Impact of the New Clarity Standards on Governmental

Audits

Presented by Beila Sherman, CPA

andEnrique Llerena, CPA

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Impact of the New Clarity Standards on Governmental Audits – Session Objective

To provide an overview of the various changes in auditing standards issued by the AICPA and their impact on upcoming governmental audits

Effective for years ending on or after December 15, 2012 (9/30/2013 Year Ends)

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The Clarified Standards

The codification of the clarified standards uses section numbering established by SAS No. 122, Statements on Auditing Standards: Clarification and Recodification, and contains “AU-C” section numbers.

“AU-C” is a temporary identifier to avoid confusion with references to AU sections.

“AU-C” remains effective through 2013.

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The Clarity Standards Format Introduction Statement of objective; Definitions, where relevant; Requirements; and Application and other explanatory material, with

paragraphs using an “A” prefix. The explanatory material in the “A” prefix paragraph is

cross-referenced to the corresponding paragraphs in the requirements section. Auditors are responsible for considering the entire text of each standard in applying its requirements.

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Summary of Changes and Its Impact

AU-C 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted

Auditing Standards

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Summary of Changes and Its Impact

AU-C 210 Terms of Engagement

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Summary of Changes and Its Impact

AU-C 220 Quality Control for an Engagement

Conducted in Accordance WithGenerally Accepted Auditing Standards

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Summary of Changes and Its Impact

AU-C 230 Audit Documentation

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Summary of Changes and Its Impact

AU-C 240 Consideration of Fraud in a Financial

Statement Audit

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Summary of Changes and Its Impact

AU-C 250 Consideration of Laws and Regulations

in an Audit of Financial Statements

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Summary of Changes and Its Impact

AU-C 260 The Auditor’s Communication With

Those Charged With Governance

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Summary of Changes and Its Impact

AU-C 265 Communicating Internal Control

Related Matters Identified in an Audit

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Summary of Changes and Its Impact

AU-C 300 Planning an Audit

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Summary of Changes and Its Impact

AU-C 315 Understanding the Entity and Its

Environment and Assessing the Risks of Material Misstatement

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Summary of Changes and Its Impact

AU-C 320Materiality in Planning and Performing

an Audit

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Summary of Changes and Its Impact

AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence

Obtained

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Summary of Changes and Its Impact

AU-C 402 Audit Considerations Relating to an Entity Using a Service Organization

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Summary of Changes and Its Impact

AU-C 450 Evaluation of Misstatements Identified

During the Audit

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Summary of Changes and Its Impact

AU-C 500Audit Evidence

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Summary of Changes and Its Impact

AU-C 501Audit Evidence – Specific

Considerations for Selected Items

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Summary of Changes and Its Impact

AU-C 505External Confirmations

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Summary of Changes and Its Impact

AU-C 510Opening Balances – Initial Audit Engagements, Including Reaudit

Engagements

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Summary of Changes and Its Impact

AU-C 520Analytical Procedures

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Summary of Changes and Its Impact

AU-C 530Audit Sampling

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Summary of Changes and Its Impact

AU-C 540Auditing Accounting Estimates, Including Fair Value Accounting

Estimates and Related Disclosures

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Summary of Changes and Its Impact

AU-C 550Related Parties

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Summary of Changes

AU-C 560Subsequent Events and Subsequently

Discovered Facts

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Summary of Changes and Its Impact

AU-C 570The Auditor’s Consideration of an Entity’s Ability to Continue as a

Going Concern

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Summary of Changes and Its Impact

AU-C 580Written Representations

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Summary of Changes and Its Impact

AU-C 585Consideration of Omitted Procedures

After the Report Release Date

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Summary of Changes and Its Impact

AU-C 600Special Considerations – Audits of

Group Financial Statements (Including the Work of Component Auditors)

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Summary of Changes and Its Impact

AU-C 610The Auditor’s Consideration of the

Internal Audit Function in an Audit of Financial Statements (In Process)

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Summary of Changes and Its Impact

AU-C 620Using the Work of an Auditor’s

Specialist

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Summary of Changes and Its Impact

AU-C 700Forming an Opinion and Reporting on

Financial Statements

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Forming an Opinion and Reporting on Financial Statements – AU-C 700

Headings and Subheadings

Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City X, as of and for the year ended September 30, 2013, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards,1 issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

1 For financial audits performed in accordance with Government Auditing Standards, chapters 1–4 of Government Auditing Standards apply.

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Forming an Opinion and Reporting on Financial Statements – AU-C 700

Opinion

Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the [CITY OF EXAMPLE, ANY STATE], as of [DATE], and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

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Forming an Opinion and Reporting on Financial Statements – AU-C 700

Report on Other Legal and Regulatory Requirements [Form and content of this section of the auditor’s report will vary depending on the nature of the auditor’s other reporting responsibilities.]

