Gerry Boaz, CPA, CGFM, CGMAComptroller of the Treasury, Department of Audit,

Division of State AuditGerry.Boaz@cot.tn.gov

(615) 747-5262 1

DisclaimerThe opinions and views expressed in this presentation

are my own and do not collectively represent thepositions of the TN Comptroller of the Treasury, hisrepresentatives, or the TN Department of Audit. Officialpositions are determined only after due process anddeliberation.

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Gerry Boaz

• Recently issued audit, attest, and ethics standards and guidance

• Recent exposure drafts• COVID-19 issues and

responses• Other standard-setting

projects• Interpretive publications

and staff guidance

Session will cover

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Recently issued auditing, attestation, & ethics standards

& guidance

COVID-19: Response from the Standard-Setters

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COVID-19: AICPA’s Response• AICPA Guidance updated April 15 addresses audit and financial reporting matters

– General issues• Risk and uncertainties• Subsequent events• Going concern

– Audit matters• Access to books and records• Internal control• Planning meetings

– Accounting matters• Fair value of investments• Unusual or infrequent events

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COVID-19: AICPA’s Response• Audit Standards Board delays standards

–Delay approved on April 20, 2020–SASs 134-140 (primarily related to auditor reporting)

• Effective dates delayed one year–Standards are now effective for audits of financial statements for

periods ending on or after December 15, 2021–Early implementation is permitted, but ASB intends that the

standards be implemented at the same time• Delay is designed to ensure firms will be able to implement

the standards in the high-quality manner possible7

COVID-19: AICPA’s Response• Audit Standards Board delays standards

– SAS 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, as amended;

– SAS 135, Omnibus Statement on Auditing Standards—2019;– SAS 136, Forming an Opinion and Reporting on Financial Statements of

Employee Benefit Plans Subject to ERISA, as amended;– SAS 137, The Auditor’s Responsibilities Relating to Other Information

Included in Annual Reports;– SAS 138, Amendments to the Description of the Concept of Materiality;– SAS 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate

Auditor Reporting Changes From SAS No. 134; and– SAS 140, Amendments to AU-C Sections 725, 730, 930, 935, and 940 to

Incorporate Auditor Reporting Changes From SAS Nos. 134 and 137.8

COVID-19: AICPA’s Response• Professional Ethics Executive Committee (PEEC)

–State and Local Government Client Affiliates Interpretation• Final issued on June 13, 2019• This interpretation helps members identify the entities related

to a state or local government (SLG) (such as component units or funds) that are "affiliates" of the SLG for independence purposes

• Effective for years beginning after December 15, 2020–PEEC is meeting on May 5 to consider one-year delay due to

COVID-199

COVID-19: GAO’s Response• GAO has not issued any formal changes to the

Yellow Book• Technical hotline is receiving several inquiries

around CPE requirements regarding the auditors’ ability to:–Complete CPE hours during the current cycle–Carry over CPE hours from this cycle to the next

• GAO is considering these issues and may issue guidance soon

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Recently Issued Auditing StandardsSAS No. Topic AU- C Section

AffectedIssued

134 Auditor Reporting 700, 701(new), 705, 706

May 2019

135 Omnibus SAS Various May 2019

136 EBP ERISA Audits 703 (new) July 2019

137 Other Information 720 July 2019

Effective for audits of financial statements for periods ending on or after December 15, 2020.

Early implementation not permitted.

Recently Issued Auditing StandardsSAS Topic AU- C Sections Issued

138 Amendments to the Description of the Concept of Materiality

200, 320, 450,600, 700

December 2019

139 Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes From SAS No. 134

800, 805, 810 March 2020

140 Amendments to AU-C Sections 725, 730, 930, 935, and 940 to Incorporate Auditor Reporting Changes From SAS Nos. 134 and 137

725, 730, 930, 935, 940

April 2020

Effective for audits of financial statements for periods ending on or after December 15, 2020.

Early implementation permitted for SAS 138.

Auditor Reporting – AU-C 700 Series• SAS No. 134, Auditor Reporting and Amendments,

Including Amendments Addressing Disclosures in the Audit of Financial Statements– New section

• AU-C 701, Communicating Key Audit Matters in the Independent Auditor’s Report

– Supersedes • AU-C 700, Forming an Opinion and Reporting on

Financial Statements• AU-C 705, Modifications to the Opinion in the

Independent Auditor’s Report • AU-C 706, Emphasis-of-Matter Paragraphs and

Other-Matter Paragraphs in the Independent Auditor’s Report

‘A’ sections created in Professional Standards Codification for superseded sections until SAS No. 134 becomes effective”

Section 700, Forming an Opinion and Reporting on Financial Statements

• Changes form and content for all auditor’s reports under GAAS

– Consistent with the IAASB’s revised auditor’s report

– Consistent with the PCAOB’s revised auditor reporting model as to positioning of the Opinion and Basis for Opinion sections.

– Enhances the communicative value and relevance of the auditor’s report

Significant Changes to the Auditor’s Report• Opinion section first • “Basis for Opinion” section second and includes a statement

that • the auditor is required to be independent of the entity and

to meet the auditor’s other ethical responsibilities, in accordance with the relevant ethical requirements relating to the audit

– Key Audit Matters section (New AU-C section 701)• Not Mandatory: only include if engaged to include

(agreed in terms of engagement that report will include KAMs)

• If included, requirements apply• “What keeps the auditor up at night”• Selected from matters communicated with TCWG

Significant Auditor’s Report Changes (cont.)• Expanded descriptions of the responsibilities of

–management relating to going concern evaluation, when required by the applicable financial reporting framework

–the auditor, including relating to • professional judgment and professional

skepticism• going concern• communications with those charged with

governance

SAS No. 134 – Going Concern• AU-C 700 now includes a requirement to

report in accordance with AU-C 570 (Going Concern) when applicable

• AU-C 570 amended–Required EOM paragraph replaced with a

separate section headed “Substantial Doubt About the Entity’s Ability to Continue as a Going Concern” if substantial doubt remains

–Wording is similar

Illustrative ReportIndependent Auditor’s Report

[Appropriate Addressee]Report on the Audit of the Financial Statements OpinionWe have audited the financial statements of ABC Company, which comprise the balance sheets as of December 31, 20X1 and 20X0, and the related statements of income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1 and 20X0, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Illustrative ReportBasis for OpinionWe conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of ABC Company and to meetour other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Illustrative ReportKey Audit Matters [Not required – may be addressed in the terms of the engagement]Key audit matters are those matters that were communicated with those charged with governance and, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

[Description of each key audit matter in accordance with AU-C 701.]

