This is the accessible text file for Section 1000 of GAO report number 
GAO-01-765G entitled 'Financial Audit Manual: Volumes 1 and 2' which 
was released on August 01, 2001 and updated by GAO-03-466G entitled 
'Financial Audit Manual: Update to Part II - Tools' which was released 
on April 01, 2003 and by GAO report number GAO-04-1015G entitled 
'GAO/PCIE: Financial Audit Manual: Update' which was released on July 
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SECTION 1000:

Reporting:

1001 - MANAGEMENT REPRESENTATIONS:

.01: This section deals with the management representations that the 
auditor is required to obtain from current management as part of the 
audit, as described in sections 280 and 550. It covers the four general 
areas of representations: representations about the financial 
statements, internal control, financial management systems' 
substantial compliance with the requirements of the Federal Financial 
Management Improvement Act of 1996 (FFMIA), and compliance with laws 
and regulations. In the AICPA standards, these representations are 
discussed in sections AU 333, AT 501, and AU 801. OMB audit guidance 
also contains guidance on management representations letters.

.02: Written representations from management ordinarily confirm oral 
representations given to the auditor, indicate and document the 
continuing appropriateness of those representations, and reduce the 
possibility of misunderstanding. Management representations are not a 
substitute for audit procedures. If a representation is contradicted by 
other audit evidence, the auditor should investigate the circumstances 
and consider the reliability of the representation. Also, the auditor 
should then consider whether it is appropriate to rely on other 
management representations. Management's refusal to furnish written 
representations is a scope limitation sufficient to preclude an 
unqualified opinion.

.03: The specific representations obtained will depend on the 
circumstances of the engagement and the nature and basis of 
presentation of the financial statements. These representations apply 
to all the financial statements and all periods covered by the audit 
report. In addition to the representations given in the AICPA 
standards, the auditor generally should consider the need to obtain 
representations on other matters based on the circumstances of the 
audited entity. Also, the representations given in the example 
representation letter in section 1001 A should be deleted if 
inapplicable or customized to the situation of the entity being 
audited.

.04: The management representation letter should be obtained from the 
highest level of the audited entity. The officials who sign the 
management representation letter should be those who, in the auditor's 
view, are responsible for and knowledgeable, directly or through 
others, about the matters in the representation letter. These officials 
generally should be the head of the entity and the CFO, or equivalent. 
Additional management representation letters should be obtained from 
any component units for which separate reports are to be issued.

.05: The management representation letter should be on the audited 
entity's letterhead. The representations should be as of a date no 
earlier than the date of the auditor's report--the end of fieldwork. To 
ensure the letter is ready in time, a draft letter generally should be 
provided to and discussed with management early in the audit and 
updated for circumstances found throughout the audit. Where management 
signs the letter after the end of fieldwork, the letter should state 
that the representations are as of the date of the audit report. If 
management signs the letter before the end of fieldwork, the auditor 
generally should obtain a separate letter to update the representations 
to the end of fieldwork. However, where the time difference is short, 
the auditor may update the representations orally and document the 
update.

.06: Although the management representation letter generally should be 
addressed to the Comptroller General (at GAO) or the agency IG (and 
also to the independent external auditor, when appropriate), the audit 
team should consider having the entity deliver it directly to a member 
of the team to avoid any delays in receiving the letter.

.07: Especially for large audited entities, management may need to 
specify a materiality threshold in the management representation 
letter, below which items would not be considered exceptions. The 
auditor should be satisfied that such a materiality threshold is so far 
below design materiality that even many items below this level would 
not, in the aggregate, approach design materiality. For example, a 
threshold that is 5 percent (or less) of design materiality may be 
sufficiently low. The materiality level may be different for different 
representations and would not apply to those representations not 
directly related to amounts in the financial statements (such as 
responsibility for the statements).

REPRESENTATIONS RELATING TO THE FINANCIAL STATEMENTS:

.08: Paragraph AU 333.06 lists management representations that are 
ordinarily included in a GAAS audit if applicable. These generally 
relate to management acknowledging its responsibility for the financial 
statements and its belief that the financial statements are fairly 
presented in conformity with U.S. generally accepted accounting 
principles; completeness of financial information; recognition, 
measurement, and disclosure; and subsequent events. Examples of 
additional representations that may be appropriate depending on an 
entity's business or industry are given in appendix B to AU 333. The 
auditor may review section AU 333 for items that could be added to the 
representations, many of which would have to be modified in the federal 
government environment. (OMB has added a representation dealing with 
intragovernmental transactions and their reconciliations for 
intragovernmental transactions and their reconciliations for agencies 
and components that are covered under the OMB audit requirements for 
federal agencies.)

