The majority of the audit reports that are submitted to the Louisiana Legislative Auditor (LLA) are performed in accordance with generally accepted government auditing standards, promulgated by the Government Accountability Office in the publication Government Auditing Standards (also referred to as the Yellow Book).
Generally accepted government auditing standards or GAGAS establish requirements for performing financial audits over and above the requirements contained in generally accepted auditing standards. GAGAS requires auditors to communicate the following in the report on internal control over financial reporting and compliance:
- Significant deficiencies and material weaknesses in internal control over financial reporting
- Noncompliance with provisions of laws, regulations, contracts, or grant agreements that has a material effect on the financial statements or other financial data significant to the audit objectives
- Fraud that is material, either quantitatively or qualitatively, to the financial statements or other financial data significant to the audit objectives
Findings relative to these matters are referenced by finding number in the Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards (the Yellow Book report). The findings are developed in accordance with the required elements of a finding (found in Sections 6.17 - 6.18 and 6.57 - 6.60 of the Yellow Book) and reported in the schedule of current year findings, which is a document that is prepared by the auditor. For additional information, see Writing Findings.
Section 6.11 of the Yellow Book requires the auditor to evaluate whether the audited entity has taken appropriate corrective action to address findings and recommendations from previous engagements that could have a significant effect on the subject matter. Auditors should use this information in assessing risk and determining the nature, timing, and extent of the current audit work and determining the extent to which testing the implementation of the corrective actions is applicable to the current audit objectives.
This means that the auditor needs to obtain the schedule of prior year findings – a document that is prepared by the agency and that should contain the current status of the prior year findings – and review it to determine if the prior year findings have been corrected. Findings that have not been corrected should be repeated in the current year Yellow Book report and brought forward to the schedule of current year findings. If a local auditee’s report included a schedule of current year findings, LLA expects to see the status of these findings reported in the subsequent year’s report in a schedule of prior year findings.
The report on internal control over financial reporting and compliance differentiates between deficiencies, significant deficiencies, and material weaknesses in internal control over financial reporting. Significant deficiencies and material weaknesses are required by GAGAS to be reported in the Yellow Book report.
Deficiencies in internal control and immaterial matters of noncompliance with provisions of laws, regulations, contracts or grant agreements should be reported to management if the auditor feels that they warrant the attention of those charged with governance. The vehicle that many auditors use to report these deficiencies to management is the management letter. This is a separate, generally less formal document than the Yellow Book report. If a management letter was issued in connection with an audit that is submitted to LLA, LLA expects to see the management letter included in the audit report that is submitted to LLA; with management’s plan of corrective action.
Any matters of noncompliance, or significant deficiencies or material weaknesses in internal control over compliance reported in the Independent Auditor’s Report on Compliance for Each Major Program and On Internal Control Over Compliance Required by the Uniform Guidance (the Single Audit report) should be included in a document called the schedule of findings and questioned costs, which is similar to the schedule of findings in a Yellow Book audit. The schedule of prior year findings should similarly address any findings in the prior year Single Audit report.
- If a condition comes to the attention of the CPA during a review/attestation or compilation engagement that would be considered a significant deficiency, material weakness, or a matter of material noncompliance during a Yellow Book audit, does LLA expect to see the matter reported in the review/attestation or compilation report?
- If a local auditee’s prior year report included a management letter, does LLA expect to see the status of these management letter comments reported in the subsequent year’s report in a document similar to the schedule of prior year findings?