry of management, walk-throughs, inspection of 
documents, review of prior yearâs documentation and other means 
applicable to the entity, the entityâs process for identifying, 
classifying and reporting heritage assets and stewardship land. 
Specifically: 

a) Whether the entity has an authorization process and the related 
control procedures for acquisition, withdrawal, and deferred 
maintenance transactions related to heritage assets and stewardship 
land. 

b) How the entity has instituted a consistent methodology for 
categorization of heritage assets and stewardship land based on the 
entityâs mission and in accordance with SFFAS No. 29. 

c) How the entity records acquisitions, withdrawals, and deferred 
maintenance entries in the accounting system and performs 
reconciliations between the accounting system and the asset 
accountability system. In accordance with SFFAS No. 29, costs related 
to the acquisition, improvement, reconstruction and renovation of 
heritage assets/stewardship land are recognized in the Statement of net 
cost for the period in which the costs are incurred. These include all 
costs incurred to prepare the item for its intended use. 

d) Whether the entity maintains transaction logs or detailed records of 
transactions to identify the postings to SGL accounts and to facilitate 
the reconciliation process and whether the logs include sufficient 
information to enable identification and location of supporting 
documentation. 

e) How the entity classifies and records transfers to/from other 
federal entities of heritage assets and stewardship land. 

f) How the entity classifies and records donation or devise of heritage 
assets and stewardship land. 

g) Whether the entity separates and capitalized multi-use heritage 
assets. The cost of acquisition, improvement, reconstruction, or 
renovation of multi-use heritage assets should be capitalized as 
general PP&E and depreciated over its useful life. 

h) Whether and how the entity conducts periodic physical inventories 
designed to verify the existence, location, and condition of all 
property listed in the accounts, and to verify the completeness of 
recorded units. 

* Prepare or update the cycle memorandum, flowchart, ARA, and SCE forms 
(see FAM 390, FAM 395 H, and FAM 395 I). 

Testing Phase: 

.13: For heritage assets and stewardship land, if the auditor 
preliminarily determines that the entityâs internal control procedures 
are effectively designed and placed in operation, the auditor may test 
the entityâs policies and procedures to determine if the controls are 
effective and the balances appear reasonable. The audit objectives for 
substantive procedures are to: 

* Determine the existence of recorded heritage assets and stewardship 
land. 

* Determine the completeness of recorded heritage assets and 
stewardship land. 

* Determine the entityâs ownership rights to record these assets as 
heritage assets and stewardship land in accordance with SFFAS No. 29. 

* Determine the clerical accuracy of unit schedules for additions and 
deletions. 

* Determine the aggregation and categorizations of physical units are 
in accordance with guidelines established in SFFAS No. 29. For example, 
DOI has reported the number of federal parks, instead of the number of 
acres comprising those parks, as physical units. 

* Determine the presentation and disclosure of heritage assets and 
stewardship land and note disclosures are in accordance SFFAS No. 29. 

.14: Existence: To determine the existence of heritage assets and 
stewardship land, the auditor may: 

* Determine the propriety of beginning balance of physical units. As 
heritage assets and stewardship land are being reclassified as basic 
information, auditors may require supporting documentation to fulfill 
audit assertions. However, due to the age of when these assets were 
acquired, documentation may no longer exist. The entity and the auditor 
are encouraged to develop other reasonable approaches and methods to 
satisfy audit assertions that would rely on historical documents as 
evidence and support. Further guidance is provided in the AAPC 
implementation guide, paragraphs .80-.85. 

* Obtain a summary analysis of changes in property in the current 
fiscal year and reconcile to the general ledger. 

* Agree changes in units from the subsidiary ledger to the general 
ledger. 

* Vouch additions during the year by analyzing on a sample basis 
(depending on the auditorâs assessment of control risk) entries from 
the general ledger to the original documentation such as contracts, 
deeds, work orders, and invoices. 

* On a sample basis, make physical inspections of acquisitions and 
examine supporting documents on disposals. The auditor should 
coordinate inspections with the appropriate entity staff, particularly 
when visiting non-federal repositories which hold federal museum 
collections. This will ensure that visits are efficient and productive, 
and relationships between repositories and the entity are maintained. 

.15: Completeness: The auditor may determine the completeness of 
recorded heritage assets and stewardship land by tracing transactions 
recorded in the asset accountability system to general ledger accounts. 
Usually, few changes occur in heritage assets and stewardship land 
during the year and the auditor should investigate significant changes 
in balances. Since cutoff errors are not a major risk in establishing 
the completeness of recorded assets, if the auditor is satisfied with 
the beginning balances and verifies the acquisition and withdrawals of 
the current period, the auditor has also substantiated the ending 
balance. 

.16: Rights and Obligations: To determine the entityâs ownership rights 
to record the property as heritage assets and stewardship land, the 
auditor may: 

* Examine FASAB definitions of heritage assets and stewardship land, 
historical documents, and compliance procedures to determine the 
entityâs ownership rights to record the property as heritage assets and 
stewardship land (as opposed to another federal entity). 

* Examine documents to determine legal ownership such as public 
records, property deeds, property tax bills (or exceptions), and other 
documents specific to the entityâs documentation of legal ownership. 
Documentation of ownership may be in a variety of formats including 
permits, reports, and associated records which indicated where natural 
resources were recovered from public lands. 

* Examine the entityâs statements showing the assetsâ direct link to 
the entityâs mission. Auditors may perform this procedure to gain more 
information about the entityâs assets, rather than to determine which 
assets are properly included in the heritage assets and stewardship 
land category. 

.17: Accuracy: To determine the accuracy of unit schedules for heritage 
assets and stewardship land additions and deletions, the auditor may: 

* Agree subsidiary ledger for additions and deletions to controlling 
accounts and examine detailed supporting documentation. 

* Determine the propriety and accuracy of recorded transfers and 
donations, examine subsidiary ledgers, and agree to detailed supporting 
documentation.
* Recompute footings and extensions in detailed documentation and 
summary analysis.
.18 Classification: To determine the aggregation, unitization and 
categorization of physical units for heritage assets and stewardship 
land, the auditor may:
* Examine entity documentation and methodology for categorization of 
units to determine whether the entityâs aggregation/categorization and 
physical unit of measure are appropriate, based on the entityâs 
mission, how the entity views the asset for management purposes, types 
of heritage assets, and materiality considerations. The entity should 
designate asset categories that are meaningful and reflect how it views 
the asset for management purposes. It would also be helpful if entities 
documented the reasoning for categorization.
* Determine whether the results of testing and the nature of 
misstatements indicate that the auditor should re-assess the risk of 
material misstatement and revise procedures. 

Reporting Phase: 

.19: To determine the proper reporting, presentation, and disclosure of 
heritage assets and stewardship land, the auditor may review the 
balance sheet and determine whether these items are properly reported 
and correctly classified as heritage assets and stewardship land. The 
auditor should also read the note disclosures and determine whether the 
entity reported: 

For periods beginning after September 30, 2005 (FY 2006 and FY 2007): 

* Disclosure of how the heritage assets and stewardship land relate to 
the entityâs mission. 

* Description of stewardship policies. 

* Discussion of multi-use heritage assets. 

* Disclosure of asset condition and deferred maintenance as RSI. 

For periods beginning after September 30, 2007 (FY 2008): 

* Inclusion of all the requirements noted above plus a description of 
the major categories of heritage assets and the number of physical 
units as collection or non-collection type for which the entity is the 
steward at the end of the reporting period. 

For periods beginning after September 30, 2008 (FY 2009): 

* Inclusion of all requirements noted above with the number of physical 
units by major category added and withdrawn and a description of the 
major methods of acquisition and withdrawal. 

* Full compliance with all SFFAS No. 29 requirements for reporting 
periods beginning with FY 2009 is expected for all entities. To be in 
accordance with SFFAS No. 29, information that is not required to be 
reported as basic information during the phase-in period is still 
required, but should be reported as RSI until the exceptions expire. It 
may be appropriate for entities to include a reference to the 
information reported as RSI during the phase-in period. 

The auditor should also summarize the results and determine if 
adjustments are necessary, and conclude whether heritage assets and 
stewardship land have been adequately accounted for and properly 
disclosed in the financial statements. 

If the entity has early implemented SFFAS No. 29, the auditor should 
confirm that the required information is presented. 

941 â Auditing the Statement of Social Insurance: 

.01: The Statement of Social Insurance (SOSI) has grown in prominence 
as it presents trillions of dollars of future federal expenditures over 
future federal revenues. Beginning with fiscal year 2006, the SOSI is 
required to be audited, along with certain social insurance disclosure 
information, while other social insurance information is to be 
presented as unaudited required supplemental information (RSI). Because 
most of the information is based on actuarial projections up to 75 
years into the future, it presents a challenge to the federal entity 
responsible for its preparation, as well as to the auditor. FAM 941 
provides auditors with some guidance in auditing the SOSI in accordance 
with U.S. GAGAS. 

.02: FASAB has established accounting requirements for the SOSI through 
various SFFAS. The financial statements affected are those of federal 
entities responsible for Social Security, Medicare, Railroad 
Retirement, and Black Lung programs, as well as the consolidated 
financial statements of the federal government. For periods beginning 
after September 30, 2005, the SOSI is to be presented as a basic 
financial statement with the underlying significant assumptions 
included in notes that are presented as an integral part of the 
financial statements. 

.03: FASAB standards for social insurance programs require entities and 
the consolidated federal financial statements to report: 

a. The estimated present value of the income to be received from or on 
behalf of the following groups during a projection period sufficient to 
illustrate the long-term sustainability of the social insurance 
programs for: 

* current participants who have not yet attained retirement age, 

* current participants who have attained retirement age, and 

* individuals expected to become participants. 

b. The estimated present value of the benefit payments to be made 
during that same period to or on behalf of the groups listed in item 
(a) above. 

c. The estimated net present value of the cash flows during the 
projection period [the income described in item (a) above over the 
expenditures described in item (b) above, or the expenditures described 
in item (b) above over the income described in item (a) above]. 

d. In notes to the SOSI: 

1. The accumulated excess of all past cash receipts, including interest 
on investments, over all past cash disbursements within the social 
insurance program, represented by the fund balance at the valuation 
date. 

2. An explanation of how the net present value referred to in item (c) 
above is calculated for the closed group.[Footnote 40] 

3. Comparative financial information for items (a), (b), (c), and d (1) 
above for the current year and for each of the four preceding years. 

4. The significant assumptions used in preparing the estimates. 
Accounting and Reporting Information 

.04: FASAB has issued standards for reporting on social insurance 
programs of federal entities as follows: 

* SFFAS No. 17 â Accounting for Social Insurance, effective for periods 
beginning after September 30, 1999, presents accounting standards for 
federal social insurance programs covering Social Security (Old-Age, 
Survivors, and Disability Insurance), Medicare (Hospital Insurance 
[Part A] and Supplementary Medical Insurance [Part B]),[Footnote 42] 
Railroad Retirement, and Black Lung benefits, and Unemployment 
Insurance. Social insurance programs covered by SFFAS No. 17 have five 
common characteristics: 

1. financing from participants or their employers; 

2. eligibility from taxes or fees paid and time worked in covered 
employment; 

3. benefits not directly related to taxes or fees paid; 

4. benefits prescribed in law; and 

5. programs intended for the general public. 

* SFFAS No. 25 â Reclassification of Stewardship Responsibilities and 
Eliminating the Current Services Assessment requires the Statement of 
Social Insurance to become a basic audited financial statement. It also 
provides that certain information about social insurance programs 
required by SFFAS No. 17 be reported in audited notes or as unaudited 
RSI, rather than as unaudited RSSI. In accordance with SFFAS No. 28, 
the effective period was deferred one year from fiscal year 2005 to 
fiscal year 2006. 

* SFFAS No. 26 â Presentation of Significant Assumptions for the 
Statement of Social Insurance: Amending SFFAS No. 25 requires that the 
underlying significant assumptions relating to the Statement of Social 
Insurance shall be included in audited notes with other information 
required by SFFAS No. 17 â including the sensitivity analysis â to be 
presented as RSI, except to the extent that the preparer elects to 
include some or all of that information in audited notes. In accordance 
with SFFAS No. 28, the effective period was deferred one year from 
fiscal year 2005 to fiscal year 2006. 

* SFFAS No. 28 â Deferral of the Effective Date of Reclassification of 
the Statement of Social Insurance: Amending SFFAS Nos. 25 and 26 
deferred the effective dates of SFFAS No. 25 and SFFAS No. 26 for one 
year to the fiscal year ended September 30, 2006. 

.05: Auditors generally should follow the FAM methodology contained in 
the planning, internal control, testing, and reporting phases in FAM 
200-500 and the audit guidance included in the AICPAâs Statement of 
Position (SOP) 04-1, Auditing the Statement of Social Insurance. SOP 04-
1 provides guidance to auditors in auditing the Statement of Social 
Insurance. 

.06: As permitted by AU 543, a principal auditor may fulfill the 
requirements of SOP 04-1 by using work that other independent auditors 
have performed in conformity with the provisions of SOP 04-1. For 
example, for the OASDI program, the auditor of the consolidated 
financial statements of the U. S. government may use the work and 
report of the auditor of the Social Security Administrationâs Statement 
of Social Insurance. 

.07: According to AU 342.10, the auditor should obtain an understanding 
of how management develops estimates. Based on that understanding, the 
auditor should evaluate the reasonableness of managementâs estimates by 
using one or a combination of approaches as follows: 

* reviewing and testing the process used by management to develop the 
estimate; 

* developing an independent expectation of the estimate to corroborate 
the reasonableness of managementâs estimate; and 

* reviewing subsequent events or transactions occurring prior to audit 
completion. 

.08: In auditing the Statement of Social Insurance, if the auditor has 
assessed managementâs controls over the estimation process to be 
effective, the auditor may determine that the most practicable and 
efficient approach is to test managementâs process. However, if the 
auditor finds that controls over the estimation process are 
ineffective, the auditor should consider whether it is practicable to: 

* develop an independent expectation of the estimate, or portions of 
the estimate, to corroborate managementâs estimate, or 

* obtain competent evidence from outside the audited entityâs process 
that would be sufficient to support the assertions in the Statement of 
Social Insurance. If it is not practicable to mitigate the effects of 
the ineffective controls through substantive procedures such as these, 
the auditorâs report on the Statement of Social Insurance should be 
modified (SOP 04-1, paragraph 9). 

.09: The auditorâs objective when auditing the Statement of Social 
Insurance is to obtain sufficient, competent, evidential matter to 
provide reasonable assurance that: 

* the estimates presented in the Statement of Social Insurance are 
reasonable in the circumstances, and: 

* the Statement of Social Insurance is presented fairly, in all 
material respects, in conformity with U.S. GAAP, including adequate 
disclosure. 

.10: If the auditor does not possess the level of competence in 
actuarial science to qualify as an actuary, the auditor generally 
should obtain the services of an independent actuary[Footnote 43] to 
assist the auditor in planning and performing auditing procedures. 
Generally, the auditor will need the assistance of an independent 
actuary in performing various procedures during all phases of the audit 
and related to all elements of the estimates (SOP 04-1, paragraph 10). 

Key Implementation Issues: 

Determining Materiality: 

.11: In FAM 230, materiality is one of several tools the auditor uses 
to determine that the planned nature, extent, and timing of procedures 
are appropriate. Materiality represents the magnitude of an omission or 
misstatement of an item in a financial report that, in light of 
surrounding circumstances, makes it probable that the judgment of a 
reasonable person relying on the information would have been changed or 
influenced by the inclusion or correction of the item. Materiality has 
both quantitative and qualitative aspects. Even though quantitatively 
immaterial, certain types of misstatements could have a material impact 
on or warrant disclosure in the financial statements for qualitative 
reasons. 

.12: Auditors should use professional judgment in determining the 
appropriate element of the financial statements to use as a materiality 
base. Auditors generally consider materiality in the context of the 
financial statements taken as a whole, taking into account both 
quantitative as well as qualitative attributes of the financial 
statements. Auditors should exercise due professional care when setting 
the materiality base, carefully assessing the information gained during 
the planning phase of the audit and the needs of a reasonable person 
relying on the financial statements (SOP 04-1, paragraph 21). 

.13: For certain federal entities, amounts reported in the Statement of 
Social Insurance may vary significantly from the amounts reported in 
the other basic financial statements, or may differ significantly on a 
qualitative basis. In such cases, it may not be appropriate to 
establish a single materiality threshold for the entire set of 
financial statements. Instead, the auditor should use a separate 
materiality level(s) when planning and performing the audit of the 
Statement of Social Insurance and related disclosures (SOP 04-1, 
paragraph 22). 

.14: The auditor generally should establish planning materiality in 
relation to the element of the financial statements that is most 
significant to the primary users of the statements (the materiality 
base - see FAM 230.08). The auditor uses professional judgment in 
determining the appropriate element of the financial statements to use 
as the materiality base. Also, since the materiality base may be based 
on unaudited preliminary information determined in the planning phase, 
the auditor may estimate the year-end balance(s) of the materiality 
base(s). To provide reasonable assurance that sufficient audit 
procedures are performed, any estimate of the materiality base(s) 
should use the low end of the range of estimated materiality so that 
sufficient testing is performed. 

.15: SFFAS No. 17 includes a discussion of SFFAC No. 1, Objectives of 
Federal Financial Reporting, which established four major reporting 
objectives in applying accounting standards:
1. budgetary integrity,
2. operating performance,
3. stewardship, and
4. systems and controls.
SFFAC No. 1 provides useful information to assist the auditor in 
determining an appropriate materiality base. For example, while all 
four of the objectives are important, SFFAS No. 17 states that 
objectives No. 2 and No. 3 directly impact the social insurance 
standards. 

.16: Objective No. 2 of SFFAC No. 1 states that federal financial 
reporting should assist report users to evaluate: 

* service efforts, costs, and accomplishments of the reporting entity, 

* the manner in which these efforts and accomplishments have been 
financed, and 

* the management of the entityâs assets and liabilities. SFFAS No. 17 
indicates that information about social insurance that is relevant to 
this objective includes the cost of the program as well as longrange 
estimates (and ranges of estimates) of future costs and other 
obligations. Estimates of future costs highlight the cost impact of 
changes in benefit levels as well as changes in economic and 
demographic conditions, such as the cost of health care and life 
expectancies. 

.17: Objective No. 3 of SFFAC No. 1 states that federal financial 
reporting should assist report users in assessing the impact on the 
country of the governmentâs operations and investments for the period 
and how, as a result, the governmentâs and the nationâs financial 
condition has changed and may change in the future. Thus, federal 
financial reporting should provide information that helps the reader to 
determine whether: 

* the governmentâs financial position has improved or deteriorated over 
the period, 

* future budgetary resources will likely to be sufficient to sustain 
public services and to meet obligations as they come due, and 

* government operations have contributed to the nationâs current and 
future well being. 

