Audit and Accounting Guide – State and Local Governments 2019

Founded in 1887, the American Institute of Certified Public Accountants (AICPA) represents the CPA and accounting profession nationally and globally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups and other professional organizations. The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the accounting profession's technical and ethical standards. The AICPA's founding established accountancy as a profession distinguished by rigorous educational requirements, high professional standards, a strict code of professional ethics, a licensing status and a commitment to serving the public interest.

1 Overview and Introduction .01-.24

Scope and Purpose .01-.08

GAAP for State and Local Governments .09-.14

Applicable Auditing Standards and Requirements .15-.20

Guidance in Other AICPA Audit and Accounting Guides and Statements of Position .21-.22

Other Sources of Guidance .23

Organization of This Guide .24

2 Financial Reporting .01-.97

Introduction and Overview .01-.06

Historical Perspective .02-.06

Governmental Financial Statements .07-.53

Management’s Discussion and Analysis .09-.10

Government-Wide Financial Statements .11-.25

Fund Financial Statements .26-.44

Notes to the Financial Statements .45-.48

Required Supplementary Information Other Than MD&A .49-.52

Special-Purpose Governments .53

Other Financial Reporting Issues .54-.59

Other Information and Supplementary Information .54

Prior-Period Comparative Financial Information .55-.56

Government Combinations and Disposals of Government Operations .57-.59

Fair Value Measurement .60-.85

General Principles of Fair Value .61-.68

Valuation Techniques .69-.71

Inputs to Valuation Techniques .72-.75

Fair Value Hierarchy .76-.79

Guidance for Fair Value Measurement in Special Circumstances .80-.85

Auditing Considerations .86-.96

Compliance Requirements .87

Fund and Activity Classifications .88

Major Funds .89

Restricted Assets .90

Notes to the Financial Statements .91-.92

Required Supplementary Information, Supplementary Information, and Other Information .93-.94

Other Financial Reporting Considerations .95

Accounting and Financial Reporting Alternatives .96

Appendix A — Accounting and Financial Reporting Alternatives in GASB Statement No. 34, as Amended, and GASB Statement No. 84 .97

3 The Financial Reporting Entity .01-.39

Introduction .01-.03

GASB’s Financial Reporting Entity Standards .04-.29

Definition of the Financial Reporting Entity .05-.12

Financial Statement Presentation .13-.22

Disclosures .23-.25

Other Financial Reporting Requirements .26-.29

Auditing Considerations .30-.39

Reporting Entity .30

Internal Control Over Financial Reporting .31

Audit Procedures .32-.33

Separate Component Unit Auditor .34

Presentation of Less Than a Complete Financial Reporting Entity .35

Departures of Component Unit Information From GAAP .36

Nongovernmental Component Unit Use of Private-Sector Standards .37

Changes in the Financial Reporting Entity .38

Other Component Unit Auditing Considerations .39

4 General Auditing Considerations .01-.138

Introduction .01-.02

General Principles and Responsibilities .03-.29

Overall Objectives .03

Terms of Engagement .04-.08

Laws and Regulations .09-.22

Auditor’s Communication with Those Charged with Governance .23-.27

Communicating Internal Control Related Matters .28-.29

Auditor’s Risk Assessment and Response to Assessed Audit Risk .30-.66

Planning an Audit .30-.34

Audit Strategy .35-.40

Understanding the Entity, Its Environment, and Its Internal Control .41-.66

Materiality in Planning and Performing an Audit .67-.93

GASB Guidance to Preparers on Materiality Determinations .69-.70

Auditor Materiality Determinations .71-.87

Performing Further Audit Procedures .88-.93

Related Parties and Transactions .94

Group Audit Engagements .95-.121

Other Audit Considerations .122-.127

Subcontracting Arrangements .122

Independence Requirements .123-.127

Required Supplementary Information, Supplementary Information, and Other Information .128-.137

Audit Scope Includes Required Supplementary Information or Supplementary Information .131-.132

Required Supplementary Information .133

Supplementary Information .134-.136

Other Information .137

Appendix A — Consideration of Fraud in a Financial Statement Audit .138

5 Investments, Certain Equity Interests, and Derivatives .01-.131

Part I — Accounting, Financial Reporting, and Auditing Considerations for Investments and Certain Equity Interests .04-.05