.09: Appendix B of AU 333 gives example language for the following 
situations (note: tailor for the circumstances applicable to the 
federal audit entity, as appropriate):

General:

* Unaudited interim information accompanies the financial statements.

* The impact of a new accounting principle is not known.

* There is justification for a change in accounting principles.

* Financial circumstances are strained, with disclosure of management's 
intentions and the entity's ability to continue as a going concern.

* The possibility exists that the value of specific significant long-
lived assets or certain identifiable intangibles may be impaired.

* The entity engages in transactions with special purpose entities.

* The work of a specialist has been used by the entity.

Cash:

* Disclosure is required of compensating balances or other arrangements 
involving restrictions on cash balances, line of credit, or similar 
arrangements.

Financial instruments:

* The value of debt or equity securities has declined.

* Management has determined the fair value of significant financial 
instruments that do not have readily determinable market values.

* There are financial instruments with off-balance-sheet risk and 
financial instruments with concentrations of credit risk.

Receivables:

* Receivables have been properly stated in the financial statements 
(for example, at estimated net realizable value).

Inventories:

* Excess or obsolete inventories exist.

Deferred charges:

* Material expenditures have been deferred.

Debt:

* Short-term debt could be refinanced on a long-term basis, and 
management intends to do so.

Contingencies:

* Estimates and disclosures have been made of environmental remediation 
liabilities and related loss contingencies.

* Agreements may exist to repurchase assets previously sold.

Pension and postretirement benefits:

* An actuary has been used to measure pension liabilities and costs.

* There is involvement with a multiemployer plan.

* Postretirement benefits have been eliminated.

* Employee layoffs that would otherwise lead to a curtailment of a 
benefit plan are intended to be temporary.

* Management intends to either continue to make or not make frequent 
amendments to its pension or other postretirement benefit plans, which 
may affect the amortization period of prior service cost, or management 
has expressed a substantive commitment to increase benefit obligations.

Sales:

* There may be losses from sales commitments.

* There may be losses from purchase commitments.

* Nature of the product or industry indicates the possibility of 
undisclosed sales terms.

.10: The auditor generally should consider the need for additional 
customizing of the example representation letter given in section 1001 
A and for the additional representations in paragraph 1001.09. Many of 
the representations may have to be qualified, especially in an initial 
audit or in later audits where significant problems remain. For 
instance, where the example representation letter states that there are 
no violations of laws or regulations, the entity may need to add at the 
end of the statement, "except as follows:" and describe the violations.

.11: In addition, the auditor generally should consider whether 
circumstances may require that additional descriptive items be included 
in the representation letter, especially as support for conclusions the 
auditor makes in the audit. This is important where the corroborating 
information that can be obtained by procedures other than inquiry is 
limited. For example, the letter should include descriptions of (1) the 
reasons for audited-entity-imposed scope limitations, such as lack of 
availability of certain records, (2) the basis for material liability 
estimates, key asset valuations, or the probability of contingencies, 
and (3) significant plans or intentions for the entity. For example, if 
the entity has a pension plan outside of the Civil Service Retirement 
System or the Federal Employees' Retirement System, an item should 
state that the entity does not plan to terminate the plan and that 
management believes the actuarial assumptions and methods used to 
measure pension liabilities and costs for financial reporting purposes 
are appropriate in the circumstances.

REPRESENTATIONS RELATING TO INTERNAL CONTROL:

.12: Internal control representations, when the auditor opines on 
internal control, are found in AT 501.44 and, for those related to 
fraud, in AU 316. These representations, where applicable, relate to 
management's (1) acknowledging its responsibility for internal control, 
(2) stating that management has assessed the effectiveness of its 
internal control and specifying the control criteria used, (3) stating 
management's assertion about the effectiveness of its internal control 
based on the control criteria, (4) stating that management has 
disclosed to the auditor all significant deficiencies in the design or 
operation of internal control that could adversely affect the entity's 
ability to meet the internal control objectives and pointing out those 
that are material weaknesses (using the definition in the 
representation letter, which is the definition in AU 325), (5) stating 
whether there were any changes to internal control subsequent to the 
end of the reporting period, (6) acknowledging its responsibility for 
the design and implementation of programs and controls to prevent and 
detect fraud, (7) knowledge of any fraud or suspected fraud affecting 
the entity involving management, employees who have significant roles 
in internal control, or others where the fraud could have a material 
effect on the financial statements, and (8) knowledge of any 
allegations of fraud or suspected fraud affecting the entity received 
in communications from employees, former employees, analysts, 
regulators, or others.