.18: Fundamental questions about social insurance programs that can be 
addressed by accounting standards include whether: 

* programs are sustainable as currently constructed, 

* the governmentâs financial condition has improved or deteriorated as 
a result of its efforts to provide for these and other programs, and 

* the likelihood that these programs will be able to provide benefits 
at current levels to those who are planning on receiving them. The 
information required by this standard, taken as a whole, will help 
users make this assessment while acknowledging the complexity of the 
programs and the uncertainty of long-term projections. 

.19: In determining the materiality base for planning and performing 
audits of an entityâs Statement of Social Insurance, the auditor should 
evaluate the actuarial present value of the estimated future: a. 
revenue (excluding interest[Footnote 44]) received from or on behalf of 
all current and future participants (estimated future revenue), b. 
expenditures for or on behalf of all current and future participants 
(estimated future expenditures), and c. balance of estimated future 
revenue (excluding interest) over/(under) estimated future expenditures 
(actuarial balance). 

.20: The auditor may determine that the actuarial balances are the most 
significant element of the Statement of Social Insurance to users of 
the financial statements. If so, the materiality base would be the 
actuarial balance. However, the auditor has the option of selecting a 
materiality base of either the estimated future revenues, or the 
estimated future expenditures. Regardless of which materiality base is 
selected, the auditor generally should select the materiality base that 
provides reasonable assurance that sufficient audit procedures are 
performed. 

The auditorâs basis for the selection of the materiality base(s) 
generally should be documented, including consideration given to other 
possible measures or separate bases for estimated future revenue and 
estimated future expenditures. Auditors generally should follow the 
guidance in FAM 230.11-.13 in determining materiality for planning and 
performing audits of entity Statements of Social Insurance. Obtaining 
Managementâs Representations 

.21: Entity management is responsible for preparing the Statement of 
Social Insurance and underlying estimates in conformity with U.S. GAAP. 
Management is also responsible for the accuracy and completeness of the 
Statement of Social Insurance (SOP 04-1, paragraph 5). Therefore, 
management should determine its best estimate[Footnote 45] of the 
economic and demographic conditions that will exist in the future. 
Because estimates in the Statement of Social Insurance are based on 
subjective as well as objective factors, management should use judgment 
to estimate amounts included in the Statement of Social Insurance. 
Managementâs judgment may be based on its knowledge and experience 
about past and current events and its assumptions about conditions it 
expects to exist. 

.22: Consistent with FAM 1001, the auditor should obtain specific 
representations relating to the Statement of Social Insurance. For an 
audit of an entityâs Statement of Social Insurance, the representation 
letter should include, as applicable, representations included in FAM 
1001 A, example management representation letter. Planning 
Considerations for the Consolidated Government-wide Report 

.23: Pursuant to statutory requirements of the Government Management 
Reform Act (GMRA) of 1994, GAO serves as the principal auditor of the 
consolidated financial statements (CFS) of the U. S. government. GMRA 
also requires the Secretary of the Treasury to annually prepare and 
submit to the President and the Congress an audited financial 
statement, or Financial Report (FR) of the United States Government, 
for the preceding fiscal year. The Chief Financial Officer (CFO) of 
each of the verifying agencies[Footnote 46] submits their financial 
data using the closing package[Footnote 47] process via the 
Governmentwide Financial Report System (GFRS) and the Federal Agenciesâ 
Centralized Trial-Balance System (FACTS I). 

All nonverifying agencies must submit FACTS I adjusted trial-balance 
(ATB) data and must complete GFRS Notes and Other FR Data. The 
Inspector General (IG) of each verifying agency, except those agencies 
with a fiscal year-end other than September 30, opines on the closing 
package data, (also referred to as the âspecial purpose financial 
statements, or âspecial purpose closing packageâ) entered by the CFO 
into GFRS, as to its consistency with the comparative, audited 
consolidated, department-level financial statements. 

.24: According to OMB audit guidance, the auditor should determine 
whether the special purpose financial statements and accompanying notes 
are fairly presented, in all material respects, in conformity with U.S. 
GAAP and the presentation requirements set forth in the Treasury 
Financial Manual (TFM), Volume I, Part 2-Chapter 4700 (TFM 2-4700), 
Agency Reporting Requirements for the Financial Report of the United 
States Government. Beginning with fiscal year 2006, the Statement of 
Social Insurance is to be presented as a basic financial statement in 
accordance with SFFAS Nos. 25, 26, and 28. 

.25: TFM 2-4700 requires entities to provide the Statement of Social 
Insurance data and the underlying key assumptions in the FR Notes 
module in GFRS. All remaining social insurance information is to be 
submitted through the Other FR Data (Stewardship and Supplemental 
Information) module in GFRS[Footnote 48]. The auditor generally should: 

* perform the procedures described in AU 551 as indicated in OMB audit 
guidance for the Other FR Data information as required and defined in 
TFM 2-4700, and: 

* assess whether the Other FR Data is materially consistent with the 
information in the special purpose financial statements. In accordance 
with AU551.06 (d) the auditor report should include either an opinion 
on whether the accompanying information is fairly stated in all 
material respects in relation to the basic financial statements taken 
as a whole, or a disclaimer of opinion, depending on whether the 
information has been subjected to the auditing procedures applied in 
the audit of the basic financial statements. The auditor may express an 
opinion on a portion of the accompanying information and disclaim an 
opinion on the remainder. 

.26: Actuarial projections of the annual cash inflow from all sources 
exclude net interest on intragovernmental borrowing/lending for both 
the component entityâs Statement of Social Insurance[Footnote 49] and 
the U.S. governmentâs consolidated Statement of Social Insurance.10 In 
addition, because paragraph 32 (1)(a) of SFFAS No. 17 only permits cash 
inflow from the public to be included in the long-range actuarial 
projection of cash inflow presented in the U.S. governmentâs 
consolidated Statements of Social Insurance, TFM 2-4700 requires the 
(1) General Fund transfers for the Federal Supplementary Medical 
Insurance (SMI â Medicare Part B) program, (2) General Fund transfers 
for the Federal Supplementary Medical Insurance (SMI â Medicare Part D) 
program, and (3) financial interchange[Footnote 51] income for the 
Railroad Retirement benefits program to be excluded from the present 
value of the long-range actuarial projections. SFFAS No. 17 states that 
expense and liability recognition for the consolidated governmentwide 
entity are the same as for the component entities.[Footnote 52] 

Consequently, auditors responsible for these programs generally should 
determine the impact of the TFM requirement, which excludes the General 
Fund transfers and the financial interchange income from the present 
value of the long range actuarial projections on their auditing 
procedures. Auditors should plan and perform their department-level 
social insurance related audit procedures to obtain a reasonable basis 
for expressing an opinion on the special purpose financial statements 
included in the Closing Package, which include the Statement of Social 
Insurance. 

[End of section] 

Section 1000: 
Reporting: 

1001 â Management Representations: 

.01: This section deals with the management representations that the 
auditor must obtain from current management as part of the audit, as 
described in AU 333, AT 501, AU 801, OMB audit guidance, FAM 280 and 
FAM 550. It covers representations about: 

* financial statements,
* internal control,
* fraud,
* financial management systemsâ substantial compliance with the Federal 
Financial Management Improvement Act of 1996 (FFMIA) by CFO Act 
agencies,
* compliance with laws and regulations,
* social insurance,
* budgetary, and fund restrictions. 

.02: Written representations from management ordinarily confirm oral 
representations given to the auditor, indicate and document the 
continuing appropriateness of those representations, and reduce the 
possibility of misunderstanding. Management representations are not a 
substitute for obtaining other audit evidence. If other audit evidence 
contradicts a representation, the auditor should investigate the 
circumstances and evaluate the reliability of the representation. The 
auditor should also determine whether it is appropriate to rely on 
other management representations. Managementâs refusal to furnish 
written representations is a scope limitation sufficient to preclude an 
unqualified opinion. 

.03: The specific representations obtained will depend on the 
circumstances of the engagement and the nature and basis of 
presentation of the financial statements. These representations apply 
to all the financial statements and all periods covered by the audit 
report. In addition to the representations in the AICPA standards, the 
auditor generally should determine the need to obtain representations 
on other matters based on the circumstances of the audited entity. 
Also, the auditor should delete inapplicable representations in the 
example representation letter in FAM 1001 A and should customize the 
letter to the situation of the entity being audited. 

.04: The auditor should obtain the management representation letter 
from the highest level of the audited entity. The auditor should decide 
who to ask to sign the management representation letter. Signers should 
be officials who, in the auditorâs view, are responsible for and 
knowledgeable, directly or through others, about the matters in the 
representation letter. These officials generally should be the head of 
the federal entity and the CFO, or equivalent. The auditor should 
obtain separate management representation letters from any component 
units for which the auditor will issue separate reports. 

.05: The auditor should ask management to prepare the representation 
letter on the audited federal entityâs letterhead. The auditor should 
ask management to sign and date the representations as of the date of 
the auditorâs reportâthe completion of the audit and not later. The 
audit is complete when the auditor has enough evidence and has applied 
enough quality controls (including supervisory, first partner, and 
second partner review) to be ready to sign the audit report. To be sure 
that the letter is ready in time, the auditor generally should provide 
a draft letter to management early in the audit and update it for 
circumstances found throughout the audit. If management signs the 
letter before the completion of the audit, the auditor should obtain an 
update of the representations to the completion of the audit date. 
While a written update is preferred, where the time difference is 
short, the auditor may update the representations orally and document 
the update. The auditor should obtain the management representation 
letter after receiving the final legal representation letter discussed 
at FAM 1002.15. 

In some cases a legal letter(s) may be obtained before the completion 
date of the audit so auditors will have time to review/test the 
information. 

In these cases, the auditor should perform and document inquiries to be 
satisfied that nothing has significantly changed between the date of 
the legal letter(s) and the audit completion date. 

.06: The audited entity generally should address the management 
representation letter to the Comptroller General of the United States 
for GAO audits. For other audits, the audited entity generally should 
address the management representation letter to the auditor opining on 
the financial statements which may be a CPA firm or the entityâs 
Inspector General (or it may be dual addressed). However, to avoid any 
delays in timely receipt of the letter, the audit team may have the 
audited entity deliver it directly to a member of the team such as the 
audit director. 

.07: Especially for large audited entities, management, in agreement 
with its auditor, generally should specify a materiality threshold for 
the management representation letter, below which items would not be 
reported. OMB audit guidance states that the management representation 
letter shall specify managementâs materiality threshold used for 
reporting items in the management representation letter. It also 
footnotes that management and the auditor should reach an understanding 
on a materiality level. If no threshold is stated, management should 
note all exceptions in the representation letter. The auditor should be 
satisfied that such a materiality threshold is so far below design 
materiality that even many items below this level would not, in the 
aggregate, approach design materiality. For example, a threshold that 
is 5 percent (or less) of design materiality may be sufficiently low. 
The materiality level may be different for different representations 
and would not apply to those representations not directly related to 
amounts in the financial statements (such as responsibility for the 
statements). Representations Relating to the Financial Statements 

.08: AU 333.06 lists management representations that the auditor 
generally should obtain in a U.S. GAAS audit if applicable. These 
generally relate to management acknowledging its responsibility for the 
financial statements and its belief that the financial statements are 
fairly presented in conformity with U.S. GAAP and financial information 
is complete with appropriate recognition, measurement, and disclosure. 
Included in this representation is the effect of any uncorrected 
financial statement misstatements, a schedule of which is attached to 
the representation letter. (For this the auditor may tailor the example 
schedule in FAM 595 C by removing the auditorâs conclusions.) Examples 
of additional representations that may be appropriate depending on an 
entityâs business or industry are given in appendix B to AU 333. The 
auditor may review AU 333 to identify items to add to the 
representations, many of which would be modified in the federal 
government environment. In the example representation letter at FAM 
1001 A, common presentation and disclosure representations are items #1 
through #10. Representation #5 addresses uncorrected misstatements for 
which the auditor should attach a summary to the management 
representation letter. An example Summary of Uncorrected Misstatements 
is provided at FAM 595 C. Additionally, OMB audit guidance has 
emphasized the importance of identifying intragovernmental transactions 
and their reconciliations for federal entities and their components. In 
the example representation letter at FAM 1001 A, this item is #11. 

.09: Appendix B of AU 333 provides further example language that the 
auditor generally should modify as appropriate for the circumstances 
applicable to the federal entity being audited in the following 
situations: General
* Unaudited interim information accompanies the financial statements.
* The impact of a new accounting principle is not known.
* There is justification for a change in accounting principles.
* Financial circumstances are strained, with disclosure of managementâs 
intentions and the entityâs ability to continue as a going concern.
* The possibility exists that the value of specific significant long-
lived assets or certain identifiable intangibles may be impaired.
* The entity engages in transactions with special purpose entities.
* The entity used the work of a specialist 

Cash: 

* Cash is restricted by nonentity ownership; escrow, trust, or other 
fiduciary activity; and seizures awaiting legal resolution. Financial 
instruments
* The value of debt or equity securities has declined.
* Management has determined the fair value of significant financial 
instruments that do not have readily determinable market values.
* There are financial instruments with off-balance-sheet risk and 
financial instruments with concentrations of credit risk. 

Receivables: 

* Receivables have been properly stated in the financial statements 
(for example, at estimated net realizable value). Collectability of 
federal receivables requires considerable management judgment. 

Inventories: 

* Excess, obsolete, or unserviceable inventories exist. Items held for 
repair are properly valued. Valuation allowances for federal 
inventories require considerable management judgment. 

Deferred charges and unearned revenues: 

* Material expenditures have been deferred and unearned revenue has 
been properly accrued. 

Debt: 

* Short-term debt could be refinanced on a long-term basis, and 
management intends to do so. 

Contingencies[Footnote 53]: 

* Estimates and disclosures have been made of environmental remediation 
liabilities and related loss contingencies. 

* Agreements may exist to repurchase assets previously sold. 

Pension and postretirement benefits: 

* An actuary has been used to measure pension liabilities and costs. 

* There is involvement with a multiemployer plan. 

* Postretirement benefits have been eliminated. 

* Employee layoffs that would otherwise lead to a curtailment of a 
benefit plan are intended to be temporary. 

* Management intends to either continue to make or not make frequent 
amendments to its pension or other postretirement benefit plans, which 
may affect the amortization period of prior service cost, or management 
has expressed a substantive commitment to increase benefit obligations. 

Sales: 

* There may be losses from sales commitments. 

* There may be losses from purchase commitments. 

* There are no undisclosed sales terms. 

.10: The auditor should determine the need for additional customizing 
of the example representation letter in FAM 1001 A and for the 
additional representations in FAM 1001.09. Many of the representations 
may have to be qualified, especially in an initial audit or in later 
audits where significant problems remain. For instance, where the 
example representation letter states that there are no violations of 
laws or regulations, the entity may need to add at the end of the 
statement,âexcept as follows:â and describe the violations. 

.11: In addition, the auditor should determine whether circumstances 
may require that additional descriptive items be included in the 
representation letter, especially as support for conclusions the 
auditor makes in the report. This is important where the corroborating 
information that can be obtained by procedures other than inquiry is 
limited. For example, the auditor should ask that the letter include 
descriptions of (1) the reasons for scope limitations imposed by the 
audited entity, such as the lack of availability of certain records, 
(2) the basis for material liability estimates, key asset valuations, 
or the probability of contingencies, and (3) significant plans or 
intentions for the entity. For example, if the entity has a pension 
plan outside of the Civil Service Retirement System or the Federal 
Employeesâ Retirement System, an item may state that the entity does 
not plan to terminate the plan and that management believes the 
actuarial assumptions and methods used to measure pension liabilities 
and costs for financial reporting purposes are appropriate in the 
circumstances. 

Representations Relating to Internal Control: 

.12: Internal control representations, when the auditor expresses an 
opinion on internal control, are found in AT 501.44. These 
representations, examples for which are provide in FAM 1001 A, relate 
to managementâs 

* acknowledging its responsibility for internal control (item #12); 

* stating that management has assessed the effectiveness of its 
internal control and specifying the control criteria used (item #13); 

* stating managementâs assertion about the effectiveness of its 
internal control based on the control criteria (item #14); 

* stating that management has disclosed to the auditor all significant 
deficiencies in the design or operation of internal control that could 
adversely affect the entityâs ability to meet the internal control 
objectives and pointing out those that are material weaknesses using 
the definition in the representation letter, which is the definition in 
AU 325 (item #15); and 

* stating whether there were any changes to internal control subsequent 
to the end of the reporting period (item #16). 

.13: For bullets 2 and 3 in FAM 1001.12, entities may use criteria 
established under FMFIA and OMB Circular No. A-123 in their FMFIA 
internal control assessment. Standards in GAOâs green book Standards 
for Internal Control in the Federal Government, (GAO/AIMD-00-21.3.1) 
were established as standards for federal entities to follow. These 
standards incorporate concepts from the private sector guidance 
Internal ControlâIntegrated Framework issued by the Committee of 
Sponsoring Organizations (COSO) of the Treadway Commission. Federal 
entities should summarize in the representation letter any material 
weaknesses relating to financial reporting (including safeguarding), 
and compliance (including budget).
Example wording for the representations, where management asserts that 
its internal control in place as of the date of the financial 
statements and during the years ended provided reasonable assurance 
that misstatements, losses, or noncompliance material in relation to 
the financial statements would be prevented or detected on a timely 
basis is provided in FAM 1001 A (item #14). If there are material 
weaknesses, management should include a brief description of them in 
its representation letter and modify its assertion accordingly. 
Representations Relating to Fraud 

.14: Internal control representations related to fraud can be found in 
AU 316. 

These representations, examples for which are provide in FAM 1001 A, 
relate to managementâs: 

* acknowledging its responsibility for the design and implementation of 
programs and controls to prevent and detect fraud (item #17); 

* disclosing knowledge of any fraud or suspected fraud affecting the 
agency involving management, employees who have significant roles in 
internal control, or others where the fraud could have a material 
effect on the financial statements (item #18); and 

* disclosing knowledge of any allegations of fraud or suspected fraud 
affecting the entity received in communications from employees, former 
employees, analysts, regulators, or others (item #19). Representations 
Relating to Financial Management Systemsâ Substantial Compliance with 
FFMIA Requirements 

.15: FFMIA requires the auditor who audits the financial statements of 
a CFO Act agency to report whether the agencyâs financial management 
systems substantially comply with (1) federal financial management 
systems requirements, (2) applicable federal accounting standards (U.S. 
generally accepted accounting principles), and (3) the SGL at the 
transaction level. 

To report in accordance with FFMIA, the auditor should obtain 
representations from management as to the agencyâs systemsâ substantial 
compliance with these requirements. 