Nature of Transactions .06-.17

Compliance Requirements and Deposit and Investment Policies .06-.10

Deposit and Investment Risk .11

Internal Investment Pools .12

Reverse Repurchase Agreements .13

Securities Lending Transactions .14

Investment Arrangements, Including External Investment Pools .15-.17

Accounting and Financial Reporting Considerations .18-.55

General Recognition Standards .18-.55

Auditing Considerations for Investments and Certain Equity Investments .56-.99

Risk Assessment .57

Overall Considerations Relating to Investments and Certain Equity Interests .58-.59

Identification of Material Classes of Transactions, Account Balances, and Disclosures .60-.63

Identification of Significant Risks Related to Valuation .64-.67

Determining Audit Strategy for Testing Investments at Fair Value .68-.70

Management’s Specialist and the Use of Others in Fair Value Measurement .71-.99

Part II — Accounting, Financial Reporting, and Auditing Considerations for Derivative Instruments .100

Nature of Transactions .100-.113

Investment Derivative Instruments .103

Hedging Derivative Instruments .104-.105

Hybrid Instruments .106-.108

Financial Instruments Not Included in the Scope of GASB Statement No. 53 .109

Derivative Instrument Risk .110-.111

Compliance Requirements and Derivative Instrument Policies .112-.113

Accounting and Financial Reporting Considerations—Derivative Instruments .114-.120

Auditing Considerations—Derivative Instruments .121-.131

6 Revenues and Receivables .01-.102

Introduction .01-.02

Nature of Transactions .03-.09

Accounting and Financial Reporting Considerations .10-.88

Accounting .11-.68

Resource Flows Statement Classifications .69-.85

Financial Position Statement Classifications .86-.87

Disclosures .88

Auditing Considerations .89-.102

Confirmations .94-.97

Estimates .98-.99

Tax Abatement Disclosures .100

Confidential Records .101

Other Auditing Procedures .102

7 Capital Assets .01-.92

Nature of Transactions .01-.09

Capital Asset Management .03-.08

Compliance Considerations .09

Accounting and Financial Reporting Considerations .10-.75

Accounting and Financial Statement Presentation—Government-Wide Financial Statements .13-.30

Accounting and Financial Statement Presentation—Governmental Funds .31-.32

Accounting and Financial Statement Presentation—Proprietary Funds .33

Accounting and Financial Statement Presentation—Fiduciary Funds .34

Capital Leases .35-.38

Capital Asset Impairment .39-.44

Modified Approach for Infrastructure Assets .45-.53

Specified Conditions Approach for Internally Generated Intangible Assets—Other Than Computer Software .54-.55