.13: For items 2 and 3, entities may use criteria established under 
FMFIA and OMB Circular A-123 in their FMFIA internal control 
assessment. Standards in GAO's green book Standards for Internal 
Control in the Federal Government were established as standards for 
federal entities to follow. The November 1999 update to these standards 
(GAO/AIMD-00-21.3.1) incorporates concepts from the private sector 
guidance Internal Control--Integrated Framework issued by the Committee 
of Sponsoring Organizations (COSO) of the Treadway Commission. Entities 
should summarize in the representation letter any material weaknesses 
relating to financial reporting (including safeguarding), compliance 
(including budget), and performance measures controls. Example wording 
for the representations is given in section 1001 A for the case where 
management asserts that its internal control as of the date of the 
financial statements provided reasonable assurance that misstatements, 
losses, or noncompliance material in relation to the financial 
statements or required supplementary stewardship information would be 
prevented or detected on a timely basis. If there are material 
weaknesses, management should include a brief description of them in 
its representation letter and modify its assertion accordingly.

REPRESENTATIONS RELATING TO FINANCIAL MANAGEMENT SYSTEMS' SUBSTANTIAL 
COMPLIANCE WITH FFMIA REQUIREMENTS:

.14: FFMIA requires the auditor who audits a CFO Act agency to report 
whether the entity's financial management systems substantially comply 
with (1) federal financial management systems requirements, (2) 
applicable federal accounting standards (U.S. generally accepted 
accounting principles), and (3) the SGL at the transaction level. In 
order to report in accordance with FFMIA, the auditor should obtain 
representations from management as to the entity's systems' substantial 
compliance with these requirements.

.15: The auditor should obtain representations that management takes 
responsibility for having its systems substantially comply with the 
FFMIA requirements, stating that it has assessed the systems' 
compliance, stating the criteria used, and asserting the systems' 
substantial compliance (or lack thereof). The criteria should be the 
requirements in OMB Circular A-127, Financial Management Systems (which 
incorporates the SGL, the JFMIP Federal Financial Management Systems 
Requirements documents, and other OMB circulars). These requirements 
are further described, including indicators of substantial compliance, 
in OMB's FFMIA implementation guidance for CFOs and IGs, referenced in 
OMB's audit guidance.

REPRESENTATIONS RELATING TO COMPLIANCE WITH LAWS AND REGULATIONS:

.16: AU 801.07 suggests that a representation relating to compliance 
with laws and regulations state that management has identified and 
disclosed to the auditor all laws and regulations that have a direct 
and material effect on the financial statements.

.17: In addition, AT 601 deals with compliance attestation. The auditor 
is not required to follow AT 601 because it does not apply to an audit 
of financial statements. However, in situations in which the auditor 
believes additional representations regarding compliance may be needed, 
examples are given in AT 601.68.

EFFECT OF CHANGE IN MANAGEMENT ON REPRESENTATION LETTER:

.18: Sometimes management is reluctant to sign representations for 
periods when it did not manage the entity. The auditor should explain 
to management that by issuing the financial statements, it is making 
the assertions implicit in the financial statements. Management may 
wish to understand the transactions and controls supporting the 
financial statements, and the auditor should help it do so. Where a 
change in management is expected, the auditor may advise the new 
management to obtain representations from the old management about the 
period prior to the change.

[End of section] 

Reporting: 

1001 A: EXAMPLE MANAGEMENT REPRESENTATION LETTER:

[Entity Letterhead]

[Date of auditor's report and completion of fieldwork]

The Honorable [name of Inspector General or Comptroller General]

[Inspector or Comptroller] General [of the United States]

[Name of agency] [or U.S. General Accounting Office]

Washington, D.C.

[Also, include the independent external auditor as an addressee, when 
appropriate.]

