Performing a Section 20500 Governmental Audit Engagement Checklist

Conducting a section 20500 governmental audit engagement can be like unraveling an intricate jigsaw puzzle. This article will help you piece it all together by covering topics like accepting engagements, planning individual audit engagements, conducting the audit itself and reporting its results.

This checklist is part of the AICPA’s Peer Review Program Manual (PRPM) Toolkits & Practice Aids – May 2023.

1. Conduct a Pre-Audit Meeting
As soon as an auditor begins their audit, they need to know how your organization operates and which documents are needed for review. They’ll need to agree upon key interviewees and scheduling in this meeting (known as an opening meeting).

Auditors should use this opportunity to communicate their audit plans. Doing so serves as an essential reference point throughout and helps prevent disagreements at the end of an audit.

From a legal perspective, we believe it is wise to carefully consider whether organizing an opening meeting is prudent. While its benefits are undeniable, risks associated with initiating an information snowball effect or divulging company-own insights that cannot legally be disclosed may outweigh them.

2. Perform the Pre-Audit Work
Conducting pre-audit work is key to ensuring the smooth running of any audit process, and helps identify any errors before they become obvious to final auditors or authorities.

This includes reviewing their business, industry and internal control procedures. In particular, you should assess how payments are made – by warrant or electronic transfer – as well as any safeguards put into place to prevent theft and fraud.

Technology can assist you in this task by providing standard questionnaires or traveling directly to a client to interview key personnel. However, its use has become more important as it allows remote interviews while saving time – for instance using an electronic document management system allows you to quickly organize and find information faster while also communicating with employees no matter their physical location.

3. Perform the Audit
An audit involves performing procedures to confirm the accuracy of information reported in financial statements as well as assess internal control over financial reporting.

As part of their audit work, engagement teams document procedures conducted and evidence collected into an audit documentation file – this provides the basis for creating an effective audit report as well as measuring its quality.

Documents must be clear and comprehensive enough to allow any reviewer to understand significant findings or issues, while cross-referencing other documents as required.

Documenting audit activities should include documentation of planning and performance as well as significant conclusions reached by an auditor. Records related to preparation of an audit report as well as resolution of professional judgment differences among members of an engagement team should also be kept. Any modifications to planned auditing procedures as well as client responses must also be documented here.

4. Report on the Audit
Based on the type of audit being undertaken, this section may describe how the auditor interacted with those responsible for governance; whether key risk areas were adequately covered during their examination; and their overall conclusion that financial statements present an accurate portrayal. It also contains a statement to assure compliance with standards on auditing.

Notably, an audit report’s first paragraph should clearly state that this report is an independent auditor’s and state who it should be addressed to (usually shareholders). According to reporting standards, an independent auditor audits the financial statements of companies, governments or non-profit organizations for the purpose of issuing opinions on their statements.

The second paragraph provides details regarding key audit matter communication, explaining that the auditor communicated with management on important matters encountered during their audit, such as going concern issues. They provided assurance to management that their financial statements can continue operating for an acceptable period of time and were viable as businesses.