Specified Conditions Approach for Internally Generated Computer Software .56-.59

Interfund Movements and Intra-Entity Transfers of Capital Assets .60-.62

Capital Assets Used in Landfills .63

Capital Assets Used in Pollution Remediation .64

Certain Asset Retirement Obligations .65

Service Concession Arrangements .66-.71

Disclosures .72-.73

Management’s Discussion and Analysis .74-.75

Auditing Considerations .76-.92

Capital Asset Records .79-.81

Ownership of Infrastructure Assets .82

Useful Lives of Infrastructure Assets .83

Modified Approach for Infrastructure Assets .84-.92

8 Expenses or Expenditures and Liabilities .01-.132

Introduction .01

Nature of Transactions .02-.10

Accounting and Financial Reporting Considerations .11-.120

General Recognition Standards .11-.17

Specific Recognition and Financial Reporting Standards .18-.65

Expenses Resulting From Previously Incurred Disbursements .66-.70

Liabilities .71-.105

Resource Flows Statement Classifications .106-.113

Financial Position Statement Classifications .114-.115

Disclosures .116-.118

Management’s Discussion and Analysis .119-.120

Auditing Considerations .121-.132

9 Interfund, Internal, and Intra-Entity Activity and Balances .01-.35

Introduction .01

Nature of Transactions .02-.05

Nature of Interfund Activity and Balances .02-.03

Nature of Internal Activity and Balances .04

Nature of Intra-Entity Activity and Balances .05

Accounting and Financial Reporting Considerations .06-.35

Reporting Interfund Activity and Balances .06-.15

Reporting Internal Balances and Activity .16-.20

Reporting Intra-Entity Activity and Balances .21-.26

Differing Year Ends .27

Auditing Considerations .28-.35

10 Net Position and Financial Statement Reconciliations .01-.31

Nature of Transactions .01-.04

Financial Reporting Considerations .05-.24

Government-Wide Net Position .06-.08

Proprietary Fund Net Position .09

Governmental Fund Balances .10-.18

Reconciliations—Net Position and Changes in Net Position .19-.21

Fiduciary Fund Net Position .22

Disclosures .23-.24

Auditing Considerations .25-.31

11 The Budget .01-.26

Introduction .01-.03

Budgetary Processes .04-.11

Types of Budgets .04-.06

Legal Level of Budgetary Control .07-.08

Encumbrances .09-.10

Budgetary Basis .11

Financial Reporting Considerations .12-.16

Budgetary Comparison Schedules or Statements .12-.13

Disclosures .14-.16

Auditing Considerations .17-.26

Internal Control Considerations .18

Presentation of Budgetary Comparison Information .19-.21

Audit Support for Financial Statement Assertions .22-.24

Budgetary Compliance Considerations .25-.26

12 Special-Purpose and State Governments .01-.124

Introduction .01-.03

Financial Reporting Requirements for Special-Purpose Governments .04-.09

Compliance Requirements .10

Specific Guidance for Special-Purpose Governments .11-.89

Hospitals and Other Health Care Providers .11-.13

School Districts .14-.20

Airports .21-.23

Public Housing Authorities .24-.27

Financing Authorities .28-.35

Transportation Systems .36-.37

Utilities .38-.39

Postemployment Benefit Plans .40-.45

Public Entity Risk Pools .46-.50

External Investment Pools .51-.58

Colleges and Universities .59-.89

Specific Guidance for Indian Tribes .90-.94

Specific Guidance for State Governments .95-.124

Nature and Organization of State Governments .96-.99

Specialized Reporting Requirements .100

Reporting Entity Definition .101

Separate Fund, Departmental, Agency, and Program Audits .102

Medicaid .103-.105

Food Stamps .106

Unemployment Compensation Benefit Plans .107

Lotteries .108-.113

Escheat Property .114-.117

State Tuition Programs .118-.119

Multistate Legal Settlements, Including Tobacco Settlement Resources .120-.124

13 Defined Benefit Pension Plans (Plan & Employer Considerations) .01-.183

Introduction .01-.06

Nature of Transactions .07-.15

Types of Defined Benefit Pension Plans .07-.08

Number of Defined Benefit Pension Plans .09-.10

Relevance of Census Data .11-.15

Part I — Plan Accounting, Financial Reporting, and Auditing Considerations for Defined Benefit Pension

Plans Administered Through a Qualifying Trust .16-.95

Accounting and Financial Reporting Considerations .16-.43

Auditing Considerations for the Pension Plan .44-.95

Part II — Employer Accounting, Financial Reporting, and Auditing Considerations: Single and Agent Employers .96-.142

Accounting and Financial Reporting Considerations .96-.108

Auditing Considerations for Single and Agent Employers .109-.142

Part III — Employer Accounting, Financial Reporting, and Auditing Considerations: Cost-Sharing Employers .143-.180

Accounting and Financial Reporting Considerations .143-.165

Auditing Considerations for Cost-Sharing Employers .166-.180

Appendix A — Governmental Employer Participation in Agent Multiple-Employer Plans: Issues Related to Information for Employer Reporting .181

Appendix B — Governmental Employer Participation in Cost-Sharing Multiple-Employer Plans: Issues Related to Information for Employer Reporting .182

Appendix C — Governmental Employer Participation in Single-Employer Plans: Illustrative Schedule of Pension Amounts and Illustrative Auditor’s Report .183