Significant Changes to the Auditor’s Report

• Expanded description of the responsibilities of management, when required by the applicable financial reporting framework, relating to going concern evaluation

• Expanded description of the responsibilities of the auditor, including relating to –professional judgment and professional

skepticism–going concern–communications with those charged with

governance

Illustrative ReportResponsibilities of Management for the Financial StatementsManagement is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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.In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about ABC Company’s ability to continue as a going concern for [insert the time period set by the applicable financial reporting framework].

Illustrative ReportAuditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is substantial likelihood that, individually or in the aggregate, they would influence the judgment of a reasonable user made based on the financial statements.

In performing an audit in accordance with GAAS, we:• Exercise professional judgment and maintain professional skepticism throughout the

audit.

Illustrative Report• Identify and assess the risks of material misstatement of the financial statements, whether

due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of ABC Company’s internal control. Accordingly, no such opinion is expressed.

• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about ABC Company’s ability to continue as a going concern for a reasonable period of time.

Illustrative ReportWe are required to communicate with those charged with governanceregarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

Report on Other Legal and Regulatory Requirements

[The form and content of this section of the auditor’s report would vary depending on the nature of the auditor’s other reporting responsibilities.]

[Signature of the auditor’s firm][City and state where the auditor’s report is issued][Date of the auditor’s report]

Section 705, Modifications to the Opinion in the Independent Auditor’s Report

• Changes to conform to new section 700• No change regarding

–when a modification is required–determining the type of modification to

the auditor’s report

Section 706, Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent

Auditor’s Report• Principal changes clarify the relationship

between EOM paragraphs and KAMs in the auditor’s report –When section 701 applies, can’t substitute an

EOM paragraph for a description of individual KAMs in “Key Audit Matters” section

–EOM requires an appropriate heading• If report includes KAM section, EOM heading

is required to include the term “Emphasis of Matter”

SAS 134: Amendments Addressing Auditing Disclosures

• Amendments to various other sections to focus auditor attention on disclosures throughout the audit process

• Strengthened requirements in AU-C section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, AU-C section 330, Performing Audit Procedures in Response to Assessed Risks, and AU-C section 700.

• Enhanced application material in these and several other AU-C sections to assist auditors in addressing the practical challenges arising from the evolving nature of disclosures.

• Effective for audits of financial statements for periods ending on or after December 15, 2020.

SAS No. 134: Various Other Amendments – Some of the other, more significant amendments

relate to: • AU-C 260 (Communication with Those Charged

with Governance)– Auditor required to communicate with TCWG

about the significant risks identified by the auditor

• AU-C 330 (Performing Audit Procedures)– More specificity about considerations in

evaluating the presentation of the financial statements

Related Projects • Amendments to incorporate auditor reporting

changed from SAS No. 134• SAS No. 139, Amendments to AU-C Sections

800, 805, and 810 to Incorporate Auditor Reporting Changes From SAS No. 134– Issued March 2020

• Proposed SAS, Amendments to AU-C Sections 725, 730, 930, 935, and 940– Exposed for comment in November 2019– Final standard expected 2nd quarter 2020

Same effective dates as SAS No. 134

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What should you be doing now related to SAS 134?

Review and update firm methodologies

and guidance

Consider the impact of amendments

(e.g., engagement letters)

Consider the training needs for

engagement teams

Educate your clients & their users about

new form and content of the

auditor’s report

SAS 135, Omnibus Statement on Auditing Standards – 2019

• Amendments to AU-C 260, Communication with TCWG, and AU-C 550, Related Parties, as well as various other sections

• Amendments intended to enhance audit quality by heightening the auditor’s focus on

• related parties and relationships and transactions with related parties

• Significant unusual transactions• ASB considered PCAOB AS 16, AS 17 and

AS 18

SAS No. 136, Forming an Opinion and Reporting on Financial Statements of

Employee Benefit Plans Subject to ERISA• Final standard approved at July 2018 meeting,

subject to revisions to conform to SAS 134; issued July 2019

• New AU-C section 703 (AU-C 700 would no longer apply for ERISA plans)

• Requirements to enhance audit quality and revised auditor’s report on ERISA plan financial statements and provide better insight into responsibilities of management and the auditor

Other Information• SAS No. 137, The Auditor’s Responsibilities

Relating to Other Information Included in Annual Reports

• Supersedes AU-C section 720, Other Information in Documents Containing Audited Financial Statements

• Issued July 2019• Effective for audits of financial statements

for periods ending on or after December 15, 2020

‘A’ sections created in Professional Standards Codification for superseded section 720 until SAS No. 137 becomes effective”

Other Information (cont.)• Clarifies the auditor is required to apply procedures

only to other information included in annual reports (or similar documents).

• Revises work effort to require the accountant to remain alert for information that is misleading, including because it omits or obscures information necessary for a proper understanding of a matter disclosed in the other information

• Requires a separate section be included in the auditor’s report addressing OI

SAS 138, Amendments to the Descriptions of the Concept of Materiality

• ASB’s current definition of materiality is consistent with the definition of materiality used by the International Accounting Standards Board (IASB) and the IAASB.

• ASB is proposing amendments to align the materiality concepts in AICPA Professional Standards with the definition used by the U.S. judicial system, PCAOB, SEC, and FASB.

• FASB amended its definition of materiality in August 2018 to be consistent with the U.S. judicial system and other U.S. standard setters and regulators.

• The ASB believes it is in the public interest to eliminate inconsistencies between the definition of materiality in AICPA Professional Standards and that used by the U.S. judicial system and other U.S. standard setters and regulators.

• 1976: The U.S. Supreme Court Defines Materiality • 1980: FASB Defines Materiality • 1999: The SEC Provides Guidance When Evaluating

Materiality• 1983 and 2006: ASB Issues SASs on Materiality• 2009: IAASB Defines Materiality • 2010: IASB Defines Materiality • 2010: FASB Issues Concepts Statement No. 8 • 2010: PCAOB Issues Standard on Materiality

•2011: ASB Issues SAS No. 122, Section 320, Materiality in Planning and Performing an Audit

•2018: FASB Amends Concepts Statement No. 8 •2018: IASB Amends Definition of Material •2019: ASB Proposes to Amend the Definition of Materiality

• Should materiality be based on:• What a reasonable investor would consider material?• What a reasonable person would consider material?• What a reasonable user of the financial statements would

consider material• What an independent auditor would consider material under the

circumstances of the audit?• Some other measure?

• Which one do you think the ASB decided would apply to our audits?

• The primary difference between the definitions held by the U.S. judicial system and other U.S. standard setters and regulators and the definitions currently held by the ASB, IASB, and IAASB relate to whether a misstatement “would influence the judgment of a reasonable investor” versus “could reasonably be expected to influence the judgment of a reasonable person.”

• In essence, the U.S. judicial system and other U.S. standard setters and regulators define an omission or misstatement as material if there is a substantial likelihood that a reasonable person would consider it important.

