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).
GAGAS establishes requirements for performing financial audits over and above the requirements contained in auditing standards promulgated by the AICPA. 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 report on internal control over financial reporting and compliance (the Yellow Book report). The findings are developed in accordance with the required elements of a finding (found in Section 6.17 - 6.18 and 6.57 - 6.60 of the Yellow Book) in the schedule of current year findings prepared by the auditor.
An auditor does not need an English degree to write a finding, but a well written finding takes time, effort, and organizational skills. An auditor should review Sections 6.17 through 6.18 of the Yellow Book for the required elements of a finding. The elements include:
Condition - the situation that exists. Or, what happened?
Criteria – the standard that the condition violates – a law, regulation, contract, grant agreement, common business practice, etc. Or, why is the condition a problem?
Cause – the reason or explanation given by the local auditee that the condition exists. Or, why does the condition exist?
Effect – the impact of the condition. Or, what has happened, or what could happen, because the condition exists?
Section 6.57 of the Yellow Book requires the auditor to obtain and report the views of responsible officials in the audit report, as well as any planned corrective actions. Section 6.58 - 6.60 gives additional information pertaining to the reviews of the responsible officials and the plan of corrective action.
LLA reviewers have noticed certain common deficiencies in findings written by CPAs performing local auditee engagements:
- Findings that contain so little information that it is difficult for the user to determine what the condition is (or what happened). This is common in findings that report fraud or misappropriations, especially when the CPA is concerned about possible legal ramifications of reporting fraud in a finding.
- Comprehensive findings are written that combine multiple, unrelated conditions. These are sometimes written in a rambling, ad hoc style of writing that obscures the elements of a finding required by the Yellow Book. Writing findings in this manner may be easier for the CPA, but such findings are very difficult for the user to read and comprehend.
- Several findings are written for a single condition or program that would be more meaningful if they were consolidated into one well-thought-out, comprehensive finding. Although it would appear that this is a better alternative than the previous example, a report that includes (for example) twenty findings that could have been consolidated into five findings may cause the user to conclude that the number of findings is not as indicative of problems within the agency as it is of the CPA’s style of writing.
- Confusing or inconsistent naming or numbering conventions are used. Finding names are missing or are identical. Findings in the schedule of current year findings that are repeated from the prior year use the prior year finding numbering convention and not the current year numbering convention.
Some recommendations for writing findings –
- CPAs that are concerned about the legal ramifications of reporting conditions such as fraud or other matters should remember that there is safety in sticking to the facts. CPAs are not asked to give their opinion regarding the possible disposition of unresolved matters, legal matters, or fraud or misappropriations reported in a finding. In reporting conditions in which the resolution is unclear, the CPA may use a phrase such as “this matter may be a violation of the law,” and recommend that management follow up in an appropriate manner. If legal action has been taken regarding a fraud or misappropriation and the perpetrator’s name is a matter of public record, LLA expects it to be reported. Otherwise, the person’s name does not need to be included in the finding.
- CPAs should practice a clear, concise style of writing that states the facts without obscuring them with unnecessary or redundant information.
- CPAs should consider combining findings for like conditions or programs into one comprehensive finding.
- Every finding should have a unique name.
- The numbering convention for current and prior year findings should include a reference to the applicable year and the number of the finding. If a prior year finding is not resolved and is included in the schedule of current year findings, it should be included twice in the current year report; in the schedule of prior year findings with the same finding number as it had in the prior year; and in the schedule of current year findings with the numbering convention for the current year.
For example, a local auditee had one finding (2016-001) in its 2016 report. Finding # 2016-001 was not resolved in 2017; and it was also the only finding for 2017. The finding will appear twice in the 2017 report; in the schedule of current year findings as finding # 2017-001; and in the schedule of prior year findings as finding # 2016-001.
If the finding is also reported in the 2018 report, it would also appear twice in the 2018 report; in the schedule of current year findings as # 2018-001, and in the schedule of prior year findings as # 2017-001. There should be no reference to finding # 2016-001 in the 2018 report; but the findings should state how long the condition has been reported. - CPAs should consider developing a template for their firm’s findings that incorporates all elements of a finding required by the Yellow Book. The template may be in narrative or in tabular format.
In 2016 LLA began requiring CPAs to enter findings in a database at the same time a report is submitted through the website portal (see
Submitting a Report to the Legislative Auditor). The template that is used for entering findings in the database is based on Yellow Book requirements, and may be used by a CPA firm to develop a template to be used for presenting findings in audit reports.
- CPAs who are struggling with a finding will find a wealth of examples in the LLA and CPA reports that have been issued by LLA and are available in the audit report library on LLA’s website.
- CPAs should consider asking another CPA to review findings in a report before the report is finalized.
- CPAs should discuss each finding with the auditee to make sure the auditee understands the reason the finding was written, and what the auditee must do to correct the condition that led to the finding.
CPA firms may contact LLA for assistance in developing strong findings that will help foster positive change in local auditee practices. However, the CPA is ultimately responsible for the work performed on his or her audit and attest engagements, and should first rely on their own judgment in the development of any findings related to these engagements.
CPAs spend a great deal of time and effort in gathering the information that will be included as findings in their reports. They should spend equal effort in developing a consistent manner of presenting these findings so that report users will get the information from the findings that the firm is intending to convey.