.16: The auditor should obtain representations that management is 
responsible for having its systems substantially comply with the FFMIA 
requirements, stating that it has assessed the systemsâ compliance, 
stating the criteria used, and asserting the systemsâ substantial 
compliance (or lack thereof). The criteria are the requirements in OMB 
Circular No. A- 127, Financial Management Systems, which incorporates 
the SGL, the JFMIP/OFFM Federal Financial Management Systems 
Requirements documents, and other OMB circulars. These requirements are 
further described, including indicators of substantial compliance, in 
OMBâs FFMIA implementation guidance for CFOs and IGs, referenced in 
OMBâs audit guidance. Example FFMIA representations are in FAM 1001 A, 
items #20 through #22.
Representations Relating to Compliance with Laws and Regulations 

.17: AU 801.07 provides that representations relating to compliance 
with laws and regulations state that management has identified and 
disclosed to the auditor all laws and regulations that have a direct 
and material effect on the financial statements. Example compliance 
representations are in FAM 1001 A, items #23 through #27. 

.18: In addition, AT 601 deals with compliance attestation. The auditor 
need not follow AT 601 because the auditor is not giving an opinion on 
compliance. However, when the auditor determines additional 
representations regarding compliance are needed, examples are given in 
AT 601.68. 

Other Representations: 

.19: FASAB standards require a Statement of Social Insurance for 
certain entities. See AICPA publication SOP 04-1, Auditing the 
Statement of Social Insurance, (AU 333; SOP 04-1 Â§36). Example social 
insurance representations are in FAM 1001 A, items #28 through #36. OMB 
audit guidance includes a representation by management on the 
consistency of budgetary data. Example budget data representation is in 
FAM 1001 A, item #37. 

Further, FASAB SFFAS No. 27, Identifying and Reporting Earmarked Funds, 
requires financial statement disclosure for earmarked funds.[Footnote 
54] An example for earmarked and restricted funds representation is in 
FAM 1001 A, item #38. 

Effect of Change in Management on Representation Letter: 

.20: Sometimes management is reluctant to sign representations for 
periods when it did not manage the entity. The auditor may explain to 
management that by issuing the financial statements, it is making the 
assertions implicit in the financial statements. Management may wish to 
understand the transactions and controls supporting the financial 
statements, and the auditor may help it do so. Where a change in 
management is expected, the auditor may advise the new management to 
obtain representations from the old management about the period prior 
to the change. Additionally, the auditor may discuss with management 
the following to obtain representations when a change in management 
occurs: 

* Auditing standards require management representations covering all 
financial statements presented. 

* In the engagement letter (FAM 215) entity management indicated that 
it would provide certain representations covering all financial 
statements presented. 

* New executives may consult with appropriate staff that was present 
for the year to determine whether the representations officials will 
sign are complete and accurate. 

* Representations are made to the best of the signerâs knowledge and 
belief. 

* Not signing will result in a scope limitation and disclaimer of the 
auditorâs opinion. 

1001 A â Example Management Representation Letter: 

[Entity Letterhead]: 

[Date of auditorâs report and completion of the audit]: 

The Honorable [name of Inspector General or Comptroller General]: 

[Title as Inspector General or Comptroller General of the United 
States]: 

[Name of IG entity or U.S. Government Accountability Office]: 

[Also, include the independent external auditor as an addressee, if 
appropriate.]: 

Address: 

Dear [name(s)]: 

We are providing this letter in connection with your audit of the 
[entityâs] balance sheet as of September 30, 20X8 and 20X7, [or dates 
of audited financial statements] and the related statements of net 
costs, changes in net position, budgetary resources, social insurance 
[if applicable] and custodial activity [if applicable], for the years 
then ended (hereinafter referred to as the âfinancial statementsâ). 

You conducted your audit to (1) express an opinion as to whether the 
financial statements are presented fairly, in all material respects, in 
conformity with U.S. generally accepted accounting principles, (2) 
report [or express an opinion] on the entityâs internal control over 
financial reporting and compliance with laws and regulations as of 
September 30, 20X8 [or date of latest audited financial statements], 
(3) (For CFO Act agencies) report whether the [entityâs] financial 
management systems substantially comply with federal financial 
management systems requirements, applicable federal accounting 
standards (U.S. generally accepted accounting principles), and the U.S. 
Government Standard General Ledger at the transaction level as of 
September 30, 20X8, and (4) test for compliance with applicable laws 
and regulations. In addition, you have performed certain audit 
procedures with respect to the [entityâs] 20X8 Managementâs Discussion 
and Analysis (MD&A) and other supplementary information, which is 
included as part of the 20X8 financial statements of the [entity]. 

(Recommended paragraph) Certain representations in this letter are 
described as being limited to matters that are material. For purposes 
of this letter, matters are considered material if they involve $XX or 
more. Items also are considered material, regardless of size, if they 
involve an omission or misstatement of accounting information that, in 
the light of surrounding circumstances, makes it probable that the 
judgment of a reasonable person relying on the information would be 
changed or influenced by the omission or misstatement. (OMB audit 
guidance states that the management representation letter shall specify 
managementâs materiality threshold used for reporting items in the 
management representation letter.) 

We confirm, to the best of our knowledge and belief, the following 
representations made to you during the audits. These representations 
pertain to both yearsâ financial statements, and update the 
representations we provided in the prior year: 

Presentation and Disclosure: 

1. We are responsible for the fair presentation of the financial 
statements in conformity with U.S. generally accepted accounting 
principles. We are also responsible for the preparation of the MD&A, 
and (if any): required supplementary information (RSI), required 
supplementary stewardship information (RSSI), and other supplementary 
information. 

2. The financial statements are fairly presented in conformity with 
U.S. generally accepted accounting principles. The MD&A, and (if any) 
RSI, RSSI, and other supplementary information are fairly presented and 
are consistent with the financial statements. 

3. We have made available to you all a. financial records and related 
data; b. where applicable, minutes of meetings of the Board of 
Directors [or other similar bodies of those charged with governance] or 
summaries of actions of recent meetings for which minutes have not been 
prepared; and c. any communications from the Office of Management and 
Budget (OMB) concerning noncompliance with or deficiencies in financial 
reporting practices. 

4. There are no material transactions that have not been properly 
recorded in the accounting records underlying the financial statements 
or disclosed in the notes to the financial statements. 

5. There are no uncorrected financial statement misstatements as we 
have adjusted the financial statements for all known and likely 
misstatements you have informed us of. (or) We believe that the effects 
of uncorrected financial statement misstatements summarized in the 
attached summary are immaterial, both individually and in the 
aggregate, to the financial statements taken as a whole. (An example 
summary is provided in FAM 595 C.) [If management believes that certain 
of the identified items are not misstatements, managementâs belief may 
be acknowledged by adding to the representation, for example, âWe 
believe that items XX and XX do not constitute misstatements because 
(description of reason).â] 

6. The [entity] has satisfactory title to all owned assets, including 
stewardship property, plant, and equipment. There are no liens or 
encumbrances on these assets and no assets have been pledged. 

7. We have no plans or intentions that may materially affect the 
carrying value or classification of assets and liabilities or that we 
are required to disclose in the financial statements. 

8. There are no guarantees under which the [entity] is contingently 
liable that require reporting or disclosure in the financial 
statements. 

9. Related party transactions including related accounts receivable or 
payable, revenues, expenditures, loans, transfers, leasing 
arrangements, assessments, and guarantees have been properly recorded 
and disclosed in the financial statements. 

10. No material events or transactions have occurred subsequent to 
September 30, 20X8 [or date of latest audited financial statements], 
that have not been properly recorded in the financial statements or 
disclosed in the notes. 

Intra-governmental Activities: 

11. All intra-entity transactions and balances have been appropriately 
identified and eliminated for financial reporting purposes. All intra-
governmental transactions and activities have been appropriately 
identified, recorded, and disclosed in the financial statements. We 
have reconciled [or have been unable to reconcile] material 
intragovernmental transactions and balances with the federal entity 
providing the goods or services. 

Internal Control: 

12. We are responsible for establishing and maintaining a system of 
internal control. 

13. Pursuant to 31 U.S.C. 3512(c), (d) (commonly known as the Federal 
Managersâ Financial Integrity Act), we have assessed the effectiveness 
of the [entityâs] internal control in achieving the following 
objectives: 

a. Reliability of financial reporting: Transactions are properly 
recorded, processed, and summarized to permit the preparation of the 
financial statements in accordance with U.S. generally accepted 
accounting principles, and assets are safeguarded against loss from 
unauthorized acquisition, use, or disposition. 

b. Compliance with applicable laws and regulations: Transactions are 
executed in accordance with laws governing the use of budget authority; 
other laws and regulations that could have a direct and material effect 
on the financial statements, and any other laws and regulations 
identified in OMB audit guidance. 

[This item is optional if the auditor is not opining on internal 
control. Also, if the agency bases its internal control assessment on 
suitable criteria other than 31 U.S.C. 3512(c), (d), cite the criteria 
used (for example, Internal ControlâIntegrated Framework issued by the 
Committee of Sponsoring Organizations (COSO) of the Treadway 
Commission).] 

14. Those controls in place on September 30, 20X8 [or date of latest 
audited financial statements], and during the years ended 20X8 and 
20X7, provided reasonable assurance that the foregoing objectives are 
met. [Delete this item if the auditor is not opining on internal 
control.]
[If there are material weaknesses: Those controls in place on September 
30, 20X8, and during the years ended 20X8 and 20X7, were not effective 
to provide reasonable assurance that the foregoing objectives were met 
because of the effects of the material weaknesses discussed below or in 
an attachment.] 

15. We have disclosed to you all significant deficiencies in the design 
or operation of internal control that could adversely affect the 
[entityâs] ability to meet the internal control objectives and 
identified those we believe to be material weaknesses (or determined 
that none is a material weakness). [This item is optional if the 
auditor is not opining on internal control.] 

16. There have been no changes to internal control subsequent to 
September 30, 20X8 [or date of latest audited financial statements], or 
other factors that might significantly affect the effectiveness of 
internal control. [If there were changes, describe them, including any 
corrective actions taken with regard to any significant deficiencies or 
material weaknesses.] 

Fraud: 

17. We acknowledge our responsibility for the design and implementation 
of programs and controls to prevent and detect fraud (intentional 
misstatements or omissions of amounts or disclosures in financial 
statements and misappropriation of assets that could have a material 
effect on the financial statements). 

18. We have no knowledge of any fraud or suspected fraud affecting the 
[entity] involving:
a. management,
b. employees who have significant roles in internal control, or c. 
others where the fraud could have a material effect on the financial 
statements. [If there is knowledge of any instances, describe them.] 

19. We have no knowledge of any allegations of fraud or suspected fraud 
affecting the [entity] received in communications from employees, 
former employees, or others. [If there is knowledge of any such 
allegations, they should be described.] 

Compliance of Systems with FFMIA: [For CFO Act agencies subject to the 
Federal Financial Management Improvement Act of 1996 (FFMIA)] 

20. We are responsible for implementing and maintaining financial 
management systems that substantially comply with federal financial 
management systems requirements, federal accounting standards (U.S. 
generally accepted accounting principles), and the U.S. Government 
Standard General Ledger at the transaction level. 

21. We have assessed the financial management systems to determine 
whether they substantially comply with those federal financial 
management systems requirements. Our assessment was based on guidance 
issued by OMB. 

22. The financial management systems substantially complied with 
federal financial management systems requirements, federal accounting 
standards, and the U.S. Government Standard General Ledger at the 
transaction level as of [date of the latest financial statements]. 

[If the financial management systems substantially comply with only one 
or two of the above elements, modify as follows: 

As of [date of financial statements], the [agencyâs] financial 
management systems substantially comply with [specify which of the 
three elements for which there is substantial compliance (e.g., federal 
accounting standards and the SGL at the transaction level)], but did 
not substantially comply with [specify which of the elements for which 
there was a lack of substantial compliance (e.g., federal financial 
management systems requirements)], as described below (or in an 
attachment).] 

[If the financial management systems do not substantially comply with 
any of these three elements, use the following paragraph: 

As of [date of financial statements], the [agencyâs] financial 
management systems do not substantially comply with the federal 
financial management systems requirements.] 

[If there is a lack of substantial compliance with one or more of the 
three requirements, identify all the facts pertaining to the 
noncompliance, including the nature and extent of the noncompliance and 
the primary reason or cause of the noncompliance.] 

Laws and Regulations: 

23. We are responsible for the [entityâs] compliance with applicable 
laws and regulations. 

24. We have identified and disclosed to you all laws and regulations 
that have a direct and material effect on the determination of 
financial statement amounts [may list laws and regulations]. 

25. There are no
a. violations or possible violations of laws or regulations whose 
effects we should evaluate for disclosure in the financial statements 
or as a basis for recording a loss contingency, 

b. material liabilities or gain or loss contingencies that are required 
to be accrued or disclosed that have not been accrued or disclosed, or 

c. unasserted claims or assessments that are probable of assertion and 
must be disclosed that have not been disclosed. [When there is no 
general counsel and management has not consulted legal counsel 
regarding contingencies, the auditor should obtain a written 
representation from management that legal counsel has not been 
consulted. Example wording is: âWe are not aware of any pending or 
threatened litigation, claims, or assessments or unasserted claims or 
assessments that are required to be accrued or disclosed in the 
financial statements in accordance with SFFAS No. 5. We have not 
consulted legal counsel concerning litigation, claims, or assessments.â 
(See FAM 1002.24) 

26. We have complied with all aspects of contractual agreements that 
would have a material effect on the financial statements in the event 
of noncompliance. 

27. We are not aware of any violations of the Antideficiency Act that 
we must report to the Congress and the President (and provide a copy of 
the report to the Comptroller General) for the year ended September 30, 
20x8, (or, we have reported all known violations of the Antideficiency 
Act) and through the date of this letter. 

Statement of Social Insurance: 

[For entities presenting a Statement of Social Insurance (SOSI) see 
AICPA publication SOP 04-1, Auditing the Statement of Social Insurance, 
(SOP 04-1 Â§36) which suggests the following management 
representations.] 

28. Management is responsible for the assumptions and methods used in 
the preparation of the SOSI. Management agrees with the actuarial 
methods and assumptions used by the entityâs actuary and have no 
knowledge or belief that would make such methods or assumptions 
inappropriate in the circumstances. Management did not give any 
instructions, nor cause any instructions to be given to the entityâs 
actuary with respect to values or amounts derived, and is not aware of 
any matters that have affected the objectivity of the entityâs actuary. 
Management believes that the actuarial assumptions and methods used to 
measure the amounts in the SOSI for financial accounting purposes are 
appropriate in the circumstances. 

29. Actuarial assumptions and methods used to measure the amounts in 
the SOSI for financial accounting and disclosure purposes represent 
managementâs best estimates regarding future events based on 
demographic and economic assumptions and future changes mandated by 
law. 

30. There were no material omissions from the data provided to the 
entityâs actuary for the purpose of determining the actuarial present 
value of the estimated future income to be received and estimated 
future expenditures to be paid during the projection period sufficient 
to illustrate the long-term sustainability of (name of the social 
insurance program) as of (dates of SOSI presented). 

31. The SOSI covers a projection period sufficient to illustrate the 
long-term sustainability of the social insurance program. 

32. Management provided the auditor with all the reports developed by 
external review
groups appointed by the entity or the programâs trustees related to 
estimates in the SOSI. 

33. The following matters relating to the SOSI have been disclosed 
properly in the notes to the financial statements: 

a. The accumulated excess of all past cash receipts, including interest 
on investments, over all past cash disbursements within the social 
insurance program represented by the fund balance at the valuation 
date. 

b. An explanation of how the net present value is calculated for the 
closed group. 

c. Comparative financial information for items in paragraphs 2a, 2b 2c 
and 2d (1) of SOP 04-1, for the current year and for each of the 
preceding four years. (Note any preceding years that are unaudited). 

d. Significant assumptions used in preparing estimates 

34. There have been no changes in (or, changes in the following have 
been properly reported or disclosed in) the actuarial methods or 
assumptions used to calculate amounts recorded or disclosed in the 
financial statements between 

a. the valuation dates (for example: of January 1, 20x8 and January 1, 
20x7) or changes in the method of collecting data, and: 

b. the valuation date (for example: of January 1, 20x8), and the 
financial reporting date (of September 30, 20x8) or changes in the 
method of collecting data. 

35. There have been no changes in (or, changes in the following have 
been properly reported or disclosed in) laws and regulations affecting 
social insurance program income and benefits between 

a. the valuation dates (for example: January 1, 20x8 and January 1, 
20x7) 

b. the valuation date (for example: January 1, 20x8) and the financial 
reporting date (of September 30, 20x8). 

36. Accounting estimates applicable to the financial information of the 
entity included in the SOSI are based on managementâs best estimate, 
after considering past and current events and assumptions about future 
events. Budgetary and Restricted Funds
[OMB audit guidance includes a representation by management on the 
consistency of budgetary data in the following paragraph.] 

37. The information presented in the (entityâs) Statement of Budgetary 
Resources (materially - defined in paragraph 2 on page 1001 A-1) agrees 
with information submitted in its year-end Reports on Budget Execution 
and Budgetary Resources (SF-133s). The information will be used as 
input for fiscal year 20x8 actual column of the Program and Financing 
Schedules reported in the fiscal year 20x0 Budget of the U.S 
Government. This information is supported by the related financial 
records and data. 

38. We have disclosed in the financial statements all material 
earmarked funds[Footnote 55] as defined by FASAB SFFAS No. #27 and all 
material restricted funds. 

[Name of Head of Entity]: 

[Title]: 

[Name of Chief Financial Officer] 

[Title] 

Attachment: 

1002 - Inquiries of Legal Counsel 

.01: FAM 1002 provides guidance on procedures to obtain evidence that 
the financial accounting and reporting of contingencies[Footnote 56] 
regarding litigation, claims, and assessments conform with U.S. 
generally accepted accounting principles (U.S. GAAP). FAM 1002 
discusses the accounting and reporting guidance and audit procedures 
for inquiries of legal counsel concerning litigation, claims, and 
assessments, and includes an example audit program at FAM 1002 A; an 
example legal representation letter request at FAM 1002 B; and a legal 
representation letter response at FAM 1002 C. 

Accounting and Reporting Guidance: 

.02: Entity management is responsible for implementing policies and 
procedures to identify, evaluate, account for, and disclose litigation, 
claims, and assessments as a basis for the preparation of financial 
statements in conformity with U.S. GAAP. 

.03: Statement of Federal Financial Accounting Standards (SFFAS) No. 5, 
Accounting for Liabilities of the Federal Government, as amended by 
SFFAS No. 12, Recognition of Contingent Liabilities Arising from 
Litigation, contains accounting and reporting standards for loss 
contingencies, including those arising from litigation, claims, and 
assessments.[Footnote 57] The Federal Accounting Standards Advisory 
Board (FASAB) Interpretation No. 2, Accounting for Treasury Judgment 
Fund Transactions, provides additional guidance related to claims to be 
paid through the Treasury Judgment Fund.[Footnote 58] Statement of 
Financial Accounting Standards (FAS) No. 5, Accounting for 
Contingencies, also provides guidance for financial accounting and 
reporting for loss and gain contingencies for government corporations 
and entities following U.S. GAAP for the private-sector promulgated by 
the Financial Accounting Standards Board (FASB). The definition of 
probable for legal contingencies is essentially the same in FAS No. 5 
and SFFAS No. 5. 