Dear [name(s)]:

This letter is in connection with your audits of the [entity's] balance 
sheet as of September 30, 20X2 and 20X1, [or dates of audited financial 
statements] and the related statements of net costs, changes in net 
position, budgetary resources, financing, and custodial activity [if 
applicable], for the years then ended for the purposes of (1) 
expressing an opinion as to whether the financial statements are 
presented fairly, in all material respects, in conformity with U.S. 
generally accepted accounting principles, (2) reporting [or expressing 
an opinion] on the entity's internal control as of September 30, 20X2 
[or date of latest audited financial statements], (3) reporting whether 
the [entity's] financial management systems substantially comply with 
federal financial management systems requirements, applicable federal 
accounting standards (U.S. generally accepted accounting principles), 
and the U.S. Government Standard General Ledger at the transaction 
level as of September 30, 20X2, and (4) testing for compliance with 
applicable laws and regulations.

Certain representations in this letter are described as being limited 
to matters that are material. For purposes of this letter, matters are 
considered material if they involve $X or more. Items also are 
considered material, regardless of size, if they involve an omission or 
misstatement of accounting information that, in the light of 
surrounding circumstances, makes it probable that the judgment of a 
reasonable person relying on the information would be changed or 
influenced by the omission or misstatement.

We confirm, to the best of our knowledge and belief, the following 
representations made to you during the audits (these representations 
are as of [date of completion of fieldwork], pertain to both years' 
financial statements, and update the representations we provided in the 
prior year):

1. We are responsible for the fair presentation of the financial 
statements and stewardship information in conformity with U.S. 
generally accepted accounting principles.

2. The financial statements are fairly presented in conformity with 
U.S. generally accepted accounting principles.

3. We have made available to you all:

a. financial records and related data;

b. where applicable, minutes of meetings of the Board of Directors [or 
other similar bodies, such as congressional oversight committees] or 
summaries of actions of recent meetings for which minutes have not been 
prepared; and:

c. communications from the Office of Management and Budget (OMB) 
concerning noncompliance with or deficiencies in financial reporting 
practices.

4. There are no material transactions that have not been properly 
recorded in the accounting records underlying the financial statements 
or disclosed in the notes to the financial statements.

5. We believe that the effects of the uncorrected financial statement 
misstatements summarized in the accompanying schedule are immaterial, 
both individually and in the aggregate, to the financial statements 
taken as a whole. [An example accompanying schedule is included in 
section 595 C.] [If management believes that certain of the identified 
items are not misstatements, management's belief may be acknowledged by 
adding to the representation, for example, "We believe that items XX 
and XX do not constitute misstatements because [description of 
reason]."]

6. The [entity] has satisfactory title to all owned assets, including 
stewardship property, plant, and equipment; such assets have no liens 
or encumbrances; and no assets have been pledged.

7. We have no plans or intentions that may materially affect the 
carrying value or classification of assets and liabilities.

8. Guarantees under which the [entity] is contingently liable have been 
properly reported or disclosed.

9. Related party transactions and related accounts receivable or 
payable, including assessments, loans, and guarantees, have been 
properly recorded and disclosed.

10. All intraentity transactions and balances have been appropriately 
identified and eliminated for financial reporting purposes, unless 
otherwise noted. All intragovernmental transactions and balances have 
been appropriately recorded, reported, and disclosed. We have 
reconciled intragovernmental transactions and balances with the 
appropriate trading partners for the four fiduciary transactions 
identified in Treasury's Intra-governmental Fiduciary Transactions 
Accounting Guide, and other intragovernmental asset, liability, and 
revenue amounts as required by the applicable OMB Bulletin.

11. There are no:

a. possible violations of laws or regulations whose effects should be 
considered for disclosure in the financial statements or as a basis for 
recording a loss contingency,

b. material liabilities or gain or loss contingencies that are required 
to be accrued or disclosed that have not been accrued or disclosed, or:

c. unasserted claims or assessments that are probable of assertion and 
must be disclosed that have not been disclosed.

12. We have complied with all aspects of contractual agreements that 
would have a material effect on the financial statements in the event 
of noncompliance.

13. No material events or transactions have occurred subsequent to 
September 30, 20X2 [or date of latest audited financial statements], 
that have not been properly recorded in the financial statements and 
stewardship information or disclosed in the notes.