• The ASB, IASB, and IAASB definitions state that misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

•Misstatements, including omissions, are considered to be material if they there is substantial likelihood that, individually or in the aggregate, could reasonably be expected to they would influence theeconomic decisions of users judgment of a reasonable user made based on the basis of the financial statements. (Ref. par. .A14)

New Definition

• Reasonable Users:• is based on reasonable users as a “group” not as individuals• have a reasonable knowledge of business and economic

activities and accounting and a willingness to study the information in the financial statements with reasonable diligence;

• understand that financial statements are prepared, presented, and audited to levels of materiality;

• recognize the uncertainties inherent in the measurement of amounts based on the use of estimates, judgment, and the consideration of future events; and

• make reasonable economic decisions on the basis of judgments based on the information in the financial statements.

•Significant practical effect?•Very little practical effect?•It will change documentation. Substantially or Not?

•It will change Auditor’s report language.

• The effective date is for audits of financial statements for periods ending on or after December 15, 2020.

• December 31, 2020• June 30, 2021 (implementation may be delayed by one year

to June 30, 2022.• Early implementation is permitted.

•SAS No. 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes From SAS No. 134

• This proposed amendments would implement the requirements of SAS 134 Auditor Reporting Amendments to:

• Section 800, Special Considerations — Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks.

• Section 805, Special Considerations — Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement.

• Section 810, Engagements to Report on Summary Financial Statements.

• The designation of the cash, tax, regulatory, contractual, and other bases of accounting as examples of special purpose frameworks rather than as part of the definition of special purpose framework (SPF)

• The addition of an introductory paragraph stating that AU-C 570 applies to audits of special purpose financial statements (SPFS)

• Clarifiy that, in all audits of SPFS (irrespective of whether the going concern basis of accounting is relevant to the preparation of the SPFS), the auditor is required to:

• Conclude whether substantial doubt exists about the entity’s ability to continue as a going concern for a reasonable period of time.

• When substantial doubt exists, evaluate the adequacy of the financial statement disclosures as required by the applicable financial reporting framework.

• For SPFS prepared in accordance with a contractual or other basis of accounting, a new requirement that the EOM paragraph in the auditor’s report state that the financial statements may not be suitable for another purpose.

• Added ¶A21 indicating the applicable financial reporting framework may not have a requirement for management to assess going concern for a single financial statement or element

• the required statements in the auditor’s report regarding management’s and the auditor’s responsibility for going concern needs to be adapted as necessary (or omitted if not relevant).

• Examples of factors that may be relevant in considering whether a matter included in the auditor’s report on a complete set of financial statements is relevant in the context of an engagement to report on a single financial statement or a specific element, account, or item of a financial statement.

•Amendment to paragraph .15e — which addresses the paragraph in the auditor’s report describing the auditor’s responsibilities — that deletes the description of procedures performed by the auditor

• If issued as final, the proposed SAS will be effective for audits of financial statements for periods ending on or after December 15, 2020.

•Early implementation is not permitted.

•Limited effect – change of letter format•Will change documentation very little.

SAS 140, Amendments to AU-C Sections 725, 730, 930, 935, and

940 to Incorporate Auditor Reporting Changes From SAS

Nos. 134 and 137

Other Related Projects• Amendments have been or will be proposed to align the

following sections with SAS 134: • AU-C section 930 (Interim financial information) • AU-C section 935 (Compliance audits) • AU-C section 940 (Integrated audits)

Proposed Revisions to AU-C 935 (Compliance) • Revisions for conformity with SAS 134 and to be consistent with current governmental

requirements. • Changes to the reporting requirements in ¶.30 of AU-C 935 to conform with SAS 134,

significant changes include the following: • Updating the appendix, “AU-C Sections That Are Not Applicable to Compliance

Audits,” for the issuance of SASs 131–137, as applicable. • Presenting requirements for a combined report on compliance and internal control as the

default form of report, followed by requirements addressing when the auditor chooses to issue separate reports on compliance and on internal control over compliance. This reverses how the requirements are presented in extant AU-C 935 because combined reports are more common in practice.

• Revising the definition of material noncompliance to align with the description of materiality in SAS 138, Amendments to the Description of the Concept of Materiality.

• Updating references to OMB Circular A-133 to refer instead to the Uniform Guidance and addressing changes in the OMB Compliance Supplement and the most recently issued Yellow Book.

Recent Exposure Drafts

Recently Issued Exposure Drafts

2019 Governmental & Not-For-Profit Training Program

Topic Major Effects Issued/Deadline

Audit Evidence AU-C 500 June/Sept 2019

Estimates AU-C 501/540 Aug/Nov 2019

Revisions to SSAE 18 AT-C 215 July/Oct 2018

Audit Evidence• Revising an objective currently focused on the

design and performance of audit procedures.• Developing a framework for evaluating audit

evidence based on–appropriateness (relevance and reliability),

and–sufficiency (persuasiveness)

• Shift focus from quantity to persuasiveness

Extant

“The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence…”

Audit Evidence• Proposed objective:

“As a basis for concluding whether sufficient appropriate audit evidence has been obtained, the objective of the auditor is to evaluate information to which audit procedures have been applied to determine whether such information is appropriate audit evidence.”

Extant objective:“The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence…”

Audit Evidence ASB taking the lead; IAASB is closely monitoring.

Timeline: • ED May 2019 • Final SAS May

2020• Effective for

periods beginning on or after June 15, 2021 (i.e., FYE 6/30/2022 and 12/31/2022)

Addressing evolving nature of audit services

Emerging tools and techniques, including data analytics

Professional skepticism

External information sources

• Emerging audit techniques offer both challenges and opportunities that will affect audits of financial and nonfinancial information into the foreseeable future

• ADA, and emerging technologies, such as artificial intelligence (AI), robotic process automation (RPA), and blockchain

• The phrase “automated tools and techniques” will be used to refer to both emerging audit techniques and emerging technologies.

• There is ongoing activity in the United States and internationally regarding how the profession should respond to such automated tools and techniques, including consideration of whether changes to professional standards would enhance audit quality and make the standards more relevant in today’s environment.

• In recent years, the IAASB has had a working group considering the topic of professional skepticism. The projects on quality control, group audits, and professional skepticism represented the three areas for which the IAASB sought input from responders in Invitation to Comment (ITC) Enhancing Audit Quality in the Public Interest, issued in January 2016.

• As explained in the ITC, the ISAs explicitly recognize the fundamental importance of professional skepticism. Professional skepticism includes being alert to audit evidence that contradicts other audit evidence obtained or information that brings into question the reliability of documents or responses to inquiries to be used as audit evidence.

• The auditor may accept records and documents as genuine unless the auditor has reason to believe the contrary. Nevertheless, the auditor is required to consider the reliability of information to be used as audit evidence.

