Recently I listened to the AICPA Governmental Audit Quality Center (GAQC) webcast titled: Uniform Guidance for Federal Awards: Auditor Planning Considerations for the New Single Audit Rules.
The presenters, Diane Edelstein, Mandy Nelson, and Mary Foelster, did a great job in providing helpful information. I made a few summary notes that are presented below; the notes are not intended to be comprehensive. The GAQC archived the presentation on their website.
Here’s a summary of when the new guidance is applicable.
Type of Entity Effective Date
Federal Agencies Must implement policies and procedures by issuing regulations to be effective December 26, 2014 (accomplished with the issuance of the Joint Interim Final Rule)
Non-federal Entities Implement the new administrative requirements and cost principles for all new Federal awards made after December 26, 2014, and to additional funding related to existing awards ("increments") made after that date
Auditors Audit requirements are effective for fiscal years beginning on or after December 26, 2014 (early implementation not permitted)
If an entity receives incremental funding, the incremental funding agreement should specify whether it is subject to the old rules or the Uniform Guidance. If incremental funding occurs without modification to the original award, then the grantee will follow the terms of the original agreement.
It may take several years for old funding (and related rules such as cost principles) to run out.
Audits of entities with fiscal year-ends of March 31, 2015, June 30, 2015, and September 30, 2015, will all be performed under the old Single Audit regulations; these audits may involve the testing of administrative requirements and cost principles related to old and new guidance. December 31, 2015, year-end audits will be performed under the new Uniform Guidance (see below for changes in thresholds).
The 2015 Supplement will be used for audits performed under Circular A-133 and the Uniform Guidance.
There will be two Part 3 Compliance sections in the 2015 Compliance Supplement–one for old rules and one for Uniform Guidance.
We don’t know when the 2015 Supplement will be issued (the 2014 supplement came out in May 2014).
Part 6 – Internal Control is currently out of date for grants subject to the Uniform Guidance; Part 6 preceded the new COSO and Green Book internal control guidance (the Uniform Guidance says entities should follow COSO and the Green Book).
The Uniform Guidance provides for the following:
COFAR clarified that should means a “best practice,” not a requirement.
For the new procurement rules, there is a grace period of one full fiscal year after the effective date of Uniform Guidance.
Federal agencies will have to accept a non-federal entity’s negotiated indirect cost rate unless a statute or regulation allows for an exception or an agency head approves.
Non-federal entities that have never received a negotiated rate will be permitted to charge a de minimis rate of 10% of modified total direct costs which may be used indefinitely; this rate must be used consistently for all federal awards until the entity chooses to negotiate for a rate.
The pass-through entity is required to perform a risk assessment of subrecipients.
The criteria for determination of subrecipient versus contractor is basically unchanged; this guidance has been expanded and moved to administrative requirements.
Consider that your testing may relate to A-133 and the Uniform Guidance.
For instance, if you are testing allowability, you may have a workpaper that addresses A-87 and Uniform Guidance cost principles if you have multiple grants (or incremental funding) that are subject to the old and new rules.
Pick your sample for testing without regard to the amount of grant dollars under the old and new guidance; then apply the applicable standard based on the sample item and the relevant grant guidance–whether old or new. In other words, your sample is not prorated based on a weighted average.
You could still have some old rule principles in play for your December 31, 2015, audits (if a grant is still subject to the prior standards).
The audit threshold moves to $750,000 (from $500,000).
The type A/B threshold moves to $750,000 (from $300,000).
Audit findings moves to $25,000 (from $10,000).
You have the same two-year look-back.
If you are a nonprofit that does not use GAAP (e.g., a nonprofit using the modified cash basis), you can’t be a low-risk auditee.
Loans and loan guarantees amounts will be included in the schedule of expenditures of federal awards (SEFA) and will be the original amount of the loan or guarantee. The outstanding balance will be included in the notes to the SEFA.
Davis Bacon has been moved to Special Tests.
GAQC will provide a new single audit fundamentals series in Fall 2015. You may want to plan for your staff to take these classes since this will ready your firm for year-end Single Audits.
Consider communicating with your clients now that the changes in standards will require more audit hours. Consider the effect on your fees.
Your engagement letters will change; the letter should refer to the Uniform Guidance. Make sure your engagement letter does not refer to A-133 only (however, it is possible that your engagement letter will cover both A-133 rules and the Uniform Guidance). Look to your audit professional guidance to update your engagement letters.
Program-specific audits will still be an option.
Are there other considerations that you would add to this summary? If yes, please share them here.
Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty-five years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention, The Why and How of Auditing, Audit Risk Assessment Made Easy, and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles consults with other CPA firms, assisting them with auditing and accounting issues.