Other Reporting Responsibilities (Yellow Book Report reference)

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Summary of Changes and Its Impact

AU-C 705Modification to the Opinion in the

Independent Auditor’s Report

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Modifications to the Opinion – AU-C 705

Basis for Adverse Opinion Management has not included the Aviation Fund in the City of X, State Y’s, financial statements. Accounting principles generally accepted in the United States of America require the Aviation Fund to be presented as a major enterprise fund and financial information about the Aviation Fund to be part of the business-type activities, thus increasing that activity’s assets, liabilities, revenues, and expenses, and changing its net position. The amount by which this departure would affect the assets, liabilities, net position, revenues, and expenses of the business-type activities and the omitted major fund has not been determined.

Basis for qualified, adverse, or disclaimer (placed before opinion paragraph)

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Modifications to the Opinion – AU-C 705

Adverse Opinion In our opinion, because of the significance of the matter described in the “Basis for Adverse Opinion on Aviation Fund and Qualified Opinion on Business-Type Activities” paragraph, the financial statements referred to above do not present fairly the financial position of the Aviation Fund of the City of X, State Y, as of June 30, 20X1, or the changes in financial position or cash flows thereof for the year then ended.

Modified opinion (Qualified, Adverse, or Disclaimer

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Summary of Changes and Its Impact

AU-C 706Emphasis-of-Matter Paragraphs and

Other-Matter Paragraphs in the Independent Auditor’s Report

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Summary of Changes and Its Impact

AU-C 706Emphasis-of-Matter

Refers to a matter appropriately presented or disclosed in the financial statements that, in the auditors’ professional judgment, is of such importance that it is fundamental to users in understanding the financial statements.Examples are a going concern, litigation, change in policy like when GASB 54 implemented, significant related parties …

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Summary of Changes and Its Impact

AU-C 706Other-Matter Paragraphs

Refers to a matter other than those presented or disclosed in the financial statements that, in the auditors’ professional judgment, is relevant to users’ understanding of the audit, auditors’ responsibilities, or the auditors’ reportExamples are if prior periods presented, regulatory financials, in relation to opinion, RSI, other SI

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Emphasis of Matter and Other Matter Paragraphs – AU-C 706

Emphasis of Matter The accompanying financial statements have been prepared assuming that the City of X, State Y will continue as a going concern. As discussed in Note Z to the financial statements, the City [Describe conditions that indicate that the City may not be able to continue as a going concern]. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note Z. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

Emphasis of Matters• Matters appropriately presented or disclosed

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Emphasis of Matter and Other Matter Paragraphs – AU-C 706

Other Matter• To understand audit matters (Combining

statements, SI, RSI, SEFA)

Other Matter Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of X, State Y’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements.

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Summary of Changes and Its Impact

AU-C 708Consistency of Financial Statements

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Summary of Changes and Its Impact

AU-C 720Other Information in Documents

Containing Audited Financial Statements

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Summary of Changes and Its Impact

AU-C 725Supplementary Information in Relation to the Financial Statements as a Whole

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Summary of Changes and Its Impact

AU-C 730Required Supplementary Information

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Summary of Changes and Its Impact

AU-C 800Special Considerations

Audits of Financial Statements Prepared in Accordance with Special Purpose Framework

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Summary of Changes and Its Impact

AU-C 805Special Considerations Audits of Single

Financial Statements and Specific Elements, Accounts, or Items of a

Financial Statement

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Summary of Changes and Its Impact

AU-C 806Reporting on Compliance With Aspects

of Contractual Agreements or Regulatory Requirements in

Connection With Audited Financial Statements

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Summary of Changes and Its Impact

AU-C 810Engagements to Report on Summary

Financial Statements

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Summary of Changes and Its Impact

AU-C 905Alert That Restricts the Use of the Auditor’s Written Communication

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Summary of Changes and Its ImpactAU-C 905

Alert That Restricts the Use of the Auditor’s Written Communication

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

(

(Replaces the restricted use alert with a restricted purpose alert)

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Summary of Changes and Its Impact

AU-C 910Financial Statements Prepared in

Accordance With a Financial Reporting Framework Generally Accepted in

Another Country

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Summary of Changes and Its Impact

AU-C 915Reports on Application of

Requirements of an Applicable Financial Reporting Framework

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Summary of Changes and Its Impact

AU-C 920Letters for Underwriters and Certain

Other Requesting Parties

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Summary of Changes and Its Impact

AU-C 925Filings With the U.S. Securities and Exchange Commission Under the

Securities Act of 1933

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Summary of Changes and Its Impact

AU-C 930Interim Financial Information

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Summary of Changes and Its Impact

AU-C 935Compliance Audits

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Resources: AICPA Financial Reporting Center

Questions?Beila ShermanMarcum LLPSenior Manager450 East Las Olas Boulevard, Suite 950Fort Lauderdale, Florida 33301954.320.8032beila.sherman@marcumllp.com

Enrique LlerenaMarcum LLPManagerOne Southeast Third Avenue, 10th FloorMiami, Florida 33131305.995-9614enrique.llerena@marcumllp.com