• The key issues identified with respect to professional skepticism are as follows:• Questions have been raised about how auditors can more clearly demonstrate the

application of professional skepticism, how to better describe the basis for the auditor’s professional judgments, and how the auditor’s mind-set has affected the nature, timing, and extent of audit procedures performed as well as the critical evaluation of audit evidence.

• Concern about instances in which auditors did not appropriately apply professional skepticism in their audits is a recurring theme in audit inspection findings globally and has been a key issue in discussions about audit quality. Regulatory bodies have suggested that enhanced professional skepticism by auditors will contribute significantly to improving the quality of audits and that firms should prioritize efforts in this area.

• The existence of many ways to describe the application of professional skepticism indicates that the concept of professional skepticism, and the expectations of how auditors should appropriately apply it, may need to be more clearly articulated in our standards.

•Having a separate section of a proposed SAS labeled “professional skepticism” or merely using the words “professional skepticism” throughout the proposed SAS is not sufficient to achieve the objectives outlined here.

• In September 2018, the IAASB issued ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures. In finalizing ISA 540 (Revised), the IAASB also issued a series of conforming amendments to other ISAs, including conforming amendments to ISA 500, Audit Evidence.

• In general, the conforming amendments include a new definition of external information sources, related application material to the definition, and other application material that further explains the concept of external information sources. This proposed SAS includes substantially all of the IAASB’s conforming amendments to ISA 500.

Audit Evidence – NEW MAIN THEME As a basis for concluding whether sufficient appropriate audit evidence has been obtained, the objective of the auditor is to evaluate information to which audit procedures have been applied to determine whether such information is appropriate audit evidence.

Audit evidence should be considered notwithstanding the source from which it is obtained or the method used to obtain the information.

• Appropriateness (of audit evidence). The measure of the relevance and reliability of audit evidence.

• Sufficiency (of audit evidence). The measure of the persuasiveness of audit evidence. The persuasiveness of audit evidence necessary is affected by the auditor’s assessment of the risks of material misstatement. (Ref: par. A5)

• Audit evidence. Information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based. (Ref: par. A6–A7)

• External information source. An individual or organization external to the entity that develops information used by the entity in preparing the financial statements or used by the auditor as audit evidence, when such information is available for use by a broad range of users. When information has been provided by an individual or organization acting in the capacity of management’s specialist, service organization, or auditor’s specialist, the individual or organization is not considered an external information source with respect to that particular information. (Ref: par. A8)

• Extant AU-C 500 contains separate definitions of sufficiency (a measure of quantity) and appropriateness (a measure of quality). The ASB believes that audit evidence always has to first be appropriate for the auditor’s intended purposes:

• Key question is whether the auditor has obtained enough of such audit evidence for the auditor’s intended purpose.

• In the proposed SAS, the ASB retained separate definitions of sufficiency and appropriateness.

• The definition of appropriateness remains largely the same as the extant definition.• However, the ASB proposes to amend the definition of sufficiency to focus on the measure of the

persuasiveness of audit evidence rather than emphasizing the quantity of audit evidence. The ASB believes that this change is important because, with the array of automated tools and techniques available to the auditor in today’s environment and the different nature and sources of information available, the quantity of audit evidence, in itself, may not be determinative of its sufficiency.

• ¶9. As a basis for concluding whether sufficient appropriate audit evidence has been obtained as required by AU-C section 330, the auditor should evaluate the information to be used as audit evidence in accordance with paragraphs 10–12 of this proposed SAS. (Ref: par. A9–A11)

• ¶10. In evaluating information to be used as audit evidence in accordance with paragraph 9, the auditor should consider the relevance and reliability of the information. The auditor should also consider whether the information is sufficiently reliable for the auditor's purposes, including as necessary

• a. obtaining audit evidence about the accuracy and completeness of the information and

• b. evaluating whether the information is sufficiently precise and detailed for the auditor’s purposes. (Ref: par. A12–A33)

•Information to Be Used as Audit Evidence•¶11. In evaluating information to be used as audit evidence in accordance with paragraph 9, the auditor should consider the sources of the information to be used as audit evidence. (Ref: par. A34–A44)

• Information to Be Used as Audit Evidence• ¶12. In evaluating information to be used as audit evidence in accordance with paragraph 9, the auditor should consider whether such information corroborates or contradicts the assertions in the financial statements. (Ref: par. A45–A48)

• ¶13. When designing and performing audit procedures, the auditor should consider whether the results of such audit procedures are reasonably expected to provide a basis for concluding on the sufficiency and appropriateness of audit evidence obtained. (Ref: par. A49–A72)

• ¶14. The auditor should determine what modifications or additions to audit procedures are necessary to resolve the matter and should consider the effect of the matter, if any, on other aspects of the audit if:

• a. audit evidence obtained from one source is inconsistent with that obtained from another or

• b. the auditor has doubts about the reliability of information to be used as audit evidence. (Ref: ¶A73–A74)

Audit Procedures

Audit Evidence

Substantive Audit

Procedures

Test of Controls

Risk Assessment Procedures

“The auditor may perform one or more procedures using different audit tools or techniques, including audit data analytics, visualization, or artificial intelligence in meeting objectives of the audit procedures.”

“In some instances, the auditor may achieve the objective of more than one type of audit procedure (for example, as both a risk assessment and further audit procedure) and may accomplish the objectives of both types of procedures simultaneously, including achieving such objectives through the use of automated tools or techniques.”

Auditing Accounting Estimates and Related

Disclosures

Background and Timeline• Proposed SAS Auditing Accounting Estimates and Related

Disclosures• Exposure draft issued August 2019; comments due

November 22, 2019• Project to converge with ISA 540 (Revised), Auditing

Accounting Estimates and Related Disclosures• ISA 540 issued October 2018; effective for audits of

periods beginning after December 15, 2019• ASB and AICPA provided input into IAASB project, which

included consideration of PCAOB project• Revisions to address evolving audit risks due to a more

complex business environment and more complex accounting estimates

• Every standard setter is concerned about estimates.• IAASB

• Credit loss models for loan loss provisions.• Need to foster an improved exercise of professional skepticism.• Issued ISA 540, Auditing Accounting Estimates and Related Disclosures.

• PCAOB• Issued AS 2501, Auditing Accounting Estimates, Including Fair Value Measurements

• ASB• Nonconformity in this area is the most common audit issue detected by practice

monitoring programs worldwide. Followed IAASB and PCAOB.• The ASB believes the proposed changes will help auditors to perform appropriate audit

procedures relating to auditing accounting estimates and related disclosures and will drive auditors to exercise professional skepticism, thereby improving audit quality.