.04: A contingency is an existing condition, situation, or set of 
circumstances involving uncertainty as to possible gain or loss to an 
entity. The uncertainty will ultimately be resolved when one or more 
future events occur or fail to occur. When a loss contingency exists, 
the likelihood that the future event or events will confirm the loss or 
impairment of an asset or the incurrence of a liability can range from 
remote to probable. SFFAS Nos. 5 and 12 use the terms remote, 
reasonably possible, and probable to identify three areas within the 
range of probability, as follows: 

* RemoteâThe chance of the future event or events occurring is slight. 

* Reasonably possibleâThe chance of the future event or events 
occurring is more than remote but less than probable. 

* ProbableâFor pending or threatened litigation and unasserted claims, 
the future confirming event or events are likely to occur. (For other 
contingencies, the future event or events are more likely than not to 
occur.) 

.05: The entity should recognize a liability and a related charge to 
expense for an estimated loss from a loss contingency only 
when[Footnote 59]: a. a past event or exchange transaction has 
occurred, b. a future outflow or other sacrifice of resources is 
probable, and c. the future outflow or sacrifice of resources is 
measurable. 

.06: Disclosure of the nature of an accrued liability for loss 
contingencies, including the amount accrued, may be necessary for the 
financial statements not to be misleading. For example, if the amount 
recognized is large or unusual, the entity should determine whether to 
disclose the contingency. However, if no accrual is made for a loss 
contingency because one or more of the conditions in FAM 1002.05 are 
not met, the federal government and its entities should report 
contingent losses that involve situations where there is at least a 
reasonable possibility that a loss has been incurred.
The entity should disclose the nature of the contingency, and an 
estimate of the possible liability or range of possible liability, if 
estimable, or a statement that such an estimate cannot be made. The 
reporting of contingent losses depends on the likelihood that a future 
event or events will confirm the loss or impairment of an asset or the 
incurrence of a liability. Terms used to assess the likelihood of loss 
are remote, reasonably possible, and probable as discussed in FAM 
1002.04. Contingent losses that are assessed as probable and measurable 
are accrued in the financial statements. Losses that are assessed to be 
at least reasonably possible are disclosed in the notes. For an 
overview of the standards that provide criteria for how federal 
agencies are to account for contingent losses based on the likelihood 
of the loss and the measurability, see table 1 below: 

Table 1: Accounting for Contingent Losses: 

[See PDF for image] 

[End of table] 

Management decides what to report. The auditor evaluates whether 
managementâs reporting is in accordance with U.S. GAAP. In addition, if 
the Judgment Fund might be involved in the payment of the possible 
loss, the federal entity involved in the litigation should discuss the 
Judgment Fundâs role in a note to the financial statements. 

.07: Although management often relies on advice of legal counsel about 
the (a) likelihood of an unfavorable outcome and (b) estimates of the 
amount or range of potential loss for litigation, claims, and 
assessments, management is ultimately responsible for determining 
whether these contingencies are probable, reasonably possible, or 
remote. Management does this to decide whether they should be 
recognized as liabilities and/or disclosed in the notes to the 
financial statements. Thus, the Office of Management and Budgetâs (OMB) 
audit guidance requires CFO Act entity management to prepare a schedule 
summarizing legal contingencies including whether they are probable, 
reasonably possible, or remote, and whether (and in what amounts) they 
have been accrued or disclosed in the financial statements. An Example 
Management Summary Schedule is provided at FAM 1002 D. 

Audit Procedures: 

.08: The auditor should design procedures to test the entityâs 
accounting for and disclosure of litigation, claims, and assessments. 
AU 337 (SAS #12) provides guidance on the procedures to identify 
litigation, claims, and assessments to evidence that they are 
appropriately accounted for and disclosed. AU 9337 provides auditing 
interpretations of AU 337. OMB audit guidance also contains procedures 
for inquiries of legal counsel. (See FAM 1002 A for example audit 
procedures.) 

.09: The auditor should obtain evidence relevant to the following 
factors with respect to litigation, claims, and assessments: a. The 
existence of a condition, situation, or set of circumstances indicating 
uncertainty as to the possible loss to an entity arising from 
litigation, claims, and assessments. b. The period in which the 
underlying causes for legal action occurred. c. The likelihood of an 
unfavorable outcome (probable, reasonably possible, or remote).
d. The amount or range of potential loss, if estimable. 

.10: The auditor may discuss with management the events or conditions 
in accounting for and reporting of litigation, claims, and assessments. 
The auditor should perform audit procedures to corroborate the 
information provided by management, including requesting that 
management send a legal letter request to the entityâs legal counsel. 

.11: A letter from legal counsel to the auditor, in response to a legal 
letter request from management to legal counsel, is the auditorâs 
primary means of corroborating the information furnished by management 
concerning the accuracy and completeness of litigation, claims, and 
assessments. The auditor should ask management to have the legal letter 
request include either (1) a list of pending or threatened litigation, 
claims, and assessments, or (2) a request by management that legal 
counsel prepare the list. The auditor should also ask management to 
have the legal letter request include a list of unasserted claims and 
assessments the lawyer determined probable of assertion, and that, if 
asserted, would have at least a reasonable possibility of an 
unfavorable outcome, to which legal counsel has devoted substantive 
attention on the entityâs behalf in the form of legal consultation or 
representation (or a statement that management is not aware of any 
matters meeting the criteria). The auditor should obtain assurance from 
management, ordinarily in writing, that it has disclosed all unasserted 
claims when it is considered probable that a claim will be asserted and 
there is a reasonable possibility that the outcome will be unfavorable.
Legal counsel then would supplement managementâs information about 
those unasserted claims and assessments, including an explanation of 
any matters where their views differ from those expressed by management 
in the legal letter request. In the federal government, where the 
general counsel may be part of management, the general counsel may 
instead provide the list of unasserted claims or assessments meeting 
the above criteria. 

The auditor should ask management to have the legal letter request 
include a request for legal counsel to make a statement that they will 
advise management about unasserted claims and assessments that 
management should evaluate for disclosure. See the example request at 
FAM 1002 B and example response at FAM 1002 C. 

.12: The auditor should also perform procedures to learn about certain 
legal claims against the government involving interaction between the 
government and its environment. This could include events where federal 
operations caused (1) hazardous waste for cleanup, (2) accidental 
damage to nonfederal property, or (3) other damage to federal property. 
In these cases, no monetary damages are being sought, but rather 
plaintiffs generally seek that the government either take or cease a 
particular action, which if successful, could cost the government 
significant amounts of money to comply. An example is a claim that was 
brought against the Department of Energy over its classification of 
certain radioactive waste for disposal. Because the classification 
affected how the waste could be disposed of and thus the cost of 
disposal, a successful claim could have resulted in a material increase 
in the agencyâs environmental liabilities. Auditors should make 
inquiries of management and legal counsel to determine whether the 
entity has such cases that could create a loss contingency, and whether 
the entity considered those cases in determining the amount of 
liability to be disclosed per FAM 1002.05-1002.06. If such cases exist, 
the auditor should apply the procedures in FAM 1002.08- 1002.11 to 
these cases as well. 

Timing of Legal Letter Request and Responses: 

.13: The auditor generally should perform procedures for inquiries of 
legal counsel concerning litigation, claims, and assessments on a 
timely basis to give priority to the resolution of potential problem 
areas and to complete other procedures. To meet deadlines, the auditor, 
entity management, and legal counsel generally should coordinate the 
timing of legal letter requests, responses (including interim 
responses), and related management schedules. The auditor and the 
entity management should determine the due dates for obtaining 
responses from component units to provide legal letter responses for 
the entityâs financial statements as well as for the U. S. Governmentâs 
Consolidated Financial Statements. In setting the due dates, the 
auditor and entity management generally should allow management to 
inquire of Department of Justice legal counsel on a case-specific 
basis. 

.14: In addition, when an entitywide audit team uses the work of entity 
component audit teams, the entitywide and component audit teams 
generally should coordinate the timing of legal letter requests, 
responses, and management schedules and determine the due dates for the 
component financial statements as well as the entitywide financial 
statements. The entitywide team generally should receive copies of the 
component letters from the component audit teams by the due dates. 

.15: The legal counselâs response should include matters that existed 
at the balance sheet date and through a date near the completion of the 
audit. If the effective date is substantially in advance of the 
completion of the audit (for example, earlier than 2 weeks before the 
completion of the audit), the auditor should contact the legal counsel 
for an updated response. To avoid this situation, the legal letter 
request may specify the period the legal counselâs response is to cover 
and the date the auditor expects to receive the response. 

.16: To assist the auditor in completing the review of legal matters in 
a timely manner (and to assist management in preparing the financial 
statements), the auditor may ask management to request legal counsel to 
submit a preliminary or interim response covering matters that existed 
at the current date and through a point in time reasonably before the 
completion of the audit so that a preliminary evaluation of the 
significance of material legal matters can be made. This is 
particularly applicable to large federal agencies with numerous and 
complex cases.[Footnote 60] 

If an interim letter is used, the auditor should ask the entity to 
request that legal counsel submit a final or updated response covering 
matters from the interim date through the date of audit completion. The 
entity should request that the updated response contain only changes or 
a statement indicating there are no changes from the interim response 
and any new matters from the interim date through the completion of the 
audit. The auditor should ask the entity to request that legal counsel 
date and submit the final legal representation letter to coordinate 
with the management representation letter in FAM 1001. However, in some 
cases, the legal representation letters are ready first so entity 
management may rely upon them before signing the management 
representation letters. In theses cases, the auditor should make oral 
inquiries of legal counsel and document whether material changes had 
occurred from the date of the legal representation letter to the date 
of audit completion. The auditor should plan to receive letters to meet 
the reporting deadline in accordance with OMB Circular No. A-136, 
Financial Reporting Requirements. See FAM 1002 B for an example legal 
letter request that includes requests for interim and updated responses 
from legal counsel. Determining a Materiality Level 

.17: The auditor and the entity may agree to limit the legal inquiry to 
matters that are considered individually or collectively material to 
the financial statements, provided that the entity and the auditor have 
agreed on the materiality level. The auditor should ask the entity to 
indicate the materiality level, if used, in the legal letter request 
and the entity should ask the lawyer to include the materiality in the 
response. 

.18: In determining a materiality level for the legal letter, the 
auditor and the entity should set the level sufficiently low that the 
cases not included in the legal letter would not be material to the 
financial statements taken as a whole when aggregated with
(1) other cases not included in the letter, (2) all other types of 
contingencies, (3) all other items that would not be adjusted because 
they are judged immaterial (unadjusted misstatements), (4) all other 
amounts in the financial statements that would not be tested directly 
because they were judged to be immaterial, and (5) all other items 
resolved on the basis of materiality considerations. 

.19: In aggregating cases, the auditor and the entity may use two 
levels of aggregation. First, similar cases are aggregated (such as 
employment discrimination cases, harbor maintenance fee cases, spent 
nuclear fuel cases, or military promotion board challenges), treated as 
a group and the auditor should compare the total with the individual 
materiality level. The aggregation generally includes a list of the 
individual cases and a discussion of the items of information included 
in the legal letter for the aggregated cases (see FAM 1002 B and FAM 
1002 C). Second, cases not included in the legal letter individually or 
as part of a group of similar cases are aggregated. The auditor may use 
a higher materiality level for such an aggregation. However, the 
auditor may set this higher materiality level sufficiently low that the 
cases not included in the legal letter would not be material to the 
financial statements taken as a whole when aggregated with the other 
items listed in the previous paragraph. 

.20: Where the entity engages more than one legal counsel, the entity 
and the auditor should determine whether matters considered not 

material individually would exceed the materiality limit when 
aggregated. In addition, when separate legal representation letters are 
requested on individual components (such as bureaus or offices) of a 
consolidated entity because of individual component audits, the auditor 
may determine materiality levels for each component. 

Legal Counsels from Whom Information Should be Requested: 

.21: Most federal entities have a general counsel who has primary 
responsibility for and knowledge about the entityâs litigation, claims, 
and assessments. The auditor should request entity management to send a 
legal letter request to the general counsel. In addition, the auditor 
should ask the management and/or general counsel whether the entity 
used outside legal counsel whose engagement may be limited to 
particular matters (e.g., specific litigation). 

.22: In the federal government, the main legal counsel outside of the 
entity is the Department of Justice.[Footnote 61] The entityâs 
management, its legal counsel, or the auditor may consult with Justice 
as well as other outside legal counsel to assure completeness and 
accuracy of the presentation of matters related to litigation, claims, 
and assessments. Such consultation may include requesting a list of 
pending litigation, claims, and assessments from Justice or other 
outside legal counsel, or discussion of specific cases. 

.23: The auditor should ask the entity to request that legal counsel 
cover all litigation, claims, and assessments pertaining to the federal 
reporting entity, including matters handled by Justice and other 
outside legal counsel on behalf of the entity. If the general counsel 
has overall responsibility for handling and evaluating litigation, 
claims, and assessments, the evaluation and responses by general 
counsel ordinarily are adequate evidence. However, evidential matter 
obtained from general counsel is not a substitute for information that 
outside legal counsel refuses to furnish to the auditor. 

.24: Where there is no general counsel and management has not consulted 
legal counsel, the auditor should obtain a written representation from 
management that legal counsel has not been consulted. Such 
representation may be incorporated as an item in the management 
representation letter. (See FAM 550 and 1001.) An example item is: âWe 
are not aware of any pending or threatened litigation, claims, or 
assessments or unasserted claims or assessments that are required to be 
accrued or disclosed in the financial statements in accordance with 
SFFAS No. 5. We have not consulted legal counsel concerning litigation, 
claims, or assessments.â 

Evaluation of Responses: 

.25: Written responses from legal counsel will vary considerably in the 
scope of information provided and in the opinion expressed. In 
preparing the responses, legal counsel uses the guidance contained in 
the American Bar Associationâs Statement of Policy Regarding Lawyersâ 
Responses to Auditorsâ Requests for Information (ABA Policy Statement) 
(included in its entirety in AU 337 C). 

.26: The auditor should ask the entity to request that legal counsel 
cover all entity components included in the financial statements being 
audited. Additionally, legal counsel generally should indicate the 
disposition of cases included in the prior yearâs letter that are no 
longer contingencies. 

.27: The auditor should evaluate each response in terms of sufficiency 
as evidence and consider (a) the possible limitations on the scope of 
legal counselâs responses and (b) the lack of sufficient opinion on the 
resolution of a case. AU 9337 provides guidance in evaluating legal 
counselâs responses. The auditor should evaluate any âunable to 
determineâ and vague and unclear responses. The auditor also should 
evaluate the legal counselâs response in light of any other information 
that comes to the auditorâs attention.
Possible Limitations on the Scope of Legal Counselâs Responses 

.28: When legal counsel limits the response, the auditor should 
determine whether the limitation affects the auditorâs report. Legal 
counsel may appropriately limit their response to certain matters. For 
example, to matters that (a) legal counsel has given substantive 
attention to in the form of legal consultation or representation, and 
(b) are determined to be individually or collectively material to the 
financial statements, provided the entity and the auditor have reached 
an understanding on materiality levels. These limitations are 
acceptable and do not limit the audit scope. 

.29: The following are examples of limitations on legal counselâs 
responses that the auditor should not accept and that would ordinarily 
result in a scope limitation: 

a. Legal counsel refuses to furnish the requested information. When 
legal counsel refuses to furnish the information requested in the legal 
letter request, the auditor should evaluate this matter as a scope 
limitation sufficient to preclude an unqualified opinion. 

b. Legal counsel excludes matters requested. The legal counselâs 
responses may not address all information requested. The auditor should 
compare legal counselâs response with the legal letter request and 
determine whether legal counsel has addressed all the information 
requested. If legal counsel has excluded any of the requested matters, 
the auditor should obtain responses for those matters from legal 
counsel. If the auditor is unable to obtain all the information needed, 
the auditor should evaluate this as a scope limitation that could be 
sufficient to preclude an unqualified opinion. 

c. Legal counsel indicates that certain information is being withheld 
due to attorney-client privilege. Under the American Bar Association 
(ABA) Code of Professional Responsibility, legal counsel is required to 
preserve the confidences and secrets of the client. Legal counsel may 
disclose confidences to the auditor only with the consent of the 
client. If the legal letter request is prepared in accordance with AU 
337, the auditor should expect that legal counsel would be responsive; 
otherwise the scope of the audit would be restricted. On the other 
hand, explanatory language in the legal letter request or in legal 
counselâs response emphasizing that management or legal counsel does 
not intend to waive attorney-client privilege or attorney work-product 
privilege does not result in a scope limitation. 

Lack of Sufficient Opinion on the Resolution of a Case: 

.30: The following are examples of legal counsel responses that lack 
sufficient opinion on the resolution of a case: 

a. Uncertainties. Legal counsel may be unable to respond concerning the 
likelihood of an unfavorable outcome of litigation, claims, and 
assessments or the amount or range of potential loss, because of 
inherent uncertainties. In these circumstances, the auditor generally 
should conclude that the financial statements are affected by an 
uncertainty concerning the outcome of a future event, which is not 
susceptible to reasonable estimation. See FAM 580 for reporting on 
uncertainties. 

b. Unclear responses. Legal counsel sometimes use general terms to 
indicate their evaluation of the outcome of a case. The ABA Policy 
Statement states that legal counsel may, in the appropriate 
circumstances, communicate to the auditor their view that an 
unfavorable outcome is âprobableâ or âremote.â The legal letter 
responses may include phrases that mean remote or probable. The phrases 
below are examples of opinions that provide sufficient clarity that the 
likelihood of an unfavorable outcome is remote: 

* âWe are of the opinion that this action will not result in any 
liability to the entity.â 

* âWe believe that the plaintiffâs case against the entity is without 
merit.â
The following are examples of opinions that indicate significant 
uncertainty as to whether the entity will prevail: 

* âIn our opinion, the entity has a substantial chance of prevailing in 
this action.â (A âsubstantial chance,â a âreasonable opportunity,â and 
similar terms indicate more uncertainty than an opinion that the entity 
will prevail.) 

* âIt is our opinion that the entity will be able to assert meritorious 
defenses to this action.â (The term âmeritorious defensesâ indicates 
that the court will not summarily dismiss the entityâs defenses; it 
does not indicate legal counselâs opinion that the entity will 
prevail.) 