14. We are responsible for establishing and maintaining internal 
control.

15. We acknowledge our responsibility for the design and implementation 
of programs and controls to prevent and detect fraud (intentional 
misstatements or omissions of amounts or disclosures in financial 
statements and misappropriation of assets that could have a material 
effect on the financial statements).

16. We have no knowledge of any fraud or suspected fraud affecting the 
[entity] involving:

a. management,

b. employees who have significant roles in internal control, or:

c. others where the fraud could have a material effect on the financial 
statements.

[If there is knowledge of any such instances, they should be 
described.]

17. We have no knowledge of any allegations of fraud or suspected fraud 
affecting the [entity] received in communications from employees, 
former employees, or others. [If there is knowledge of any such 
allegations, they should be described.]

18. Pursuant to 31 U.S.C. 3512(c), (d) (commonly known as the Federal 
Managers' Financial Integrity Act), we have assessed the effectiveness 
of the [entity's] internal control in achieving the following 
objectives:

a. reliability of financial reporting--transactions are properly 
recorded, processed, and summarized to permit the preparation of 
financial statements and stewardship information in accordance with 
U.S. generally accepted accounting principles, and assets are 
safeguarded against loss from unauthorized acquisition, use or 
disposition;

b. compliance with applicable laws and regulations--transactions are 
executed in accordance with (i) laws governing the use of budget 
authority and with other laws and regulations that could have a direct 
and material effect on the financial statements and (ii) any other 
laws, regulations, and governmentwide policies identified by OMB in its 
audit guidance; and,

c. reliability of performance reporting--transactions and other data 
that support reported performance measures are properly recorded, 
processed, and summarized to permit the preparation of performance 
information in accordance with criteria stated by management.

[This item is not required if the auditor is not opining on internal 
control. Also, if the entity bases its internal control assessment on 
suitable criteria other than 31 U.S.C. 3512(c), (d), this item should 
cite the criteria used (for example, Internal Control--Integrated 
Framework issued by the Committee of Sponsoring Organizations (COSO) of 
the Treadway Commission).]

19. Those controls in place on September 30, 20X2 [or date of latest 
audited financial statements], and during the years ended 20X2 and 
20X1, provided reasonable assurance that the foregoing objectives are 
met. [This item is not required if the auditor is not opining on 
internal control.]

[If there are material weaknesses, the foregoing representation should 
be modified to read:

Those controls in place on September 30, 20X2, and during the years 
ended 20X2 and 20X1, provided reasonable assurance that the foregoing 
objectives are met except for the effects of the material weaknesses 
discussed below or in the attachment.

or: Internal controls are not effective.

or: Internal controls do not meet the foregoing objectives.]

20. We have disclosed to you all significant deficiencies in the design 
or operation of internal control that could adversely affect the 
entity's ability to meet the internal control objectives and identified 
those we believe to be material weaknesses. [This item is not required 
if the auditor is not opining on internal control.]

21. There have been no changes to internal control subsequent to 
September 30, 20X2 [or date of latest audited financial statements], or 
other factors that might significantly affect it. [If there were 
changes, describe them, including any corrective actions taken with 
regard to any significant deficiencies or material weaknesses.] [This 
item is not required if the auditor is not opining on internal 
control.]

22. We are responsible for implementing and maintaining financial 
management systems that substantially comply with federal financial 
management systems requirements, federal accounting standards (U.S. 
generally accepted accounting principles), and the U.S. Government 
Standard General Ledger at the transaction level. [This item is not 
required if the entity is not subject to the Federal Financial 
Management Improvement Act of 1996.]

23. We have assessed the financial management systems to determine 
whether they substantially comply with these federal financial 
management systems requirements. Our assessment was based on guidance 
issued by OMB. [This item is not required if the entity is not subject 
to the Federal Financial Management Improvement Act of 1996.]

24. The financial management systems substantially complied with 
federal financial management systems requirements, federal accounting 
standards, and the U.S. Government Standard General Ledger at the 
transaction level as of [date of the latest financial statements]. 
[This item is not required if the entity is not subject to the Federal 
Financial Management Improvement Act of 1996.]

[If the financial management systems substantially comply with only one 
or two of the above elements, this representation should be modified as 
follows:

As of [date of financial statements], the [entity's] financial 
management systems substantially comply with [specify which of the 
three elements for which there is substantial compliance (e.g., federal 
accounting standards and the SGL at the transaction level)], but did 
not substantially comply with [specify which of the elements for which 
there was a lack of substantial compliance (e.g., federal financial 
management systems requirements)], as described below (or in an 
attachment).]