• Concept of Estimation Uncertainty• Separate assessment of Inherent Risk and Control Risk.• Concept of Spectrum of Inherent Risk. (i.e. Appendix A)• Scalability for all types of accounting estimates, from simple to

complex, based on Estimation Uncertainty.• Enhanced risk assessment based on complexity, subjectivity, and

estimation uncertainty.• Increased importance of professional skepticism as risk factors

increase.• Evaluation of the Estimates.• Additional Communication with TCWG may be considered (i.e.

Appendix B).

• Introduced objectives-based work effort requirements • Emphasized the importance of the auditor’s decisions about controls• Enhanced requirements addressing disclosures• New and enhanced application material • For external information sources, conforming and consequential amendments to ISA

500 • Explicitly recognized spectrum of inherent risk • Introduced concept of inherent risk factors • Enhanced risk assessment procedures • Required separate assessment of inherent risk and control risk • Enhanced the “stand-back” requirement • Emphasized requirement when communicating with those charged with governance

– Inherent risk and Control risk• Expanded documentation requirement

Changes to ISA 540

•If issued as final, the proposed SAS would be effective for audits of financial statements for periods ending on or after December 15, 2022.

AICPA Professional Ethics Executive Committee (PEEC)

State and Local GovernmentClient Affiliates

85

OverviewApplies only to SLG financial statement attest

engagementsProposed effective date: periods beginning after

December 15, 2020Provides for four types of affiliatesExamples of circumstances and relationships w e the

conceptual framework could be considered86

Who is an affiliate? Type i: Included in the FSAC’s FS and another

auditor’s report is not referenced. Type ii: Included in the FSAC’s FS, another auditor’s

report is referenced, the entity is material to the FSAC and the FSAC has MTMI.

Type iii: Entity is excluded from the FSAC, but is material to the FSAC and the FSAC has MTMI

Type iv : Investment that the investor can control or has significant influence over and is material

For purposes of the SLG interpretation, an investor includes the financial statement attest client or an affiliate of the financial statement attest client that meets the definition of affiliate under paragraph .03 a. i. of the SLG interpretation

FSAC = Financial Statement Attest Client

MTMI – More than minimal influence over the financial accounting and reporting by the FSAC over the entity87

Implementation GuideAgenda Item 1D

88

COVID-19: AICPA’s Response Professional Ethics Executive Committee (PEEC) State and Local Government Client Affiliates Interpretation

o Final issued on June 13, 2019o This interpretation helps members identify the entities related

to a state or local government (SLG) (such as component units or funds) that are "affiliates" of the SLG for independence purposes

o Effective for years beginning after December 15, 2020 PEEC is meeting on May 5 to consider one-year delay due to

COVID-1989

Overview – Implementation GuideDecision Trees & PathwaysConceptual Framework for IndependenceNonattest Services ExceptionExample Affiliate Determinations

90

Decision Tree for Entities Required Under the Applicable Financial ReportingFramework to be Included in the Financial Statements of the SLG Financial

Statement Attest Client

91

92

93

94

95

96

Affiliate ChecklistAgenda Item 1E

97

98

99

Other Emerging Issues

100

CPA Exam: Potential Changes AICPA issued proposal in December 2019 – Comments due April 30, 2020

Various sections of the proposal call for reduction or elimination of state and local government accounting from the CPA Exam Governments are very concerned

o Would likely reduce the resources allocated by colleges and universities to governmental accounting education

o Would limit the exposure to important concepts in governmental accounting for future accounting professionals

o Would severely impair the recruiting efforts of government organizations101

SSAE 19, Agreed-Upon Procedures Engagements• Issued December 2019

– Does not require an assertion from the responsible party

– Doesn’t require that the procedures be known at the beginning of the engagement; instead provides flexibility by allowing procedures to be developed over the course of the engagement, by or with the assistance of, the practitioner

– Engaging party required to acknowledge that the procedures are appropriate for the intended purpose of the engagement prior to the issuance of the report.

– Doesn’t require intended users to take responsibility for the sufficiency of the procedures

– Permits general-use report unless certain conditions exist

SSAE 19 is effective for agreed-upon procedures reports dated on or after July 15, 2021. Early implementation is permitted.

Proposed Revisions to Examination and Review Engagements

• Examination and Review Engagements– Measurement or evaluation of the subject matter against the criteria

• Allows practitioner to, and does not require that responsible party, measure or evaluate subject matter against criteria

• No longer required to obtain written assertion from responsible party

• Instead, required to request written representation about whether measurement or evaluation occurred and if so, about the results

• AT-C 320 would still require obtaining a written assertion• Reviews (proposal to rename as Limited Assurance)

– More explicit description of the procedures that may be performed– Report includes an informative summary of the work performed as

basis for conclusion– Allow adverse conclusion

Exposure Draft, Revisions to Statement on Standards for Attestation Engagements No. 18: Clarification and Recodification, issued July 11, 2018. The comment period ended October 11, 2018.

Proposed Revisions to AT-C 105, and 215, Agreed-Upon Procedures Engagements

• No assertion required• Not require that the procedures be known at the

beginning of the engagement• Provides flexibility for developing procedures over

the course of the engagement, by or with the assistance of, the practitioner

• Engaging party required to acknowledge the procedures are appropriate for the intended purpose of the engagement prior to the issuance of the report.

• Permits general-use report unless certain conditions exist

Exposure Draft, Revisions to Statement on Standards for Attestation Engagements No. 18: Clarification and Recodification, issued July 11, 2018. The comment period ended October 11, 2018.

•.08 If issued as final, this section will be effective for practitioners' reports dated on or after May 1, 2020.

•Early implementation is not permitted.

Effective Date

•How will this affect your attestation work?•Should reduce burden to obtain information from client.

•Should make the work easier overall.

Other Standard-setting Projects

Other Projects• Risk Assessment• Estimates phase II

• AU-C 501 considerations• PCAOB Appendices on pricing sources

• NOCLAR – project plan under development

• Special purpose frameworks- phase II (compliance frameworks)

Current IAASB Projects that ASB is Monitoring

• Quality Management (formerly Quality Control

• Risk Assessment• Group Audits• Professional Skepticism• Audits of Less Complex Entities

Risk Assessment: Major issues being debated

Modernization for evolving business environment, e.g., Data Analytics

Address in more depth Professional Skepticism Clarifications regarding Understanding the Entity and its Environment

to focus more on the applicable financial reporting framework Clarifications regarding the work effort to gain an understanding of

internal control and identifying controls relevant to the audit Enhanced guidance on IT considerations Amend definition of significant risks Introduces the concept of spectrum of inherent risk which is intended

to support the revised definition of significant risks Clarifications over the assessment of the risks material misstatement

and including a stand back requirement

Interpretive Publications and Staff Guidance

Digital assets• Working group developing nonauthoritative

guidance to address–accounting issues related nature of the

assets and related transactions–possible auditing approaches related to

rights and obligations, valuation and existence (among others)