.31: To avoid unclear and incomplete responses, the auditor generally 
should ask management to request legal counsel to use Justiceâs 
standard forms to describe legal contingencies (see FAM 1002 C-4 to C-6 
for examples of these forms). When legal counsel does not indicate 
whether the unfavorable outcome is probable or remote, management and 
the auditor should conclude that the outcome is reasonably possible, 
and management should determine the disclosure. Management, with legal 
counselâs advice, determines whether cases are probable, reasonably 
possible, or remote, to decide whether to recognize them as liabilities 
and/or disclosed them in the notes to the financial statements. 

.32: If the auditor is not certain about legal counselâs evaluation, 
the auditor should discuss the matters with legal counsel and entity 
management (and document the oral discussion) and/or obtain written 
clarification in a follow-up letter. Sometimes legal counsel may give a 
clearer indication of likelihood orally. If legal counsel is unable to 
give a clear evaluation of the likelihood of an unfavorable outcome, 
management should disclose the uncertainty and the auditor should 
evaluate the uncertaintyâs effect on the audit report. 

Example Legal Letter Request: 

.33: The legal letter request, which the auditor may assist management 
to draft, should be on the audited entityâs letterhead, signed by the 
Chief Financial Officer (CFO), or equivalent, and ask that the reply be 
sent directly to the auditor with a copy to management by specified due 
dates. FAM 1002 B provides an example legal letter request that 
includes requests for interim and updated responses from legal counsel 
and matters that should be covered in the letter. 

Example Legal Counselâs Responses and Managementâs Schedule: 

.34: The General Counselâs response on General Counsel letterhead is 
sent to the auditor with a copy to management by the agreed-upon due 
dates. The counsel may indicate that the response is provided for the 
auditorâs use in connection with the audit. 

.35: FAM 1002 C shows an example of a legal counsel response, including 
the legal representation letter that should include Justiceâs legal 
contingency standard forms for each case or group of cases. Forms can 
be obtained on Justiceâs website at [hyperlink, 
http://www.usdoj.gov/civil/forms/forms.htm] and auditors should check 
that current forms were used. 

.36: FAM 1002 D shows an example of managementâs schedule that 
documents how the information contained in the legal counselâs 
responses was used in preparing the financial statements. Management 
should include each case discussed in the legal letter and indicate (1) 
the amount accrued for probable cases and (2) note disclosure for 
reasonably possible cases, probable cases where the amount cannot be 
estimated, and probable cases where a range of amounts above the 
accrued amount is estimated. 

Practice Aids: 

.37: The following practice aids are provided at: 

FAM 1002 A â Example Audit Procedures for Inquiries of Legal Counsel; 
FAM 1002 B â Example Legal Letter Request; FAM 1002 C â Example Legal 
Representation Letter, and: FAM 1002 D â Example Management Summary 
Schedule. 

1002 A â Example Audit Procedures for Inquiries of Legal Counsel 
Entity: 
Period of financial statements:
Job code: 

Example Audit Procedures: I. Testing Procedures: 1) Ask management 
about the entityâs policies and procedures for identifying, evaluating, 
and accounting for litigation, claims, and assessment; Done by/date: 
[Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 2) Obtain from management (or the entityâs 
legal counsel) a description and evaluation of litigation, claims, and 
assessments existing as of the balance sheet date and through the date 
of managementâs response (see timing of the audit at FAM 1002.13 to 
1002.16); Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 3) To determine whether an outside legal 
counsel is performing services for the entity, inquire of management 
whether outside legal counsel has been used by the entity and the 
matters handled. Ask management for a list of pending litigation, 
claims, and assessments from the Department of Justice and/or examine 
correspondence and invoices from other outside legal counsel (e.g., for 
legal fees), if any; 
Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 4) Ask whether there have been changes in the 
status of general counsel or outside legal counsel such as any 
resignations, or intentions to resign. If so, determine if there are 
matters that may affect the financial statements. For example, in 
appropriate circumstances, a legal counsel may be required by the ABA 
Code of Professional Responsibility to resign the engagement if the 
legal counselâs advice concerning disclosures is disregarded by the 
entity; 
Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 5) To identify litigation, claims, and 
assessments read minutes of management meetings, contracts, loan 
agreements, leases, and correspondence from other government entities 
and discuss pertinent items with management; 
Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 6) If information comes to the auditorâ s 
attention that may indicate a potential contingency with respect to 
litigation, claims, or assessments that may require adjustment to or 
disclosure in the financial statements, discuss with the entity its 
possible need to consult legal counsel. Depending on the severity of 
the matter, refusal by the entity to consult legal counsel in those 
circumstances may result in a scope limitation. Determine the effect of 
such a limitation on the auditorâs report; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 7) Request entity management to send a legal 
letter request to the general counsel asking counsel to respond 
directly to the auditor. (Obtain a copy of the legal letter request.) 
Determine whether there is a need to request legal letters from any 
outside legal counsel. The legal letter should cover litigation, 
claims, and assessments pertaining to the reporting entity, including 
matters handled by the Department of Justice or other outside legal 
counsel. (See FAM 1002 B for an example legal letter request.) 
Coordinate with management and legal counsel to determine
* the timing of legal letter requests and responses and related 
managementâs summary/schedules of information contained in legal 
responses and
* a materiality level to be included in the legal representation 
letter. (FAM 1002.17-.20); Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 8) Read the legal letter responses and 
managementâs schedules to identify litigation, claims, and assessments; 
Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 9) Compare the description and evaluation of 
the current yearâs legal letter responses to the prior yearâs audit 
documentation. If this comparison indicates that certain legal matters 
in the prior year are no longer included, discuss these matters with 
management or legal counsel to obtain an understanding of the reasons 
for the changes; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 10) Determine whether the information in the 
legal representation letter is consistent with managementâs schedule 
summarizing the information in the letter and related supporting 
documentation; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 11) Document and discuss with legal counsel 
if the information obtained is not complete, clear, or consistent; 
Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 12) Evaluate legal counselâs responses and 
determine the effects of the responses on liabilities and related note 
disclosures in the financial statements and on the auditorâs report; 
Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 13) If a response date is substantially in 
advance of the audit report date, for example, earlier than 2 weeks 
prior to date of auditorsâ report, obtain a written or oral update 
response. (The longer the period between the legal letter and the audit 
report date, the more important a written update becomes.); 
Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: II. Reporting Procedures: Obtain a 
representation from management in the management representation letter 
(see FAM 550 and 1001) that the entity has disclosed all unasserted 
claims that legal counsel has advised are probable of assertion that, 
if asserted, would have at least a reasonable possibility of an 
unfavorable outcome and must be disclosed.
1) Discuss the description and evaluation of litigation, claims, and 
assessments obtained with management to determine if, subsequent to the 
date of legal counselâs response, there have been any changes in status 
of the matters, changes in managementâs evaluation of the outcome, or 
additional matters to be evaluated; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: If there are significant changes in the 
status of the matters or new matters, obtain a written confirmation or 
updated response from legal counsel; Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 3) Have management include in the management 
representation letter representations related to contingencies and 
determine if they are appropriately accrued and disclosed as required 
by SFFAS No. 5, as amended. If management has not consulted legal 
counsel, obtain a written representation from management that legal 
counsel has not been consulted. This representation may be incorporated 
in the management representation letter (see FAM 550 and 1001); 
Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 4) Read the entityâs financial statements and 
notes and: a) evaluate the adequacy of financial statement disclosure 
for contingencies with respect to litigation, claims, and assessments; 
b) determine if the financial statement disclosures for contingencies 
with respect to litigation, claims, and assessments are prepared in 
accordance with OMB guidance; and
c) for federal entities involved in litigation for which the Judgment 
Fund is a likely source of judgment or settlement, determine if a note 
to the financial statements discusses the Judgment Fundâs role in the 
payment of a possible loss, as required by FASAB Interpretation No. 2, 
Accounting for Treasury Judgment Fund Transactions; Done by/date: 
[Empty]; 
Doc Ref.: [Empty]. 

Example Audit Procedures: 5) Document conclusions reached concerning 
the accounting for and disclosure of litigation, claims, and 
assessments, determine if adjustments are necessary, and whether 
modification of the auditorâs report is necessary (see FAM 580); 
Done by/date: [Empty]; 
Doc Ref.: [Empty]. 

1002 B â Example Legal Letter Request: 

[Audited Entity Letterhead]: 

Date: [date]: 

To: General Counsel: 
From: Chief Financial Officer [signed]: Subject: [Auditorâs] Audits of 
20X8 and 20X7: 

Financial Statements: 

Pursuant to [cite applicable legal authority to conduct the audit, such 
as 31 U.S.C. 3521], [auditorâs name] is auditing the financial 
statements of [entity] as of and for the years ended September 30, 
20X8, and 20X7. 

In performing audits of government entities, auditors comply with 
Government Auditing Standards, issued by the Comptroller General of the 
United States (the âyellow bookâ). For financial statement audits, 
Government Auditing Standards incorporate the fieldwork and reporting 
standards of the American Institute of Certified Public Accountants 
(AICPA) and the Statements on Auditing Standards that interpret them. 

Consistent with AU 337 of the AICPAâs Codification of Statements on 
Auditing Standards, [auditor] has inquired about litigation, claims, 
and assessments to obtain evidence as to the financial accounting and 
reporting of such matters in the financial statements. The purpose of 
this letter is to request your assistance in responding to that 
inquiry. The American Bar Association Statement of Policy Regarding 
Lawyersâ Responses to Auditorsâ Request for Information (December 1975) 
provides guidance for the lawyerâs response to the auditorâs request. 

In accordance with Statement of Federal Financial Accounting Standards 
(SFFAS) No. 5, Accounting for Liabilities of the Federal Government, as 
amended by SFFAS No. 12, and Interpretation No. 2 of SFFAS No. 4 and 5, 
[entity] may need to report certain information in its financial 
statements and notes concerning contingent liabilities for litigation, 
claims, and assessments. We request that you provide [auditor] (with a 
copy to me) information on matters with respect to which you have been 
engaged and to which you have devoted substantive attention on behalf 
of [entity] in the form of legal consultation or representation. 

Please furnish an interim response by [agreed-upon date], but no later 
than (insert date such as August 29, 20x8), including matters that 
existed as of July 31, 20X8. Please furnish an updated response by 
[agreed-upon date] but no later than (insert date such as October 31, 
20x8) that includes any new legal matters from August 1 through October 
31, 20x8, and any significant changes from your interim response or 
furnish a statement that there are no new changes. (For CFO Act Audits 
only; the auditor and entity should determine appropriate timing for 
other audits.) 

Please include any cases[Footnote 62] with respect to which you have 
been engaged and to which you have devoted substantive attention on 
behalf of the [entity] in the form of legal consultation or 
representation, even those cases for which you believe the Judgment 
Fund or some financing source other than [entity]âs budgetary resources 
will pay any potential loss. Under U.S. generally accepted accounting 
principles, these amounts will be included as liabilities or disclosure 
items in the [entity]âs financial statements. Please aggregate cases 
similar in nature where appropriate. Please list the matters in order 
of the amount of potential loss, starting with the largest. 

Pending or Threatened Litigation (excluding unasserted claims): 

We and [auditor] have determined that any matters (1) for which the 
amount of potential loss exceeds $XX, individually or in the aggregate 
for similar cases, or (2) for which the amount of potential loss 
exceeds $XXX in the aggregate for cases not listed individually or as 
part of similar cases, could be material to the financial statements. 
We request that you provide to [auditor] the information described 
below about pending or threatened litigation where the amount of 
potential loss exceeds $XX: 

1. The nature of the matter. Include a description of the case or cases 
and amount claimed, if specified. 

2. The progress of the case to date. 

3. The governmentâs response or planned response (for example, to 
contest the case vigorously or to seek an out-of-court settlement). 4. 
An evaluation of the likelihood of unfavorable outcome. Please 
categorize likelihood as probable (an unfavorable outcome is likely to 
occur), reasonably possible (the chance of an unfavorable outcome is 
less than probable but more than remote), or remote (the chance of an 
unfavorable outcome is slight). 

5. An estimate of the amount or range of potential loss, if one can be 
made, for losses considered to be probable or reasonably possible. 

6. The name of the [entity]âs legal counsel handling the case and names 
of any outside legal counsel/other lawyers representing or advising the 
government in the matter (Department of Justice or outside law firms). 

We also request that you identify litigation reported in your prior 
year legal representation letter as pending or threatened that is no 
longer pending or threatened and a short description of the 
disposition. 

Unasserted Claims and Assessments: 

[If legal counsel is a part of management use this paragraph.] Please 
provide the following information for all unasserted claims and 
assessments that you consider to be probable of assertion and which, if 
asserted, would have at least a reasonable possibility (more that 
remote) of an unfavorable outcome (1) for which the amount of potential 
loss exceeds over $XX, individually or in the aggregate for similar 
cases, or (2) for which the amount of the potential loss exceeds $XXX 
in the aggregate for cases not listed individually or as part of 
similar cases, involving matters to which you have devoted substantive 
attention. 

[If legal counsel is not part of management, such as an outside legal 
counsel, use this paragraph.] We have provided an attachment to this 
request that lists the unasserted claims and assessments that we 
believe are probable of assertion and which, if asserted, would have at 
least a reasonable possibility (more than remote) of an unfavorable 
outcome (1) for which the amount of potential loss exceeds $XX, 
individually or in the aggregate, for similar cases, or (2) for which 
the amount of potential loss exceeds $XXX in the aggregate for cases 
not listed individually or as part of similar cases, involving matters 
to which you have devoted substantive attention. Please provide the 
following information for each matter and for any additional matters 
that you believe meet these criteria. 

1. A description of the nature of the matter. 

2. The governmentâs planned response if the claim is asserted. 

3. An evaluation of the likelihood of an unfavorable outcome. 
(Categorize likelihood as probable (likely to occur) or reasonably 
possible (less than probable but more than remote).) 

4. An estimate of the amount or range of potential loss, if one can be 
made. 

Please specifically confirm to [auditor] that our understanding of the 
following is correct: Whenever, in the course of performing legal 
services for us, with respect to a matter recognized to involve an 
unasserted possible claim or assessment that may call for financial 
statement disclosure, if you have formed a professional conclusion that 
we should disclose or consider disclosure concerning such possible 
claim or assessment, as a matter of professional responsibility to us, 
you will (1) advise us of your conclusion and (2) consult with us 
concerning the question of such disclosure and the applicable 
requirements of SFFAS No. 5, as amended. 

We request that you describe the cases using the Department of Justice 
forms (one for pending or threatened litigation, another for unasserted 
claims). To obtain the current forms, go to the Department of Justice 
website at [hyperlink, http://www.usdoj.gov/civil/forms/forms.htm]. 

Please separately identify any pending or threatened litigation and 
unasserted claims with respect to which you have been engaged and to 
which you have devoted substantive attention on behalf of the [entity] 
in the form of legal consultation or representation for which you 
believe another government entity will be responsible for any potential 
liability. 

Please specifically identify the nature of and reasons for any 
limitations on your response to this request. 

Please address your reply to [auditor], and contact them at (phone 
number), when your reply is available for pick up, and send a copy of 
your reply to me. Do not hesitate to contact me or [auditor] if you 
have any questions about this request. 

1002 C â Example Legal Representation Letter: [General Counsel 
Letterhead]: 
[Date]: 
[Auditor]: 
[Title]: 
[Agency or Firm Name]: 
[City]: 

Subject: Legal Response in Connection with the 20X8 and 20X7 Financial 
Statement: Audits of [entity name]: 

Dear [Auditor]: 

As General Counsel of [entity], I am writing in response to the legal 
letter request from the [entity]âs Chief Financial Officer (CFO) dated 
[date], in connection with the audit of [entity]âs financial statements 
as of and for the years ended September 30, 20X8 and 20X7 [see FAM 1002 
B]. [In an interim response, add âI will, as further requested by the 
CFO, provide an updated response by [date].â] 

I call your attention to the fact that as General Counsel for [entity], 
I have general supervision of [entity]âs legal affairs. [If the general 
legal supervisory responsibilities of the person signing the letter are 
limited, set forth a clear description of those legal matters over 
which the signer exercises general supervision, indicating exceptions 
to such supervision and situations where the auditor may primary rely 
on other sources.] In such capacity, I have reviewed litigation and 
claims threatened or asserted involving [entity] and have consulted 
with outside legal counsel about them when I have deemed appropriate. 

Subject to the foregoing and to the last paragraph of this letter, I 
advise you that since [insert date of beginning of period under audit] 
neither I, nor any of the lawyers over whom I exercise general legal 
supervision, have given substantive attention to, or represented 
[entity] in connection with (1) loss contingencies [over the amount of 
(state materiality level agreed to with auditor and stated in request 
letter, for example $1 million)], or (2) loss contingencies that are 
less than or equal to [for example, $1 million] but in the aggregate 
exceed, [for example, $5 million] coming within the scope of clause (a) 
of Paragraph 5 of the Statement of Policy referred to in the last 
paragraph of this letter, except as follows: 

[Describe litigation and claims that fit the foregoing criteria as 
follows. General Counsel may use current Department of Justice forms to 
describe the cases (one for pending or threatened litigation, another 
for unasserted claims); see the DOJ website at [hyperlink, 
http://www.usdoj.gov/civil/forms/forms.htm.][Footnote 63] 

Pending or Threatened Litigation: (Excluding unasserted claims and 
assessments, which are discussed below) 

1. Nature of the matter (include a description of the case or cases and 
amount claimed, if specified). 

2. Progress of the case to date. 

3. Current or intended response. 

4. Evaluation of the likelihood of an unfavorable outcome (categorize 
likelihood as probable, reasonably possible, or remote). 

5. Estimated amount or range of potential loss, if determinable, for 
losses considered to be probable or reasonably possible. 

6. Name of [entity]âs legal counsel handling the case and names of any 
outside legal counsel representing or advising the government in the 
matter. 

Pending or threatened litigation that was reported in the prior yearâs 
legal representation letter, which is no longer pending or threatened 
is as follows [Identification of litigation with a short description of 
its disposition.] 

With respect to matters that have been specifically identified as 
contemplated by clauses (b) or (c) of paragraph 5 of the ABA Statement 
of Policy, I advise you, subject to the last paragraph of this letter, 
as follows: 

Unasserted Claims and Assessments (considered to be probable of 
assertion and which, if asserted, would have at least a reasonable 
possibility of an unfavorable outcome) 

1. Nature of the matter. 

2. Intended response if claim would be asserted. 

3. Evaluation of the likelihood of an unfavorable outcome. (Categorize 
likelihood as probable or reasonably possible.) 

4. Estimated amount or range of potential loss, if determinable. 

The information set forth herein is [(as of the date of this letter) or 
(as of (insert date), the date on which we commenced our internal 
review procedures for purposes of preparing this response)], except as 
otherwise noted. [If an interim response, add âUpon receipt of a 
request to update the response, I will provide an updated response, 
which is due on [date],â] {If a final response: I disclaim any 
undertaking to advise you of changes that, after the date of this 
letter, may be brought to my attention or the attention of our lawyers 
over whom I exercise general legal supervision.} 

[The following language is generally consistent with AU 337C) 

This response is limited by, and in accordance with, the ABA Statement 
of Policy Regarding Lawyersâ Responses to Auditorsâ Requests for 
Information (December 1975); without limiting the generality of the 
foregoing, the limitations set forth in such statement on the scope and 
use of this response (Paragraphs 2 and 7) are specifically incorporated 
herein by reference, and any description herein of any âloss 
contingenciesâ is qualified in its entirety by Paragraph 5 of the 
statement and the accompanying commentary (which is an integral part of 
the statement). 

