By Fitzsimons, Adrian P.; Levine, Marc H.; Siegel, Joel G.
The CPA Journal , Vol. 66, No. 4
SAS No. 74-the generic replacement for SAS No. 68, provides more freedom to operate.
With SAS No. 68, anytime a government agency hiccuped or did something more drastic like revising the Yellow Book, the Auditing Standards Board had to consider revising GAAS. SAS No. 74 solves this by replacing the specific guidance of SAS No. 68 with genericguidance. The details are in audit guides or SOPs.
In February 1995, the Auditing Standards Board ("ASB") issued Statement on Auditing Standards ("SAS") No. 74, Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance, to provide guidance to independent auditors who perform audits of governmental entities and not-for-profit organizations and business enterprises that are recipients of governmental financial assistance. The statement revises and supersedes the guidance contained in SAS No. 68, Compliance Auditing Applicable to Governmental Entities and Other Recipients of Governmental Financial Assistance. The subtle difference in the names of the two statements is indicative of a change in thrust. SAS No. 68 referred to compliance auditing applicable to governmental entities. SAS No. 74 speaks of compliance auditing considerations in audits of governmental entities. The change to insert the word "considerations" reflects a refinement in understanding as to the place of the statement in the scheme of compliance auditing and the intervening issuance of Statement on Standards of Attestation Engagements (SSAE) No. 3., Compliance Attestation.
SSAE No. 3, issued in 1994, applies when a practitioner is engaged to report on management's written assertion about an entity's compliance with specified requirements (laws, regulations, rules, contracts, or grants) or the effectiveness of the entity's internal control structure over compliance with specified requirements. It would appear that SSAE No. 3 would be the logical pronouncement to follow in satisfying the compliance auditing requirements of Governmental Auditing Standards, the Single Audit Act of 1984, and OMB Circulars A-128 and A-133. However, the Auditing Standards Board chose to exclude their compliance requirements from the applicability of SSAE No. 3 and to continue to deal with them in a SAS. But because of 1994 revisions to Government Auditing Standards and a desire to make the guidance more general in nature, the ASB issued SAS No. 74.
Like its predecessor, the main thrust of SAS No. 74 is to give guidance to auditors engaged to do audits of governmental entities and recipients of governmental assistance because of the unique importance of compliance with laws and regulations on the reports the auditor is required to issue.
Specifically, SAS No. 74 provides guidance to independent auditors in-
* applying the provisions of SAS No. 54, Illegal Acts by Clients, related to detecting misstatements resulting from illegal acts related to laws and regulations that have a direct and material effect on the determination of financial statement amounts in audits of the financial statements of governmental entities and other recipients of governmental financial assistance;
* performing a financial audit in accordance with Government Auditing Standards issued by the Comptroller General of the United States. Government Auditing Standards or the "Yellow Book" [sometimes referred to as generally accepted government auditing standards (GAGAS)] generally apply to engagements where an entity received financial assistance in excess of $100,000 from the Federal government or where Government Auditing Standards are specified by the assistance contract or by the agency providing the assistance as a matter of policy;
* performing a single or organizationwide audit of an entity that receives govemmental financial assistance, that is, an audit of a recipient's financial statements and its compliance with laws and regulations relating to governmental financial assistance. …