ASB Strategy• ASB working group is considering its strategic

initiatives and work plan for the next 3-5 years.• A public consultation paper is anticipated, seeking

input on the following themes:–Setting high quality standards in the public interest–Stakeholder engagement–Becoming more strategic–Supporting the effective implementation and

application of standards–Emerging services and technologies

Slide Number

Audit Documentation Resources

Free resources available at www.aicpa.org/eaq/peer-review-documentation-resources, including:• Archived webcast• Working paper template• Internal inspection aid• Nano-learning segment

Slide Number

Internal Control Toolkit

Free resources available at aicpa.org/internalcontrol, including:• Internal control over financial

reporting tool template• Process memo template• Staff training workshop• Internal inspection aid

Legislative and Regulatory Issues: COVID-19

COVID-19: Congressional Response• Three wide-ranging laws have been enacted:

– March 6: Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (Public Law 116-123)

– March 18: Families First Coronavirus Response Act (Public Law 116-127)

– March 27: Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-136)

– April 24: Paycheck Protection Program and Health Care Enhancement Act (Public Law 116-139) (relief package 3.5)

• $2.9 trillion to date (12.9% of GDP; 60% of total expected spending in FY 2021)– Is a fourth round of relief forthcoming?

119

COVID-19: Congressional Response• Coronavirus Preparedness and Response

Supplemental Appropriations Act, 2020–Provided $8 billion in emergency funds

• $6.5 billion for HHS–Majority going to Public Health and Social Services Emergency

Fund and Centers for Disease Control and Prevention• $1.25 billion for State Department and USAID

–Includes funds for global health programs, humanitarian and health aid, evacuation and emergency preparedness costs

–Also enabled the SBA to provide approximately $7 billion in disaster loans

120

COVID-19: Congressional Response• Families First Coronavirus Response Act

– Provided leave, tax credits, expanded unemployment and nutrition, and free testing• Employers with fewer than 500 workers and government

entities must provide as many as 12 weeks of partially paid family leave under FMLA to care for a child whose school or day care has closed

–Businesses with fewer than 50 workers can be exempted from requirements

• Employers must provide two weeks of sick time to full- and part-time workers

• Paid leave is financed through refundable employer tax credits121

COVID-19: Congressional Response• Families First Coronavirus Response Act

– Other highlights:• Unemployment Insurance

– Provided as much as $1 billion for states to pay unemployment benefits– Included full federal funding for states with increasing unemployment

• Nutrition– Provided $500 million for WIC, $400 million for the Commodity Assistance Program,

and $100 million in grants for nutrition assistance in territories– Waived federal work requirements for SNAP eligibility

• Health– Increased Medicaid funding by 6.2 percentage points– Required coverage of tests and related services without cost-sharing– Provided $1 billion to reimburse provider costs for testing uninsured

122

COVID-19: Congressional Response• Coronavirus Aid, Relief, and Economic Security

(CARES) Act – Provided $2.2 trillion to support the government’s

response and help businesses and individuals• $454 billion “Economic Stabilization Fund” that permits the

U.S. Treasury to purchase obligations of S&L governments, instrumentalities and political subdivisions

• $349 billion in low-interest small business loans with potential forgiveness

123

COVID-19: Congressional Response• CARES Act (cont.)

–Payments of as much as $1,200 for individual taxpayers (subject to income limits), and $500 per child

–Unemployment:• An additional $600 per week for those receiving

unemployment benefits through July 31• As long as 39 weeks of pandemic unemployment benefits

through Dec. 31, including individuals who are self-employed–$150 billion for aid to state, local, and tribal governments

• Coronavirus Relief Fund (CRF) (§5001)124

COVID-19: Congressional Response• CARES Act (cont.)

–$30.8 billion Education Stabilization Fund and allocates:• $13.5 billion for elementary and secondary schools• $14.25 billion for higher education• $3 billion in flexible funding for states

–Offered temporary relief to banks and credit unions• Waived accounting rules related to credit losses and troubled

debt –FASB’s Current Expected Credit Loss (CECL) standard (ASU No.

2016-13, Topic 326)125

COVID-19: Congressional Response• Key Provisions for S&L governments/recipients:

–Use of CRF Funds (§601(d), p. 223)• Qualifications:

–The costs incurred are necessary expenditures due to COVID-19–The expenditures were not accounted for in the budget most recently

approved as of the date of enactment–Expenses were incurred from March 1, 2020 through December 30,

2020• Certification

–In order to receive payment, local governments shall provide the Secretary a certification signed by the local government’s Chief Executive that the use of funds are proper

126

CARES Act: Treasury Guidance on CARES Act• Treasury guidance and FAQs issued on April 22,

2020 for CRF • Provides explanation of:

–What are necessary expenditures “due to” the crisis?–What are “costs not accounted for in the most recent

budget?”–What are costs “incurred”?

127

CARES Act: Treasury Guidance on CRF• What are necessary expenditures “due to” the

crisis?–Include costs to respond directly and to respond to

“second-order effects” (e.g., providing support to those suffering from employment or business interruptions)

–Funds may not be used to fill revenue shortfalls–“Necessary” is based on the judgment of responsible

government officials128

CARES Act: Treasury Guidance on CRF• What are “costs not accounted for in the most recent

budget?”– Costs must be new; i.e., were not included in a line item,

within that budget or is for a substantially different use– “Most recently approved” budget is the enacted budget

• Does not include subsequent supplemental appropriations made in response to COVID-19

• What are “incurred” costs?– Incurred when funds are expended to cover the cost

129

Examples of Eligible Expenditures• Medical expenses

–Hospitals, clinics and similar facilities–Temporary medical facilities to increase treatment

capacity–Testing–Emergency response expenses, including

transportation–Establishing and operating public telemedicine

capabilities 130

Examples of Eligible Expenditures (cont.)• Public health expenses

– Communication and enforcement of public health orders– Acquisition and distribution of protective supplies to police

officers, social workers, child protective services, etc.– Disinfection of public areas – Quarantining individuals

• Payroll expenses– Public safety, public health, human services employees whose

services are substantially dedicated to COVID-19131

Examples of Eligible Expenditures (cont.)• Compliance with public health measures expenses

– Food delivery to vulnerable populations (e.g., senior citizens)– Improvements to telework capabilities for public employees– Paid sick, family and medical leave to public employees– Care for homeless populations

• Economic support expenses– Unemployment insurance costs (if such costs not covered by other

parts of the CARES Act or otherwise)• Other expenses

– Any other expense reasonably necessary to the function of government that meet the eligibility criteria