14 Defined Benefit Postemployment Benefits Other Than Pensions (Plan & Employer Considerations) .01-.218

Introduction .01-.05

Nature of Transactions .06-.16

Types of Defined Benefit OPEB Plans .06-.08

OPEB Financing (Risk Management) and Administrative Arrangements .09-.11

Number of Defined Benefit OPEB Plans—OPEB Plans Administered Through a Qualifying Trust .12-.13

Relevance of Census Data .14-.16

Part I—Plan Accounting, Financial Reporting, and Auditing Considerations for Defined Benefit OPEB Plans Administered Through a Qualifying Trust .17-.102

Accounting and Financial Reporting Considerations .17-.47

Auditing Considerations for OPEB Plans Administered Through a Qualifying Trust .48-.102

Part II — Employer Accounting, Financial Reporting, and Auditing Considerations for Defined Benefit OPEB Plans Administered Through a Qualifying Trust: Single and Agent Employers .103-.149

Accounting and Financial Reporting Considerations .103-.115

Auditing Considerations for Single and Agent Employers Administered Through a Qualifying Trust .116-.149

Part III — Employer Accounting, Financial Reporting, and Auditing Considerations for Defined Benefit OPEB Plans Administered Through a Qualifying Trust: Cost-Sharing Employers .150-.187

Accounting and Financial Reporting Considerations .150-.172

Auditing Considerations for Cost-Sharing Employers .173-.187

Part IV — Employer Accounting, Financial Reporting, and Auditing Considerations for Defined Benefit OPEB Plans That are Not Administered Through a Qualifying Trust .188-.218

Accounting and Financial Reporting Considerations .188-.201

Auditing Considerations for Employers When the Plan is Not Administered Through a Qualifying Trust .202-.218

15 Concluding the Audit .01-.49

Introduction .01

Misstatements and Audit Adjustments .02-.07

Litigation, Claims, and Assessments .08-.10

Written Representations .11-.15

Related-Party Transactions .16-.19

Going Concern Considerations .20-.30

Subsequent Events .31-.41

Analytical Procedures .42

Communicating with Those Charged with Governance .43-.45

Audit Documentation .46-.49

16 Audit Reporting .01-.103

Introduction .01-.03

Materiality .04-.11

Specific Issues in Reporting on the Audits of Governmental Financial Statements .12-.62

Basic Financial Statements .12

The Auditor’s Report .13-.35

Special Situations .36-.62

Required Supplementary Information, Supplementary Information, and Other Information .63-.86

Audit Scope Includes Required Supplementary Information, Supplementary Information, or Other Information .65

Required Supplementary Information .66-.73

Supplementary Information .74-.79

Other Information .80-.86

Other Financial Presentations .87-.102

Individual Fund Financial Statements .87-.90

Departmental, Agency, and Program Financial Statements .91

Special-Purpose Regulatory Presentations .92

Summary Financial Information .93-.102

Appendix A — Illustrative Auditor’s Reports .103

17 Financial Statements Prepared in Accordance with a Special-Purpose Framework .01-.19

Accounting and Financial Reporting Considerations .01-.06

Auditing Considerations .07-.17

Auditor’s Reports .15-.17

Appendix A — Illustrative Auditor’s Reports .18

Appendix B — Overview of Reporting Requirements for Special-Purpose Financial Statements .19

18 Auditor Involvement with Municipal Securities Filings .01-.40

Introduction .01-.06

Auditor Involvement with Municipal Securities Offerings .07-.30

Conditions Affecting Auditor Involvement .08-.20

Auditor Responsibilities When Involved in an Official Statement .21-.27

Engagement Terms Regarding Auditor Involvement .28-.29

Continuing Disclosure Documents .30

Using Government Auditing Standards Reports and References in the Official Statement .31

Letters for Underwriters and Other Requesting Parties .32-.38

References to the Auditor as an "Expert" .38

Attestation Engagements Related to Municipal Securities Issuances .39-.40

Supplement

Statement of Position 98-2

Appendix

A Acronyms and Abbreviations

B Category B Guidance

C Overview of Statements on Quality Control Standards

D Schedule of Changes Made to the Text From the Previous Edition

Index of Pronouncements and Other Technical Guidance

Subject Index