Consistent with the last sentence of Paragraph 6 of the ABA Statement 
of Policy, this will confirm as correct the [entity]âs understanding 
that whenever, in the course of performing legal services for the 
[entity] with respect to a matter recognized to involve an unasserted 
possible claim or assessment that may call for financial statement 
disclosure, I have formed a professional conclusion that the [entity] 
must disclose or consider disclosure concerning such possible claim or 
assessment, I, as a matter of professional responsibility to [entity], 
will so advise the [entity] and will consult with the [entity] 
concerning the question of such disclosure and the applicable 
requirements of Statement of Federal Financial Accounting Standards 
(SFFAS) No. 5, Accounting for Liabilities of the Federal Government, as 
amended by SFFAS No. 12, and Interpretation Number 2 of SFFAS No. 4 and 
5. 

[Describe any other or additional limitation as indicated by Paragraph 
4 of the statement.] 

Sincerely yours, 

[Name of General Counsel]: 
[Title]: 
cc: Chief Financial Officer: 
Attachments (DOJ forms or other case information): 

The auditor should see that management prepare this schedule (or 
equivalent) summarizing the information contained in the legal letters. 
In particular, the auditor should determine that management has 
concluded as to the likelihood of loss about each case to determine 
whether an amount should be recorded in the financial statements and/or 
if note disclosure is necessary for the financial statements to conform 
with U.S. GAAP. Although most information comes directly from the legal 
letter, the auditor should determine that financial staff have 
accurately added the information in the last two columns to indicate 
the disposition of each case in the financial statements. 

Management's Schedule of Information Contained in Legal Letter 
Responses for Financial Reporting Purposes: 

Amounts in thousands: 

Table: 

[See PDF for image] 

[End of figure] 

Guidance for Preparation: 

1. Matters should be listed on this schedule in order of the amount or 
range of potential loss, starting with the largest. 

2. The level of aggregation should generally be at the same level as in 
the general counsel's letter. However, there may be instances where the 
level of aggregation is too high to be able to prepare this schedule in 
a way that is meaningful. In such cases, the auditor should request 
that the CFO work with legal counsel to provide further disaggregation 
of dissimilar cases. There may also be other instances in which a 
higher level of aggregation is desirable. The auditor should request 
that CFOs use professional judgment, considering the purpose of this 
schedule when determining the level of aggregation. 

Column: 

1: Reference key: Page number of legal representation letter obtained 
from General Counsel discussing the case, or other reference 
information. 

2: Amount claimed: Amount claimed in the litigation, claim, or 
assessment (if specified) 

3: Name of case or related cases: Where appropriate, provide name of 
case or aggregated cases which meet materiality threshold. 

4: Likelihood of loss: Indicate management's evaluation of the 
likelihood of loss on individual or aggregated cases. Options: P: 
probable (loss likely to occur); R/P: reasonably possible (the chance 
of loss is less than probable, but more than remote); or R: remote (the 
chance of loss is slight). 

5: Amount or range of potential loss: Options: 5a: Probable (P) -- 
Provide single estimate or lower end of range, if known. Enter "U" if 
unknown. (Also provide column totals.) 

5b: Reasonably possible (R/P) -- Provide single estimate or lower end 
of range, if provided. Enter "U" if unknown. Also provide column 
totals. 

5c: If amounts in P or R/P are ranges, provide upper end of range; 
otherwise, enter "n/a." 

6: Disposition in financial statements - amount recorded: If 
applicable, provide corresponding dollar amount recorded as a liability 
in the financial statements. (Also provide column totals.) 

7: Disposition in financial statements - note disclosure: If 
applicable, indicate by note reference number where case information is 
separately disclosed or included in amounts disclosed in notes to the 
financial statements. (Also provide column totals.) 

1003 - Financial Statement Audit Completion Checklist Entity: 

Job Code: 

Principal Report: 

Other Reports (including management reports and testimonies): 

Instructions: 

.01: This checklist is a tool to help auditors of financial statements 
determine whether they have complied with GAGAS, OMB audit guidance, 
and the FAM. The auditor-in-charge (AIC), audit senior, or audit 
manager should prepare this checklist before the audit completion date 
and sign in section VIII. The assistant director and first partner 
(audit director) should review this checklist before the audit 
completion date and also sign in section VIII. For GAO audits, the 
chief accountant or second partner should review the checklist and sign 
in section IX when engagement quality control review (previously called 
a second partner review) is completed before the audit completion date. 
If the audit is conducted at multiple sites, the site supervisor may 
complete parts of the checklist for each site (with the AIC, audit 
senior, or audit manager completing the overall checklist). While parts 
of the checklist are useful in audit planning, no signatures are 
required on the checklist in the planning phase. 

.02: The detailed questions in this checklist are to be answered âYesâ, 
âNoâ, or âN/A (not applicable)â. For most questions, âNoâ answers 
indicate departures from professional standards or from auditor 
policies. The auditor should explain all âNoâ answers in section VII of 
this checklist and determine the effects and significance of âNoâ 
answers, including any effects on the auditorâs report. Auditors should 
check âN/Aâ when the item does not exist or when the item exists but is 
judged to be not material. Because the checklist is designed for a wide 
range of financial statement audits, there may be many âN/Aâ answers. 
If the reason why a question is not applicable is not obvious, the 
auditor should document the reason on the checklist or in an 
attachment. It is not necessary to create additional documentation to 
support the âYesâ answers, but a column is provided to insert a 
reference to related audit documentation (âRef.â). The questions are 
summarized. For most questions, there is a reference to professional 
literature that provides more detail. 

.03: Section V has questions on GAOâs report considerations and section 
VI has questions on GAOâs quality control. GAO auditors should complete 
these sections. IG auditors and other auditors may use these sections 
or may substitute forms that conform to their reporting style and 
quality controls. 

.04: See FAM 650 related to reviewing this checklist (or equivalent) 
when using the work of others. 

.05: FAM Volume 3 has two checklists, Checklist for Federal Accounting 
(FAM 2010), and Checklist for Federal Reporting and Disclosures, (FAM 
2020), which superseded the July 2004 FAM 1050 checklist. The two 
checklists cover accounting, financial reporting, and disclosure 
requirements related to federal financial statements prepared using 
U.S. GAAP promulgated by FASAB and includes form and content 
presentation contained in OMB Circular No. A-136 (June 29, 2007). The 
AICPA publishes a disclosure checklist for financial statements 
prepared using U.S. GAAP promulgated by FASB. Preparers of entity 
financial statements may document their conformity with U.S. GAAP by 
either: 

* completing the FAM 2010 and FAM 2020 checklists, or 

* completing the AICPA disclosure checklist, as applicable, and a 
supplemental checklist for FASAB requirements, or 

* completing an equivalent checklist that addresses applicable 
accounting, financial reporting, and disclosure requirements. 

Preparers should tailor checklists to the needs of their individual 
entity financial statements and auditors should review finished 
checklists for completeness and accuracy. If the preparer does not 
complete the checklists, the auditor should complete FAM 2010 and FAM 
2020 or equivalent to document the conformity of the entityâs financial 
statements with U. S. GAAP as discussed in FAM 560. 

.06: For GAOâs financial audits, this checklist incorporates, by 
reference, additional job-related documentation requirements. 

.07: For GAOâs financial audits, the chief accountant or second partner 
should perform an engagement quality control review. This review should 
be documented on FAM 1003-29. IG auditors and other auditors should 
determine the need for a similar review as part of their system of 
quality control under GAGAS. 

Contents: 

Section Topic Page: 
I. Planning and Concluding the Audit: II. Key Audit Areas: 
III. Consultation: 
IV. Report: 
V. GAOâs Report Considerations: VI. GAOâs Quality Control: 
VII. Explanation of âNoâ Answers and Other Comments: VIII. Conclusions: 
IX. Engagement Quality Control Review (Second Partner Review): 
References:
AICPA Professional Standards (vol. 1, Auditing): GAO/PCIE Financial 
Audit Manual: Government Auditing Standards (2007 edition): 

Section I: Planning and Concluding the Audit: 1. Has the audit team 
documented that it has a. established an understanding with those 
contracting for the audit, officials of the entity, or others defined 
as the client and those charged with governance as to the objectives of 
the work; managementâs responsibilities; auditorsâ responsibilities; an 
overview of the nature, extent, and timing of planned audit procedures, 
the form, general content, and timing of communications; planned 
reporting on the financial statements, internal control, and 
compliance; the planned level of assurance; any limitations of the work 
and any potential restrictions on the auditorâs reports; and
b. issued an engagement letter, contract, or other written 
communication to describe the terms of the engagement?
(FAM 215 and GAGAS, par. 4.06); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 2. Was an entrance 
conference held? (FAM 215 A); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 3. Does audit 
documentation contain an understanding of the entity, its operations, 
and its internal controls sufficient to assess risk and plan the audit? 
(FAM 290.03-.04); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 4. Does the audit 
documentation contain an adequate audit strategy and audit plan? (FAM 
290.05 and FAM 290.09); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 5. Did the audit team 
adequately perform and document planning steps (FAM 290.05) to include 
a. Perform preliminary analytical procedures? (FAM 225)
b. Determine planning and design materiality and tolerable 
misstatement? (FAM 230) c. Identify the methodology used to assess 
computer-related controls and document the basis for believing that the 
methodology used is appropriate? (GAO auditors should use FISCAM.) (FAM 
240)
d. Identify significant laws & regulations? (FAM 245) e. Identify 
relevant budget restrictions? (FAM 250) f. Design the audit to achieve 
an acceptable level of audit assurance that the financial statements 
are not materially misstated? (GAO uses 95 percent.) (FAM 260)
g. Discuss the susceptibility of the entityâs financial statements to 
material misstatement? (FAM 260) h. Assess inherent risk and the 
overall effectiveness of the control environment, risk assessment, 
communication, and monitoring, including whether weaknesses in the 
control environment, risk assessment, communication, and monitoring 
preclude the effectiveness of specific control activities? (FAM 260)
i. Assess fraud risks, including any related to revenue and to 
management override of controls, and exercise professional skepticism 
throughout the audit? (FAM 260 and FAM 290.08) j. Brainstorm risk of 
material misstatement including fraud risk and error risk? (FAM 260) k. 
Consider the effects of information technology, including service 
centers? (FAM 270) l. Consider operations controls to test? (FAM 275) 
m. Plan other procedures (representation letters, related party 
transactions, sensitive payments)? (FAM 280)
n. Determine locations to be visited? (FAM 285) o. Determine staffing 
requirements? (FAM 290.05) p. Determine timing of procedures and 
milestones? (FAM 290.05)
q. Determine extent of assistance from entity personnel? (FAM 290.05); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 6. Does the audit 
strategy consider findings and recommendations from previous audits 
that could affect the current audit objectives? (GAGAS, par. 4.09); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 7. Did the audit team 
identify budget controls for each relevant budget restriction and 
perform sufficient work to support the conclusions on internal control? 
(FAM 250, 310.06, 330.09); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 8. Did the audit team 
identify compliance controls and perform sufficient work to support the 
conclusions on internal control? (FAM 245, 310.05, 330.10); N/A: 
[Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 9. Did the audit team use 
the work of others (CPA firms, IGs, internal auditors, or specialists)? 
(FAM 650); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 10. Did the audit team 
perform overall analytical procedures, including documentation of a. 
expectations,
b. data/sources,
c. parameters,
d. explanations/corroboration, and e. conclusions?
(FAM 590.04); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 11. Does the 
documentation indicate that the audit team properly performed 
procedures in the reporting phase of the audit (FAM 590) as follows: a. 
Evaluate misstatements, including considering whether any misstatements 
are indicative of fraud? (FAM 540)
b. Bring all uncorrected known and likely misstatements to the 
attention of entity management and those charged with governance? (FAM 
540.07)
c Obtain attorneysâ representations? (FAM 550.02 and FAM 1002)
d. Review subsequent events? (FAM 550.04 and FAM 1005)
e. Obtain management representations? (FAM 550.07 and FAM 1001)
f. Identify and evaluate related party transactions? (FAM 550.12 and 
FAM 1006)
g. Communicate with those charged with governance? (FAM 550.13)
h. Review the consistency of other information in the Annual Financial 
Report? (FAM 580.77); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 12. Does the audit 
summary memorandum or equivalent properly summarize or refer to 
documentation (FAM 590.02-.03) addressing the following? a. Any changes 
from original assessments of the risk of material misstatement, 
materiality, or tolerable misstatement?
b. Additional fraud risks or other conditions identified during the 
audit calling for an additional response and the related response? c. 
The basis for conclusions on significant auditing, accounting, and 
reporting issues? d. Conclusions on adequacy of procedures and 
sufficiency of evidence?
e. The effects of uncorrected misstatements (known and likely) on the 
financial statements? f. Conclusions on financial statements? g. 
Conclusions on internal control? h. Conclusions on whether the entityâs 
financial management systems meet the requirements of FFMIA?
i. Conclusions on compliance with laws and regulations?
j. Conclusions on the consistency of accompanying information with the 
financial statements?; N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 13. Has the audit 
director determined that communications have occurred among the audit 
team members regarding fraud risks and error risks? (FAM 540.19); N/A: 
[Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section I: Planning and Concluding the Audit: 14. Is there 
documentation that a. The director approved deviations from the 
âshouldâ procedures in the FAM and the basis for the deviations? (FAM 
110.28)
b. The auditor complied with âmustâ procedures of professional auditing 
standards as noted in the FAM? (FAM 110.28 and Appendix B); N/A: 
[Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: Planning and Concluding the Audit: Answer 
the questions below for each key audit area or cycle. The key audit 
areas and cycles to which these questions apply are: 
1. Did the audit team prepare the documentation summarizing 
considerations in planning and performing the work in the key audit 
areas and cycles for
a. Cycle Matrix or an equivalent (or documentation in Account Risk 
Analysis or an equivalent) showing links between accounts, cycles, 
applications and line items? (FAM 290.06) b. Account Risk Analysis or 
an equivalent? (FAM 290.07)
c. Cycle Memorandum and/or flowchart or equivalents? (FAM 390.05)
d. Specific Control Evaluation or an equivalent? (FAM 390.07)
e. Written audit plan and procedures? (FAM 390.01) 1. Did the audit 
team prepare the documentation summarizing considerations in planning 
and performing the work in the key audit areas and cycles for
a. Cycle Matrix or an equivalent (or documentation in Account Risk 
Analysis or an equivalent) showing links between accounts, cycles, 
applications and line items? (FAM 290.06) b. Account Risk Analysis or 
an equivalent? (FAM 290.07)
c. Cycle Memorandum and/or flowchart or equivalents? (FAM 390.05)
d. Specific Control Evaluation or an equivalent? (FAM 390.07)
e. Written audit plan and procedures? (FAM 390.01); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: 2. If conditions changed during the course 
of the audit, were the audit strategy, audit plans, and procedures 
modified as appropriate in the circumstances, including evidence of 
first partner/director approval? (AU 311.05); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: 3. When the audit team performed sampling, 
did it properly determine and document the a. method used in relation 
to test objectives, b. sample size and the method of determining the 
sample size,
c. tests performed,
d. results (misstatements and deviations found), e. evaluation 
(including projection to the population), and
f. conclusions? (FAM 490.05a); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: 4. When the audit team performed 
substantive analytical procedures, did it properly document a. 
expectations and the method used to develop them,
b. data sources/reliability,
c. limit/criteria,
d. client explanations and corroborating evidence, e. additional 
procedures, if any and f. conclusions? (FAM 490.05b); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: 5. When the audit team performed interim 
testing, did it a. test the rollforward period,
b. properly document the
i. basis for using interim testing and the line items/ accounts and 
assertions tested, ii. procedures performed, and
iii. effects of any misstatements found? (FAM 495 C.06); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: 6. Did the audit team evaluate the 
reasonableness of significant accounting estimates made by management? 
(AU 342); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: 7. Were known and likely misstatements 
identified in the testing of the key area carried forward to the 
Schedule of Uncorrected Misstatements? (FAM 540.04 and FAM 595 C); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: 8. Did an IS specialist review the 
specific control evaluation to evaluate the audit teamâs decision on 
which controls are computer-related (including controls relating to 
service-center-produced records)? (FAM 350.10); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Based on the risk of material misstatement, did the audit team perform 
adequate substantive audit procedures for line items/accounts on the 
following pages? (If not a key area, check the N/A box.) 

Section II: Key Audit Areas: Fund Balance with Treasury (FBWT) Consider 
these issues: 

* Did the audit team test the entityâs year-end reconciliation of Fund 
Balances with Treasury to Treasury accounts? 

* Did the audit team determine if the entity 

a. researched and resolved differences before making adjustments, 

b. recorded any necessary adjustments in the entityâs FBWT accounts, 

c. reported the adjustments to Treasury, if applicable, and: 

d. disclosed in the notes to the financial statements material 
unreconciled differences and budget clearing account differences at 
year-end, and material unreconciled differences written off by the 
entity during the year? 

* Did the audit team assess (at absolute value) the materiality of 
unreconciled differences, including those in budget clearing accounts?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: Receivables: Consider these issues: 

* If substantive audit procedures were performed prior to year-end, was 
there an adequate review of transactions from the interim date to the 
balance sheet date? (AU 313.08-.09) 

* Were receivables confirmed and appropriate follow-up steps taken, 
including second requests and subsequent collections? (AU 330.30-.32) 

* Are receivables stated at net realizable value after allowance for 
uncollectible accounts? (AU 342.02); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: Inventories: Consider these issues: 

* Were physical inventories observed at locations where material 
amounts were located? (AU 331) 

* If perpetual inventory records are maintained, does the documentation 
indicate that differences disclosed by the physical inventory (or cycle 
counts) are properly reflected in the financial statements? (AU 331) 

* When the physical inventory is taken at a date other than the balance 
sheet date (or where rotating procedures are used), did the auditor 
consider inventory transactions between the inventory date(s) and the 
balance sheet date? (AU 313.08-.09) 

* Does the documentation contain evidence that counts were correctly 
made and recorded (was control over inventory tags or count sheets 
maintained) and test count quantities were reconciled with the counts 
reflected in the final inventory? (AU 331) 

* Were there adequate tests of 

a. clerical accuracy of the inventory, 

b. costing methods and substantiation of costs used in pricing all 
elements of the inventory, and: 

c. cutoff? 