132

Examples of Ineligible Expenditures• Expenses for the state share of Medicaid• Damages covered by insurance• Payroll or benefits for employees not substantially

dedicated to responding to COVID-19• Expenses reimbursed by other parts of the Act• Workforce bonuses other than hazard pay or overtime• Severance pay

133

CARES Act: Treasury Guidance on CRF• From the FAQs

–Do governments have to return unspent funds?• Yes, for funds that have not been used for costs incurred by

December 30, 2020–May a state receiving a payment transfer funds to a local

government?• Yes, provide the transfer qualifies as a necessary expenditure

–May governments retain assets purchased with these funds?• Yes, if the purchase was consistent with eligible uses of funds

134

COVID-19: Congressional Response• Key Provisions of CARES Act on S&L governments/recipients:

– Inspector General (§4018, p. 202)• New “Special Inspector General for Pandemic Recovery” within Treasury• Appointed by the President by and with advice and consent of the Senate• Responsible for conducting, supervising, and coordinating audits and

investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments made by the Secretary of the Treasury

• President Trump nominated Brian D. Miller on April 6– Coronavirus Relief Funds (§5001, p. 221)

• $150 billion in direct aid to states, tribal governments, territories and local governments with populations over 500,000

– Bulk of funding goes to states using population-based formula– No state receives less than $1.25 billion– Large local governments apply for their own direct funding– Smaller local governments need to go through their state for funding

135

COVID-19: Congressional Response• Key Provisions for S&L governments/recipients:

–Pandemic Response Accountability Committee (PRAC) (§15010, p. 253) • Established to promote transparency and conduct and support

oversight of covered funds, including auditing or reviewing covered funds

• Members include various Inspectors General–Chair is selected by CIGIE chair–Position is currently open as of April 27, 2020

• $80,000,000 provided136

COVID-19: Congressional Response• Key Provisions for S&L governments/recipients:

– Website (§15010(g)(1)(A), p. 259)• Establish and maintain a user-friendly, public-facing website that:

– Provides detailed data on expenditures (including a unique trackable ID number) for any covered funds over $150,000

– Includes downloadable, machine-readable, open format reports– Uses data elements required under FFATA– Provides a link to estimates of the jobs sustained or created

– GAO and state auditors (§15010(i), page 260)• PRAC shall coordinate its oversight responsibilities with the

Comptroller General and state auditors137

COVID-19: Congressional Response• Key Provisions for S&L governments/recipients:

– Reporting on Use of Funds (§15011, page 260)• Not later than 10 days after each quarter, each covered recipient shall submit to the

agency (grantor) and the PRAC a report that contains:– Amount of large covered funds (more than $150,000) received;– The amount of large covered funds expended or obligated for each project or activity;– A detailed list of projects or activities for which large covered funds were expended or obligated,

including:» the name of the project or activity;» a description of the project or activity; and » the estimated number of jobs created or retained by the project or activity; and

– Detailed information on any level of subcontracts or subgrants awarded by the covered recipient to include the data elements required to comply FFATA

• First report (§15011(b)(2), page 261)– Due not later than 45 days after the end of the first full quarter following the enactment

date– August 15, 2020

138

COVID-19: Congressional Response• Paycheck Protection Program and Health Care

Enhancement Act (relief package 3.5)–$484 billion total package

• $321 billion for Paycheck Protection Program (ran out of money)

–$60 billion for small and community banks• $75 billon to hospitals and health-care providers for expenses

or lost revenues• $10 billion to Economic Injury Disaster Loans (ran out of

money)• $25 billion to accelerate testing

139

COVID-19: OMB’s Response• OMB Administrative Memorandums

Issued:–M-20-11 (March 9, 2020)–M-20-17 (March 19, 2020)–M-20-20 (April 9, 2020)–M-20-21 (April 10, 2020)

140

COVID-19: OMB’s Response Memo M-20-11

• Narrowly focused on “research/services to carryout the emergency response” • Permits agencies to grant exceptions in 10 different areas, notably:

– Waiver for Notice of Funding Opportunities (NOFOs)• Can publish emergency NOFOs for less than 30 days

– Pre-award Costs• Awarding agencies may allow necessary pre-award costs incurred from

January 20, 2020 through the Public Health Emergency Period– Waiver from Prior Approval Requirements

• Prior approval requirements can be waived as necessary to effectively address the response

– Extension of Single Audit Submission• Grantees are allowed to delay completion and submission to 12 months

beyond the normal due date• Does not impact “low-risk auditee” determination

141

COVID-19: OMB’s Response Memo M-20-17• Expands M-20-11 to a larger scope of recipients by

addressing 13 areas, notably:– Flexibility with SAM registration

• Current registrants in SAM with active registrations expiring before May 16, 2020, will be afforded a one-time extension of 60 days

– Allowability of Costs not Normally Chargeable to Awards• Costs related to cancellation of events, travel, or other activities

necessary and reasonable for the performance of the award– Extension of Financial, Performance and Other Reporting

• May delay submission up to three months beyond normal due date142

COVID-19: OMB’s Response Memo M-20-17 (cont.)• Expands M-20-11 to a larger scope of recipients by addressing 13 areas,

notably:– Extension of Currently Approved Indirect Cost Rates

• May allow grantees to continue to use the currently approved indirect cost rates for one additional year without submission of an indirect cost proposal

– Extension of Closeout• May allow grantees to delay submission of closeout reports for a period not to exceed one

year after the award expires

– Extension of Single Audit Submission• Allow for six-month extension for single audits that have FY ending through June 30, 2020• No further action by awarding agency is required to enact this extension• Recipients (and subrecipients) should maintain documentation• Does not impact “low-risk” auditee determination

143

COVID-19: OMB’s Response Memo M-20-20• Allows Federal awarding agencies to repurpose their

awards (in whole or in part) to support COVID-19 response–2 CFR §200.102(a), Exceptions–Example: Agencies may allow recipients to donate

medical equipment (e.g., personal protective equipment, medical devices) purchased with Federal funds to hospitals, medical centers, etc. Also extends to labor.

–Recipients must document these exceptions144

COVID-19: OMB’s Response Memo M-20-21– Implementation guidance to Federal awarding agencies

• Agencies must:– Incorporate COVID-19 relief funding performance into their reports– Review progress as part of their performance– Report monthly to OMB and others on obligations or expenditures of “large

covered funds” including loans and loan guarantees• OMB with Council of Economic Advisers, Treasury, and SBA:

– Provide quarterly reports that detail the effect of COVID-19 relief funds on employment, estimated economic growth, and other key economic indicators

– OMB anticipates recipients will not need to report estimated number of jobs created or retained by project or activity

145

COVID-19: OMB’s Response Memo M-20-21• Implementation guidance to Federal awarding agencies

(cont.)– Agency Reporting Instructions (Appendix A)

• Meet CARES Act reporting by utilizing existing reporting processes under FAFTA, as amended by the DATA Act

• Information required to be reported by both agencies and recipientsshould be publicly available on USASpending.gov

– No new website! (Recovery.gov for ARRA reporting)• OMB does not expect that additional reporting by agencies or recipients

should be necessary– Timelines/Requirements for Federal Agencies (Appendix B)

146

COVID-19: Single Audit Issues

147

COVID-19: Key Single Audit Questions• Subject to the Single Audit and Included on

SEFA?–COVID-19 Relief Fund ($150 billion to states)

• Impact on major program determination• What is the CFDA No.?• Do the provisions of CMIA apply?

