Academic journal article The Government Accountants Journal

Preparing for Your First Financial Audit - Part 2

Academic journal article The Government Accountants Journal

Preparing for Your First Financial Audit - Part 2

Article excerpt

This is the second of two articles on the Chief Financial Officers (CFO) Act requirement that federal agencies prepare financial statements, and obtain audits, conducted in accordance with generally accepted governmental auditing standards, of those financial statements. The articles in the last issue presented the many benefits federal agencies may obtain by adopting this process. It also discussed several basic issues the Office of Management and Budget (OMB) and other central management agencies need to resolve in order for the process to move forward. This article describes the steps the individual agencies, i.e., their chief financial officers, inspectors general, and procurement officers, will want to consider.


The resolution of the basic issues by OMB notwithstanding, each department and agency will need to take several steps if it desires to obtain an efficient and effective financial audit. For example, before the audit commences, an agency will need to:

* Define the funds and accounts or groups of funds and accounts to be audited. The specification by OMB of the revolving funds, trust funds, and accounts performing substantial commercial functions is the starting point. The agency should also consider and decide whether it wants to present each fund and account in a separate set of financial statements or whether it will include some in the same financial statements and audit. For example, the Health Care Financing Administration operates the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund. It would probably make sense to include these funds in the same financial statements.

Each department must also decide whether and how its support activities will be included in the financial statements of the audited funds and accounts. For instance, if a department operates an administrative processing center which services other agencies and bureaus in the department, the department should consider whether the auditor of the funds and accounts of each agency and bureau in the department should review the systems in the administrative processing center, or whether the department will engage its own auditors, conduct a third party review of the administrative processing center and provide a report to the auditors of each fund and account.

* Prepare the financial statements and footnotes. Financial statements are the representations, i.e. assertions, of management. Management therefore should prepare the financial statements and footnotes. The auditor's responsibility is to express an opinion on the financial statements.

Preparing financial statements, and particularly footnotes, will be a new experience for many agency personnel. It would not be inappropriate for the auditors, who are familiar with the preparation of financial statements and footnotes, to help. However, the amount of help notwithstanding, the agency management should remember that the financial statements are the agency's, not the auditor's. It must fully understand the content of the statements. It must take responsibility for every item and amount in the financial statements.

* Assure that every account is supported by subsidiary ledgers, bank reconciliations or other audit support. Part of the audit process is to establish that the amounts in the financial statements are materially correct. To do this, the auditor reviews the accounts that make up the amounts in the financial statements and substantiates the contents of these accounts with other individuals and organizations who are parties to the transactions or reviews independent supporting documentation. The auditor also reviews the reasonableness of any estimates the auditee makes to arrive at amounts in the financial statements.

An audited entity can simplify and shorten the auditor's work by having documentation available with which the auditor can readily determine the composition of the financial statement amounts, confirm certain amounts with other parties, and determine the basis for estimates. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.