* Were analytical procedures used to test the overall valuation of 
inventories?; N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: Investments Consider these issues: 

* Was a summary schedule prepared (or obtained) and details tested with 
respect to the description, purchase price and date, changes during the 
period, income, market value, etc. of investments? 

* Were securities either examined or confirmed? (AU 332); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: Property, Plant, and Equipment Consider 
these issues:
* Was a summary schedule prepared (or obtained) to show beginning 
balances, changes during the period, and ending balances for
a. property, plant, and equipment, and b. accumulated depreciation
and were significant activity and balances tested, particularly for 
existence and other significant assertions?
* Were property items capitalized or expensed in accordance with 
consistent capitalization limits?
* Did the audit team perform tests of completeness, such as testing 
from disbursements to property records?
* Do the tests appear adequate and were proper conclusions drawn?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: Liabilities Consider these issues: 
* Did the audit team perform an adequate search for unrecorded 
liabilities?
* Did the audit team consider expenses that might require accrual 
(e.g., pensions, compensated absences, other postretirement benefits, 
or postemployment benefits provided to former or inactive employees 
prior to retirement), and whether accrued expenses were reasonably 
stated?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Key Audit Areas: Liabilities: Consider these issues:
* Did the audit team perform an adequate search for unrecorded 
liabilities?
* Did the audit team consider expenses that might require accrual 
(e.g., pensions, compensated absences, other postretirement benefits, 
or postemployment benefits provided to former or inactive employees 
prior to retirement), and whether accrued expenses were reasonably 
stated?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Revenue and Expenses: Consider these issues:
* Did the audit team compare revenue and expenses for the period to 
expectations, based on the budget and the results of the preceding 
period? (AU 329)
* For significant variances and fluctuations from expectations, were 
managementâs explanations corroborated with other audit evidence or if 
explanations could not be obtained, were other audit procedures 
performed to determine whether the variance is a misstatement? (AU 329)
* Did the audit team consider
a. the entityâs revenue recognition policy, b. unusual transactions, and
c. fraud risks?
* Do tests appear adequate, and were proper conclusions drawn?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section II: Statement of Budgetary Resources: Consider these issues:
* Were appropriate procedures applied, such as a. understanding and 
testing the budget execution controls,
b. tests of the process of preparing the statement,
c. tests of undelivered orders, and d. review of reconciliation to the 
Presidentâs Budget?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section III: Consultation: 
1. Where warranted by the complexity or unusual nature of an issue (for 
example, issues where the FAM requires consultation, issues not 
discussed in the FAM or professional standards, going concern issues, 
economic dependency issues, issues arising after report issuance), was 
there appropriate consultation with specialists, including the: 
* Reviewer, 
* Statistician,
* Office of General Counsel, and
* Technical Accounting and Auditing Expert? (FAM 100.26 and FAM 
Appendix A); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section III: Consultation: 
2. Were significant consultations appropriately documented? (FAM 
100.26); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section III: Consultation: 
3. Were the persons consulted made aware of all relevant facts and 
circumstances?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
1. Does the auditorâs report or document containing the auditorâs 
report (FAM 580.04, 580.77) include a. highlights page or executive 
summary (for GAO reports);
b. transmittal letter (if appropriate); c. conclusions on:
i. financial statements,
ii. internal control,
iii. whether the entityâs financial management systems substantially 
complied with the requirements of the Federal Financial Management 
Improvement Act of 1996 (FFMIA) for CFO act agencies,
iv. compliance with laws and regulations, and v. consistency of other 
information with financial statements?
d. objectives, scope, and methodology, including description of 
instances where GAGAS and OMB audit guidance were not followed; and e. 
entity comments and auditor evaluation?; N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
2. Is the auditorâs report (FAM 580) appropriate as to a. wording,
b. scope of work,
c. U.S. GAAP,
d. explanatory paragraphs,
e. opinion/disclaimer on financial statements, f. opinion/conclusions 
on internal control, g. conclusions on whether the entityâs financial 
management systems substantially comply with the requirements of FFMIA 
(for CFO Act agencies), and
h. reporting on compliance with laws and regulations?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
3. Is background material (purpose, authority, and functions of 
programs/activities) limited to what is necessary?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
4. Is the auditorâs report dated when all appropriate, sufficient audit 
evidence is obtained to support the opinion and all significant issues 
are resolved? (AU 530, FAM 580); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
5. Does the auditorâs report cover all periods for which financial 
statements are presented? (AU 508.65); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
6. If the financial statements of a prior period are presented and have 
been audited by a predecessor auditor whose report is not presented, 
does the auditorâs report refer to the predecessor auditorâs report? 
(AU 508.74); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
7. Does the auditorâs report describe the responsibility the auditor is 
taking for supplementary information, including stewardship 
information? (AU 551; FAM 580.78-.81); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
8. When illegal acts involve funds received from other governmental 
entities, did the audit team a. satisfy itself that the audited entity 
notified the proper officials of those entities within a reasonable 
time?
b. report these acts to the officials of those other governmental 
entities if the entity did not, or was unable to do so because the top 
official was involved? (GAGAS, par. 5.15-.18); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
9. Does the auditorâs report include a. identification of which matters 
are significant deficiencies and which are material weaknesses (GAGAS, 
par. 5.11), and
b. presentation of all identified (1) instances of fraud and illegal 
acts that are more than inconsequential, (2) material violations of 
provisions of contracts or grant agreements, and (3) material abuse? 
(GAGAS, par. 5.15); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
10. When appropriate, did the audit team report directly to outside 
parties on fraud; illegal acts; violations of provisions of contracts 
or grant agreements; or abuse? (GAGAS, par. 5.18); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
11. Did the auditor consider the status of all known significant 
findings and recommendations from prior audits that affect the current 
year report, including whether any failure to correct previously 
identified deficiencies in internal control is a significant deficiency 
or material weakness? (GAGAS pars. 5.11- .14.); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
12. Did the auditor document the basis to support (FAM 580.01) the
a. opinion about whether the financial statements and disclosures 
comply in all material respects with U.S. GAAP (FAM 560),
b. opinion/conclusion on internal control, c. conclusion on whether the 
entityâs financial management systems substantially comply with the 
requirements of FFMIA, (for CFO act agencies), and
d. conclusion on compliance with laws and regulations?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
13. Did the auditor document the basis for reported findings on
a. internal control deficiencies, including classification of control 
deficiencies as material weaknesses, other significant deficiencies, or 
other control deficiencies (FAM 590.05), b. entityâs financial 
management systems lack of substantial compliance with the requirements 
of FFMIA for CFO act agencies (FAM 590.06), and c. noncompliance with 
laws and regulations (FAM 590.07), if any?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
14. Did the auditor develop the elements of audit findings to include 
(where appropriate and known) the a. condition (describe the existing 
situation), b. criteria (state what we are comparing to), c. cause 
(reflect reason or reasons why the condition and criteria differ), and 
d. effect (describe the result of the difference between the condition 
and criteria)? (GAGAS paragraphs 4.14-.18); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
15. Are recommendations and suggestions reasonable, doable, and cost-
effective?; 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
16. Does the report obtain the views of responsible officials in agency 
comments to include: a. either oral or written comments, b. titles of 
senior official(s) involved, c. accurate characterization of general 
agreement or disagreement with the report, d. description of the 
substance of the comments, and
e. auditor evaluation of the comments, particularly if they disagree, 
are inconsistent, or conflict with the report findings, conclusions, or 
recommendations.
(GAGAS paragraphs 5.32-.37); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section IV: Report: 
17. Are there control deficiencies that do not meet the criteria for 
significant deficiencies and do not affect the auditorâs conclusions as 
to the effectiveness of internal controls that the auditor may 
communicate orally or in a separate management report? If so, did the 
auditor document any oral communications? (FAM 580.49, FAM 590.05, and 
GAGAS par. 5.14); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section V: GAOâs Report Considerations: 1. Overall, does the GAO report 
have the following characteristics a. Professional: The work reflects 
an understanding of the issues, an awareness of the external 
environment, including sensitivity to relevant trends, and a practical 
approach to what can be done to deal with the problems noted. b. 
Accurate: Information and findings are presented accurately with no 
notable errors in logic or reasoning. c. Objective: The presentation is 
fair and impartial and the tone is constructive and objective.
d. Fact-based: Information and findings are stated completely, which 
includes all necessary facts and/or explanations without unproven or 
uncorroborated material, and any conflicting evidence is resolved.
e. Balanced: Sound and logical evidence is presented to support 
conclusions, adjectives or adverbs are not used to characterize 
evidence in a way that implies criticism or conclusions by innuendo, 
and positive aspects of programs or issues reviewed are appropriately 
recognized.
f. Timely and Useful: Relevant and timely information is presented.
g. Clear and Concise: The presentation is clear, concise, and well 
organized with the message presented logically in a writing style 
adapted to the audience; Yes: [Empty]. 

Section VI: GAOâs Quality Control: 1. Was the GAO report reviewed by 
the a. audit director (first partner), b. engagement quality control 
reviewer (second partner),
c. Office of the General Counsel (form 124A), d. Applied Research & 
Methods (form 124C), and e. other stakeholders (form124C); N/A: 
[Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section VI: GAOâs Quality Control: 3. Did the assistant director review 
the a. entity profile or equivalent (FAM 290.04), b. audit strategy (AU 
311.13-.14) or equivalent, including sampling approach (FAM 290.05), c. 
account risk analyses or equivalent (FAM 290.07), d. initial audit plan 
with procedures (FAM 290.09), e. line item/account lead schedules, f. 
completed audit plan with procedures (FAM 290.09),
g. specific control evaluations (FAM 330.07), h. audit summary 
memorandum (FAM 590.02-.03), i. Checklist for Federal Accounting (FAM 
2010) and Checklist for Federal Reporting and Disclosures (FAM 2020) 
for statements using U.S. GAAP promulgated by FASAB,
j. financial reporting and disclosure checklist for statements using 
GAAP promulgated by FASB, k. management representation letter (FAM 
1001), l. legal representation letter (FAM 1002), m. schedule of 
uncorrected misstatements (FAM 595 C),
n. exit conference memorandum (FAM 590.10), o. GAO report with entity 
financial statements and related disclosures,
p. referencing review sheet (GAO form 92), q. GAO abbreviated audit 
documentation set, and r. this audit completion checklist (FAM 1003)? 
(FAM 1301.17); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section VI: GAOâs Quality Control: 4. Did the assistant director 
determine that all significant review notes were resolved 
appropriately? (FAM 1301.27-.28); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section VI: GAOâs Quality Control: 5. Did the assistant director 
indicate that all documentation was sufficiently reviewed? (FAM 
1301.05); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section VI: GAOâs Quality Control: 6. Were review notes, superseded 
versions of documentation, and draft reports (except the referenced 
draft and the draft sent to the entity for comment), including review 
notes and superseded versions in electronic form, placed in a separate 
folder to be retained until the report is released, after which they 
may be destroyed or deleted electronically up to 60 days after the 
report release date? (FAM 1301.28); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section VI: GAOâs Quality Control: 7. Were review responsibilities 
documented and communicated to all individuals on the assignment? (FAM 
1301.23); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section VI: GAOâs Quality Control: 8. Was documentation prepared by an 
IS specialist reviewed by an IS manager or IS assistant director for 
technical content and by a member of the audit team to determine that 
related audit objectives were achieved? (FAM 1301.24); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section VI: GAOâs Quality Control: 9. For areas that are both material 
and have high risk of material misstatement, did the audit director or 
assistant director perform secondary reviews of the documentation? (FAM 
1301.12); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section VI: GAOâs Quality Control: 10. Was all documentation prepared 
by the audit director or assistant directors read by the auditor-in-
charge to determine its consistency with any related documentation? 
(FAM 1301.15); 
N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section VI: GAOâs Quality Control: 11. If the documentation indicated a 
difference of opinion between engagement personnel or between 
engagement personnel and a specialist or other person consulted, was 
the difference resolved appropriately and was the basis of the 
resolution documented? (FAM 1302); N/A: [Empty]; 
Yes: [Empty]; 
No*: [Empty]; 
Ref.: [Empty]. 

Section VII: Explanation of âNo*â Answers and Other Comments: 

The page below is provided for comments on all âNo*â answers or to 
expand upon any of the âYesâ and âN/Aâ answers as needed, and may be 
modified as necessary.
* For some questions, âNoâ answers may indicate departures from 
professional standards or from auditor policies. The auditor should 
explain all âNoâ answers below and determine the effects and 
significance of âNoâ answers, including any effect on the auditorâs 
report. 

Section VIII: Conclusions: Based on your review and knowledge, do you 
believe: 1. The audit team performed the engagement, in all material 
respects, in accordance with GAGAS (which include U.S. GAAS) and 
applicable OMB guidance, or the auditorâs report was appropriately 
modified?; 
Yes: [Empty]; 
No**: [Empty]. 

Section VIII: Conclusions: 2. The financial statements conformed, in 
all material respects, with U.S. GAAP, or the auditorâs report was 
appropriately modified?; Yes: [Empty]; 
No**: [Empty]. 

Section VIII: Conclusions: 3. The auditorâs report was appropriate in 
the circumstances?; Yes: [Empty]; 
No**: [Empty]. 

Section VIII: Conclusions: 4. The documentation on this engagement 
supports the auditorâs â¢ opinion on the financial statements, â¢ 
opinion/conclusions on internal control, â¢ conclusions on whether the 
entityâs financial management systems substantially comply with the 
requirements of FFMIA (for CFO act agencies), and
â¢ conclusions on compliance with laws and regulations; Yes: [Empty]; 
No**: [Empty]. 

Section VIII: Conclusions: 5. The audit team complied, in all material 
respects, with the audit organizationâs policies and procedures; Yes: 
[Empty]; 
No**: [Empty]. 

** If any of the above 5 statements have âNoâ responses, please 
describe the response in a memorandum to the reviewer. 

Date of audit completion: 
Auditor-In-Charge: 
Date: 
Audit Manager: 
Date: 
Assistant Director: 
Date: 
Audit Director: 
Date: 

Section IX: Engagement Quality Control Review (Second Partner[Footnote 
64] Review): 

Objective of second partner review: To objectively review significant 
auditing, accounting, and reporting matters and to conclude, based on 
all facts the reviewer has knowledge of, that, except as discussed in 
the report, no matters were found that caused the second partner to 
believe that (1) the audit was not performed in accordance with GAGAS 
and OMB audit guidance (if applicable), (2) the financial statements 
are not, in all material respects, in conformity with U.S. GAAP, and 
(3) the report does not meet professional standards and the auditorâs 
policies and core values. Procedures: Before the report was issued, I 
performed the following procedures: 

* Discussed significant auditing, accounting, and reporting issues with 
the audit director (first partner); 

* Discussed the audit teamâs identification of high-risk balances and 
transactions and the audit of those balances and transactions; 

* Reviewed documentation on the resolution of significant auditing, 
accounting, and reporting issues, including documentation of 
consultation with statisticians, IS specialists, and others; 

* Reviewed the summary of uncorrected misstatements; 

* Read the audit summary memorandum; 

* Read the entity financial statements, audit report, and related 
disclosures; and 

* Confirmed with the audit director (first partner) that there are no 
unresolved issues. 

Conclusion: 

Based on all the relevant facts of which I have knowledge, I found no 
matters, except as discussed in the report, that cause me to believe 
that (1) the audit was not performed in accordance with GAGAS and OMB 
audit guidance (if applicable), (2) the financial statements are not, 
in all material respects, in conformity with U.S. GAAP, and (3) the 
report is not in accordance with professional standards and the 
auditorâs policies and core values.
In signing this form, I acknowledge that there have been no personal or 
external impairments to independence regarding my work on this 
engagement. 

Engagement quality control reviewer name & title: 

Signature: 

Date: 

1005 - Subsequent Events Review: 

.01: This section deals with the subsequent events review that the 
auditor must perform as part of the audit, as described in FAM 550. AU 
560 describes and provides guidance on the types of subsequent events 
the auditor should evaluate as well as the procedures that the auditor 
generally should perform to discover whether such events have occurred. 

.02: Subsequent events are those events or transactions that may occur 
or become known subsequent to the date of the financial statements but 
before the audit report is issued and that have a material effect on 
the financial statements which the auditor should ask management to 
adjust the financial statements for the effect of the event or disclose 
the event. 

.03: Two types of subsequent events may occur: 

* Events occurring after the date of the financial statements that 
provide additional information about conditions existing at the date of 
the financial statements and that affect amounts recorded (or which 
management should record) in the financial statements. For example, a 
subsequent event may reveal that an accounting estimate is materially 
incorrect and that the auditor should ask management to adjust the 
financial statements for the effect of the event. 

* Events occurring after the date of the financial statements that 
provide information about conditions that did not exist at the date of 
the financial statements. The auditor should not ask management to 
adjust the financial statements for these events, but disclosure of 
them may be necessary to prevent the statements from being misleading. 
For example, a fire or flood after year-end may cause a significant 
loss. 

.04: The purpose of a subsequent events review is to determine whether 
all subsequent events that have a material effect on the financial 
statements have been considered and treated appropriately in the 
financial statements. The subsequent period covered is from the date of 
the financial statements to the date of the audit report, which is the 
date of the completion of thea audit.[Footnote 65] 

Audit Procedures: 

.05: At or near the completion of the audit, the auditor should perform 
procedures to be aware of any subsequent events that the auditor may 
ask management to adjust or disclose in the financial statements. These 
procedures are in addition to substantive tests that the auditor may 
apply to transactions occurring after the date of the financial 
statements, such as examining subsequent disbursements to test 
completeness of accounts payable. 

.06: The following program describes audit procedures that the auditor 
may perform as part of a subsequent events review. The auditor 
generally should customize the procedures for the particular entity. 

Entity: 

Period of financial statements: 

Job code: 

Subsequent Events Review Program -- Audit Procedures: I. Read Interim 
Financial Statements: 1) Compare the latest available interim financial 
statements, if any, with the financial statements under audit to 
identify any unusual adjustments and investigate any significant 
variations from expectations.
2) Inquire as to whether the interim statements have been prepared on 
the same basis as the annual statements.
3) For items in the statement of net costs, compare to similar interim 
financial statements of the prior year; determine expectations and 
investigate any significant variations from expectations.
4) If interim financial statements are not available: a) Compare 
interim internal financial reports or analyses, budgets, or cash-flow 
forecasts, considering any adjustments to the internal reports that may 
be necessary to make meaningful comparisons.
b) Review the accounting records prepared since the date of the 
financial statements for material transactions that may require 
adjustment to or disclosure in the financial statements. For example, 
scan the general ledger and/or journals for material, unusual entries; 
Done by/date: [Empty]; 
Doc. Ref.: [Empty]. 