–Paycheck Protection Program (PPP)• Loans from the Small Business Administration

148Source: AICPA and NASACT

COVID-19: Key Single Audit Questions• Subject to the Single Audit and Included on SEFA? (cont.)

– Other CARES Act Funding• SBA Economic Injury Disaster Loans;• Treasury Middle Market or Economic Stabilization Fund loans for eligible

not-for-profit organizations (NFPs);• Education Emergency Stabilization Fund Assistance;• Employee Retention Credits for NFPs;• Reimbursements to state and local governments and NFPs for unemployment

work-sharing programs;• Accelerated/advance payment program for Medicare providers; and• Provider relief funding from the Public Health and Social Services

Emergency Fund

149

COVID-19: Key Single Audit Questions• Effect on Funding on Programs and Clusters

–To what extent will CARES Act funding fall into existing CFDA numbers?

–Will any existing clusters be affected by the addition of new CFDA numbers?

–Will there be any new clusters?–Will COVID-19 awards have to be identified separately on the

SEFA?• If yes, how are the agencies communicating that information to

recipients and subrecipients?

150Source: AICPA and NASACT

COVID-19: Key Single Audit Questions• Compliance Supplement

–Will the Supplement be held pending updates for COVID-19?• HHS, HUD, ED and SBA have indicated a desire to do so

– Consistent approach is needed for all agencies• Timing?

– COVID-19 Addendum issued later?

• Agency Implementation–Will agency-wide guidance be issued, or will it be program

by program?

151Source: AICPA and NASACT

COVID-19: Key Single Audit Questions• Major Program Determination

– More high-risk type A programs may result for 2020• Internal Control Considerations

– Auditors may have to assess three separate sets of key controls• Before COVID-19• During the shutdown (working remotely)• Ramp up after shelter from home restrictions are lifted

– Might result in an increase of internal control findings• Increased sample sizes for internal control and/or compliance testing

152Source: AICPA and NASACT

COVID-19: Key Single Audit Questions• Compliance Requirements

– Allowable Costs, Payroll• Teleworking issues

– Can payroll be charged to the grant if an employee has been retained and still employed, but not working on the grant?

– Are payroll costs allowed if the recipient requires employees to work remotely?– What is the appropriate documentation?– Consistency is needed for similar time and effort questions

– Reporting• Will there be special reporting requirements for COVID-19 funds like what was required

for ARRA?

– Subrecipients• Are there significant differences in the requirements for direct recipients and subrecipients?

153Source: AICPA and NASACT

COVID-19: A Reminder on Muni-Disclosures

154

COVID-19: Debt Service and Disclosures• Disclosure Considerations from COVID-19

– Confirm debt service payments are made on time• Work at home orders may allow missed payments to occur• Some laws and ordinances may allow some delayed payments, but

not debt service payments– Disclosures related to COVID-19 should be factual

• While urgency is important, so is accuracy• Be hesitant with estimates or projections

– Communicate with bond counsel• Especially with disclosures related to COVID-19

155Source: GFOA Debt Committee Guidance

COVID-19: Debt Service and Disclosures• Disclosure Considerations from COVID-19 (cont.)

– Interim/voluntary disclosures• Should be fact-based from information already developed by your entity• Be mindful that COVID-19 conditions may change quickly

– Selective disclosure• Impacts of COVID-19 should be made available to everyone on an equal

basis– Primary Offerings

• Governments may need to provide COVID-19 related disclosures for debt being issued

– May also be asked for supplemental disclosures updating any material changes to the closing date

156Source: GFOA Debt Committee Guidance

COVID-19: Debt Service and Disclosures• Disclosure Considerations from COVID-19 (cont.)

– Know your annual filing dates• If your government can’t make a filing due to the circumstances (e.g.,

financial statements or audits not available), follow CDA requirements– May require a filing with EMMA with an explanation – Important to explain especially if caused by COVID-19 since underwriters of future

issuances will need to understand

– Material event notices• A downgrade by a rating agency is a material event that requires filing

within 10 days– SEC Rule 15c2-12 has NOT relaxed the 10-day filing requirement– Other material events listed by the SEC are still in force

157Source: GFOA Debt Committee Guidance

COVID-19: Debt Service and Disclosures• Disclosure Considerations from COVID-19 (cont.)

–EMMA filings• Ensure that annual, continuing or voluntary filings are filed

correctly–Know the current market conditions

• Things are very fluid right now; new products may be considered by the Federal government due to COVID-19

–Post issuance compliance with Federal tax regulations• IRS has NOT suspended arbitrage, yield restrictions, or private

use regulations related to tax-exempt bond issuances

158Source: GFOA Debt Committee Guidance

Municipal Disclosures – Material Events Just a reminder - the current 16 material

events: Principal and interest payment delinquencies Non-payment related defaults Unscheduled draws on debt service reserves reflecting

financial stress Unscheduled draws on credit enhancements reflecting

financial stress Substitution of credit or liquidity providers, or their failure

to perform Adverse tax opinions or events affecting the tax-exempt

status Modifications to rights of security holders Bond calls and tender offers Defeasances Release, substitution or sale of property securing security

repayment Rating changes

Bankruptcy, insolvency or receivership

Merger, acquisition or sale of all issuer assets

Appointment of successor trustee Incurrence of a material financial

obligation (e.g., bank loans, derivative instruments) - new

Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the obligated person, any of which reflect financial difficulties - new159

COVID-19: Next Steps and Resources

160

COVID-19: What’s Next?• Awaiting Guidance for Recipients from OMB and Other

Federal Agencies– Grants management issues – Single Audit/Compliance Supplement– Subrecipients

• Various Groups Forming Now for Cross-Collaboration– Communication is the key!

• Fourth Round of Stimulus Funding from Congress?

161

COVID-19: Resources• AICPA• GASB• GFOA• NACO• NASACT• NASBO• NCSL• NGA• OMB

– GrantsTeam@omb.eop.gov; coronaresponse@omb.eop.gov

162

The main question I have is, Why, and Why Me, and will I be able to retirebefore this kicks in?

Any Questions?

Questions!

164