The AICPA has identified governmental engagements as a high-risk area. While governmental accounting is complex, the addition of Yellow Book and Single Audit standards (when applicable) make these engagements even more challenging.
I recall in the pre-GASB 34 days reviewing physical ledger sheets that contained all of the transactions for a local government. There were no Yellow Book or Single Audit requirements. Those idyllic days of simplicity are gone, and the complexity of governmental audits has increased a hundred-fold.
Governmental regulators have complained that CPAs are not performing these audits in conformity with professional standards. In addition, these regulators are saying that the present peer review process is not identifying non-conforming engagements.
In response to these concerns–and those related to other high-risk areas such as benefit plans–the AICPA performed enhanced oversights to gauge how well peer reviewers are performing.
Here are some of the key takeaways from the oversights performed on that initial sample of engagements:
Peer review statistics related to governmental engagements reflect similar dynamics:
The enhanced oversights identified the following governmental engagement deficiencies (many of these are related to Yellow Book and Single Audit):
Expect increased peer review scrutiny of governmental engagements in peer reviews.
The CPA community must take these concerns seriously. If we don’t, we may end up with a complete change of the present peer review process. Without positive improvement, CPA firms could, one day, be reviewed by governmental regulators — think IRS audits. It is imperative that we self-regulate in an effective manner.
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Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
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