Subsequent Events Review Program -- Audit Procedures: II. Make 
Inquiries of Management as to: 1) Whether any significant contingent 
liabilities or commitments existed at the date of the financial 
statements or at the date of the inquiry. 2) Whether any significant 
changes occurred in the financial condition of the entity or in net 
position or long-term debt.
3) The current status of items in the financial statements that were 
accounted for on the basis of tentative, preliminary, or inconclusive 
data. 4) Whether any significant changes in estimates were made with 
respect to amounts included or disclosed in the financial statements, 
or any significant changes in assumptions or factors were considered in 
determining estimates.
5) Whether any unusual adjustments were made during the period from the 
date of the financial statements to the date of inquiry.
6) Whether any significant events occurred subsequent to the date of 
the financial statements, such as commitments or plans for major 
capital expenditures; lawsuits or claims filed or settled other than 
those disclosed in the lawyersâ letters; changes in accounting and 
financial policies; or losses as a result of fire, flood, or other 
disaster; Done by/date: [Empty]; 
Doc. Ref.: [Empty]. 

Subsequent Events Review Program -- Audit Procedures: III. Read 
Minutes: 1) Read the available minutes of meetings of those charged 
with governance such as entity management committees, audit committees, 
or other appropriate groups, including the period after the date of the 
financial statements, for information about events or transactions 
authorized or discussed which may require adjustment to or disclosure 
in the financial statements.
2) With regard to meetings for which no minutes are available, inquire 
about matters dealt with at such meetings and conclusions reached; Done 
by/date: [Empty]; 
Doc. Ref.: [Empty]. 

Subsequent Events Review Program -- Audit Procedures: IV. Cover in 
Lawyersâ Letters: 1) Confirm litigation, claims, and assessments and 
unasserted claims and assessments with the entityâs legal counsel per 
AU 337. See FAM 550 and FAM 1002; Done by/date: [Empty]; 
Doc. Ref.: [Empty]. 

Subsequent Events Review Program -- Audit Procedures: IV. Cover in 
Lawyersâ Letters: 1) Confirm litigation, claims, and assessments and 
unasserted claims and assessments with the entityâs legal counsel per 
AU 337. See FAM 550 and FAM 1002; Done by/date: [Empty]; 
Doc. Ref.: [Empty]. 

Subsequent Events Review Program -- Audit Procedures: V. Cover in 
Management Representation Letter: 1) Have management include 
representations in its management representation letter as to whether 
any events occurred subsequent to the date of the financial statements 
that management should adjust or disclose in the financial statements. 
See FAM 1001; Done by/date: [Empty]; 
Doc. Ref.: [Empty]. 

Subsequent Events Review Program -- Audit Procedures: VI. Other: 1) Use 
other sources of information to learn of subsequent events, such as:
a) Talk to inspector general or internal audit department.
b) Talk to program divisions.
c) Read newspapers.
2) Make additional inquiries or perform additional procedures deemed 
necessary to resolve any questions raised in the foregoing audit steps. 
3) Prepare a summary memo documenting the results of the above and 
conclusions reached; Done by/date: [Empty]; 
Doc. Ref.: [Empty]. 

[End of section] 

Footnotes: 

[1] The term âauditor,â throughout the FAM includes individuals who may 
be titled auditor, analyst, evaluator, or have a similar position 
description. 

[2] IG audits are used by GAO as principal auditor of the U.S. 
government consolidated financial statements. For the GAO audit of the 
Bureau of Public Debt (BPD), GAO is the other auditor and the CPA firm 
under contract to the Treasury IG is the principal auditor when it 
reports on the Treasury Department consolidated financial statements. 

[3] The AICPA also issued Practice Alert 2002-02, Use of Specialists. 

[4] IGs are designated by the CFO Act to audit their agencies, but have 
the authority to contract with another auditor to perform the audits. 
GAO is mandated by 31 U.S.C. 331(e) to audit the U.S. governmentâs 
consolidated financial statements. 

[5] There may be situations where the auditor is asked to provide a 
separate opinion in addition to presenting the other auditorsâ report, 
or serves as the contracting officerâs technical representative (COTR). 
In these situations, the auditor should follow the wording in FAM 595 A 
and/or FAM 595 B, and should add the following in lieu of the 
introduction to the first paragraph on FAM 595 A-5: âTo help fulfill 
these responsibilities, we contracted with the independent certified 
public accounting firm of [insert firm name] to perform a financial 
statement audit in accordance with U.S. generally accepted government 
auditing standards, OMB's bulletin, Audit Requirements for Federal 
Financial Statements, and the GAO/PCIE Financial Audit Manual. The 
report of [name of CPA firm] dated [date] is attached. We evaluated the 
nature, extent, and timing of the work, monitored progress throughout 
the audit, reviewed the audit documentation of [name of CPA firm], met 
with partners and staff members of [name of firm], evaluated the key 
judgments, met with officials of [entity being audited], performed 
independent tests of the accounting records [if applicable], and 
performed other procedures we deemed appropriate in the circumstances. 
Our opinions expressed above are consistent with the opinions of [name 
of CPA firm]. 

[6] Under the CFO Act, if an executive agency IG is not performing the 
audit of the agencyâs financial statements, required under 31 U.S.C. 
3515, the IG is required to determine the independent external auditor 
(CPA firm) that will perform the work. 

[7] Obtaining a representation from an appropriate official of the 
audit organization is similar to the procedure for CPA firms under AU 
543.10b. 

[8] Some CPA firms consider internal inspection reports as proprietary 
documents not subject to auditor review. This issue can be resolved by 
either allowing the auditor access to inspection reports or providing 
the auditor with a summary or representation about inspection results 
as a condition of the contract. 

[9] Further information on the PCAOB inspection report process is 
available at [hyperlink, http://www.pcaobus.org]. 

[10] The auditor may refer to the AICPA Practice Aid, Establishing and 
Maintaining a System of Quality Control for a CPA Firmâs Accounting and 
Auditing Practice (2007) and GAGAS 3.55-3.63. 

[11] Sufficiency is the measure of the quantity of evidence. 
Appropriateness is the measure of the quality of audit evidence, that 
is, its relevance and reliability in providing support for, or 
detecting misstatements in, the classes of transactions, account 
balances, and disclosures and related assertions. These measures 
originated in SAS No. 106, Audit Evidence, and are codified at AU 
326.08. They are effective for audits of financial statements for 
periods beginning on or after December 25, 2006. 

[12] This could be the PCAOB inspection report for a CPA firm. 

[13] If the other auditors did not provide an opinion (i.e., did not 
give positive assurance) on whether the entityâs systems complied with 
FFMIA, change this to âno instances in which entityâs financial 
management systems did not substantially complyâ (negative assurance). 

[14] If the other auditors did not provide an opinion on internal 
control, change this to âthere were no material weaknesses in internal 
controlâ (and include a definition of material weakness in a footnote). 

[15] If the other auditors did not provide an opinion (i.e., did not 
give positive assurance) on whether the entityâs systems complied with 
FFMIA, change this to âno instances in which entityâs financial 
management systems did not substantially complyâ (negative assurance). 

[16] Non-GAO auditors may combine bullets 3 and 4. 

[17] If the other auditors did not provide an opinion on internal 
control, change this to read âconclusions about the effectiveness of 
internal control.â 

[18] If the other auditors did not provide an opinion on FFMIA change 
âopinionâ to âconclusions.â 

[19] If the auditor found that the other auditors did not comply with 
GAGAS, or if the auditor disagrees with the other auditorsâ 
conclusions, see FAM 650.54-.56. 

[20] This example assumes the other auditors opined on internal control 
and on whether the financial management systems substantially complied 
with FFMIA. If the other auditors provided negative assurance, 
appropriate changes are needed. 

[21] If the auditor does not concur with the other auditorsâ report, 
see FAM 650.54-.56. 

[22] The auditor may request the users to document their agreement with 
the procedures and their sufficiency for their purposes by signing the 
engagement letter and returning it to the auditor. 

[23] The FAM addresses FFMIA as part of internal control. OMB audit 
guidance dated September 4, 2007, no longer lists FFMIA in Appendix E 
as a general law for compliance with laws and regulations (FAM 800). 

[24] The Financial Systems Integration Office (FSIO) coordinates work 
related to federal financial management systems requirements and OMBâs 
Office of Federal Financial Management (OFFM) issues new or revised 
systems requirements. All documents and other guidance related to 
financial management system requirements initially issued by JFMIP were 
transferred to OFFM and remain in effect until modified. 

[25] JFMIP SR -01-04. 

[26] Shared systems are governmentwide systems used by agencies with 
information and data definitions common to all users. 

[27] As part of the realignment of JFMIP, in December 2004, the 
responsibility for certifying core financial management systems was 
transferred to FSIO. 

[28] GFRS is the Governmentwide Financial Reporting System used since 
FY 2004 to collect audited financial statements (closing package) from 
verifying (larger) federal agencies. FACTS is Treasuryâs Federal 
Agenciesâ Centralized Trial-Balance System for non-verifying (smaller) 
federal entities. FACTS I collects trial balance information at the 
fund group level using the SGL for inclusion in the Annual Financial 
Report of the U.S. Government. FACTS II collects mostly budgetary 
information for reporting in the Budget of the United States 
Government. 

[29] Plan of Action and Milestone (POAM) reports required by OMB under 
FISMA. 

[30] The Joint Financial Management Improvement Program (JFMIP), 
Financial Systems Integration Office (FSIO) provides core financial 
management systems requirements to be included in Commercial-Off-The- 
Shelf (COTS) applications. 

[31] These tools are based on the best practices guidance received from 
the participating accounting and auditing firms and the AICPA 
publication, Practice Alert No. 95-3, Auditing Related Parties and 
Related Party Transactions. 

[32] A permanent, indefinite appropriation, commonly known as the 
Judgment Fund, is available to pay final judgments, settlement 
agreements, and certain types of administrative awards against the 
United States when payment is not otherwise provided for. The Secretary 
of the Treasury certifies all payments from the fund. (See 31 U.S.C. 
1304, Judgments, awards, and compromise settlements.) FASAB 
Interpretation No. 2 clarifies how federal entities report the costs 
and liabilities arising from claims to be paid by the Judgment Fund and 
how the Judgment Fund accounts for the amounts that it is required to 
pay on behalf of federal entities. 

[33] In accordance with OMB Circular No. A-136, examples of 
unreimbursed costs that reporting entities are required to recognize 
include (but are not limited to): (1) employeesâ pension, post-
retirement health and life insurance benefits, (2) other post-
employment benefits for retired, terminated, and inactive employees, 
which includes unemployment and workers compensation under the Federal 
Employeesâ Compensation. 

[34] Act (5 U.S.C. Ch. 81), and (3) losses in litigation proceedings 
(see FASAB Interpretation No. 2, Accounting for Treasury Judgment Fund 
Transactions). In the case of employee benefits, the imputed amount is 
the difference between employer/employee contributions and the total 
cost of the benefit. 

[35] Trading partners are federal agencies, bureaus, programs or other 
entities (within or between entities) participating in transactions 
with each other as related parties. 

[36] The Government Wide Accounting (GWA) system is being implemented 
over the next several years and the SOD is scheduled to be eliminated 
(see FAM 921.11-.12). 

[37] Reciprocal accounts are corresponding SGL accounts seller and 
buyer entities use to record like intragovernmental transactions. For 
example, the seller entityâs accounts receivable would normally be 
reconciled to the reciprocal account, accounts payable, on the buyer 
entityâs records. Examples of these accounts are in FMSâ Federal 
Intragovernmental Transactions Accounting Policies Guide. 

[38] Reliability of performance reporting will be excluded from the 
internal control definition effective starting in fiscal year 2008. 

[39] Appropriations may be annual, multiyear, or no-year. 

[40] The closed group is defined as those persons who, as of a 
valuation date, are participants in a social insurance program as 
beneficiaries, covered workers, or payers of earmarked taxes or 
premiums. 

[41] The closed group is defined as those persons who, as of a 
valuation date, are participants in a social insurance program as 
beneficiaries, covered workers, or payers of earmarked taxes or 
premiums. 

[42] The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173, created a new prescription drug benefit 
under Medicare Part D, which is also covered by SFFAS No. 17. 

[43] The actuary can either be under contract with the independent 
auditor or employed by the independent audit organization. In either 
case, the actuary performing services for the auditor would need to 
meet the independence standards of GAGAS, which are applicable to 
audits of Statements of Social Insurance. 

[44] Income (excluding interest) consists of payroll taxes from 
employers, employees, and self-employed persons, revenue from federal 
income taxation of scheduled OASDI benefits, and miscellaneous 
reimbursements from the General Fund of the Treasury. 

[45] Paragraph 25 of SFFAS No. 17, Accounting for Social Insurance, 
states, in part, âThe projections and estimates used should be based on 
the entityâs best estimates of demographic and economic assumptions, 
taking each factor individually and incorporating future changes 
mandated by current law.â Certain entities prepare social insurance 
information using assumptions prepared by a board of trustees. Auditors 
should consider such assumptions to represent the entityâs âbest 
estimatesâ if the trustees have characterized them as such, and entity 
management has determined them to be reasonable. With respect to these 
assumptions, the auditor should perform audit procedures that are 
consistent with the guidance in paragraphs 9 through 36 of SOP 04-1. 

[46] The verifying agencies are the 24 CFO Act agencies and 11 other 
federal agencies. 

[47] The closing package process is a methodology designed to link 
agenciesâ comparative, audited consolidated, department-level financial 
statements to the FR. The closing package is the data submitted by each 
verifying agency for inclusion in the FR. 

[48] Beginning in fiscal year 2006, TFM 2-4700 included these 
requirements. The process and modules used by FMS to prepare the 
consolidated Statements of Social Insurance and accompanying notes, and 
supplemental information included in the FR may change in future years, 
based on changes that may be made by FMS to TFM 2-4700. 

[49] SFFAS No. 17, paragraph 27 (a)(1). 

[50] SFFAS No. 17, paragraph 32 (a)(1). 

[51] Financial interchange (FI) income consists of transfers from the 
social security trust funds under a financial interchange between the 
railroad retirement and the social security systems. While the railroad 
retirement system has remained separate from the social security 
system, the two systems were closely coordinated with regard to 
earnings credits, benefit payments, and taxes. The purpose of this 
financial coordination is to place the Social Security Old-Age 
Survivors and Disability Insurance (OASDI) and Hospital Insurance (HI) 
trust funds in the same position they would have been in if railroad 
services were covered by the Social Security and Federal Insurance 
Contribution acts. 

[52] SFFAS No. 17, paragraph 30. 

[53] When there is no general counsel and management has not consulted 
legal counsel with regard to contingencies, the auditor should obtain a 
written representation from management that legal counsel has not been 
consulted. Such representation may be incorporated as an item in the 
management representation letter. (See FAM 550 and FAM 1002.24.) An 
example item is: âWe are not aware of any pending or threatened 
litigation, claims, or assessments or unasserted claims or assessments 
that are required to be accrued or disclosed in the financial 
statements in accordance with SFFAS No. 5. We have not consulted legal 
counsel concerning litigation, claims, or assessments.â (See FAM 1001 
A.) 

[54] SFFAS No. 27 does not use the term âearmarkedâ as it is sometimes 
used to refer to set-asides of appropriations for specific purposes. 

[55] SFFAS No. 27 does not use the term âearmarkedâ as it is sometimes 
used to refer to set-asides of appropriations for specific purposes. 

[56] Including environmental and disposal liabilities -- a contingency 
that is often a significant issue for the federal government. 

[57] SFFAS No. 7 has guidance for reporting claims for tax refunds. 
Rather than recognizing probable claims and disclosing other claims in 
the notes to the financial statements, SFFAS No. 7 indicates that other 
claims for refunds that are probable should be included as 
supplementary information. 

[58] A permanent, indefinite appropriation, commonly known as the 
Judgment Fund, is available to pay final judgments, settlement 
agreements, and certain types of administrative awards against the 
United States when payment is not otherwise provided for. The Secretary 
of the Treasury certifies all payments from the fund. (See 31 U.S.C. 
1304, Judgments, awards, and compromise settlements.) FASAB 
Interpretation No. 2 clarifies how federal entities report the costs 
and liabilities arising from claims to be paid by the Judgment Fund and 
how the Judgment Fund accounts for the amounts that it is required to 
pay on behalf of federal entities. 

[59] If the Judgment Fund will pay the claim, the entity still 
recognizes the liability and cost at this time. Once the claim is 
settled or a court judgment is assessed and the Judgment Fund is 
determined to be the appropriate source for payment, the entity reduces 
the liability by recognizing an (imputed) financing source. Note that 
for Judgment Fund payments made under the Contract Disputes Act and the 
Notification and Federal Employee Antidiscrimination and Retaliation 
Act, the entity establishes a payable to reimburse the Judgment Fund. 

[60] For example, for the fiscal year 2007 audit, OMB reporting 
guidance stated that agencies should submit interim legal 
representation letters to Department of Justice, Treasuryâs Financial 
Management Service, and GAO no later than August 29, 2007. This would 
allow review of cases before external issuance. Final legal 
representation letters were due no later than November 15, 2007. 

[61] The Accounting and Auditing Policy Committee (AAPC) guidance 
(Technical Release No. 1) clarifies FASAB Interpretation No. 2, with 
respect to the Department of Justiceâs role related to legal letters in 
cases in which Justiceâs legal counsels are handling legal matters on 
behalf of other federal reporting entities. The letter from the 
entityâs general counsel may provide sufficient evidence for the 
auditor. If the auditor determines that additional evidence is needed 
about a specific case, the auditor may request entity management and 
legal counsel to send a legal letter request to Justice, directed to 
the lead Justice legal counsel handling the case, asking that person to 
provide a description and evaluation directly to the auditor. 

[62] This includes any cases that do not seek monetary damage awards, 
but would require the government to use financial resources to 
implement remedies or actions sought by litigation or unasserted claims 
(for example, to increase the scope of, or change to a more costly 
methodology of, environmental restoration and cleanup). 

[63] It is expected that cases or matters will be aggregated where 
appropriate. 

[64] For GAO financial audits this is the chief accountant or another 
director who is a CPA and an experienced financial statement auditor. 

[65] The auditor has two methods available for dating the report when a 
subsequent event disclosed in the financial statement occurs after the 
original date of the auditorâs report but before the issuance of the 
related financial statements. In these instances, the auditor may use 
either dual dating or may date the report as of a later date. When the 
auditor dual dates the report, the responsibility for events occurring 
subsequent to the original report date is limited to the specific event 
referred to in the note (or otherwise disclosed). For example, January 
31, 20x8 except for note X, as to which the date is February 16, 20x8. 
When the auditor dates the report as of a later date, the auditorâs 
responsibility for subsequent events extends to the date of the report 
and accordingly, the auditor should extend the subsequent events 
procedures to that date. 

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