[If the financial management systems do not substantially comply with 
any of thee three elements, the following paragraph should be used 
instead:

As of [date of financial statements], the [entity's] financial 
management systems do not substantially comply with the federal 
financial management systems requirements.]

[If there is a lack of substantial compliance with one or more of the 
three requirements, identify herein or in an attachment all the facts 
pertaining to the noncompliance, including the nature and extent of the 
noncompliance and the primary reason or cause of the noncompliance.]

25. We are responsible for the [entity's] compliance with applicable 
laws and regulations.

26. We have identified and disclosed to you all laws and regulations 
that have a direct and material effect on the determination of 
financial statement amounts.

27. We have disclosed to you all known instances of noncompliance with 
laws and regulations.

[Name of Head of Entity]:

[Title]:

[Name of Chief Financial Officer]:

[Title]:

[End of section] 

Reporting: 

1002 - INQUIRIES OF LEGAL COUNSEL

.01: 
This section provides guidance on procedures for the auditor to perform 
to obtain evidence that the financial accounting and reporting of 
contingencies[Footnote 1] regarding litigation, claims, and 
assessments conform with U.S. generally accepted accounting principles 
(GAAP), as described in FAM sections 280 and 550. This section 
discusses the accounting and reporting guidance and audit procedures 
for inquiries of legal counsel concerning litigation, claims, and 
assessments, and includes examples of a legal representation letter 
request, a legal representation letter response, including the 
Department of Justice's standard forms for legal contingencies, and 
management's schedule for summarizing the information contained in the 
legal response. 

ACCOUNTING AND REPORTING GUIDANCE:

.02: 
Entity management is responsible for implementing policies and 
procedures to identify, evaluate, account for, and disclose litigation, 
claims, and assessments as a basis for the preparation of financial 
statements in conformity with GAAP. 

.03: 
Statement of Federal Financial Accounting Standards (SFFAS) No. 5, 
Accounting for Liabilities of the Federal Government, as amended by 
SFFAS No.12, Recognition of Contingent Liabilities Arising from 
Litigation: An Amendment of SFFAS No. 5, Accounting for Liabilities of 
the Federal Government, contains accounting and reporting standards for 
loss contingencies, including those arising from litigation, claims, 
and assessments. [Footnote 2] The Federal Accounting Standards Advisory 
Board (FASAB) Interpretation No. 2, Accounting for Treasury Judgment 
Fund Transactions, clarifies GAAP related to claims to be paid through 
the Treasury Judgment Fund. [Footnote 3] Statement of Financial 
Accounting Standards No. 5, Accounting for Contingencies, also provides 
guidance for financial accounting and reporting for loss and gain 
contingencies for those entities following GAAP for nongovernmental 
entities. The definition of probable for legal contingencies is now 
essentially the same in Statement of Financial Accounting Standard No. 
5 and SFFAS No. 5, since SFFAS No.12 has amended the latter. 

.04: 
A contingency is an existing condition, situation, or set of 
circumstances involving uncertainty as to possible gain or loss to an 
entity. The uncertainty will ultimately be resolved when one or more 
future events occur or fail to occur. When a loss contingency exists, 
the likelihood that the future event or events will confirm the loss or 
impairment of an asset or the incurrence of a liability can range from 
probable to remote. SFFAS Nos. 5 and 12 use the terms probable, 
reasonably possible, and remote to identify three areas within the 
range of potential loss, as follows:

* Probable--For pending or threatened litigation and unasserted claims, 
the future confirming event or events are likely to occur. (For other 
contingencies, the future event or events are more likely than not to 
occur.)

* Reasonably possible--The chance of the future event or events 
occurring is more than remote but less than probable. 

* Remote--The chance of the future event or events occurring is slight. 

.05: 
A liability and the related cost for an estimated loss from a loss 
contingency should be recognized (accrued by a charge to income) 
when[Footnote 4]

a. a past event or exchange transaction has occurred,

b. a future outflow or other sacrifice of resources is probable, and:

c. the future outflow or sacrifice of resources is measurable. 

.06: 
Disclosure of the nature of an accrued liability for loss 
contingencies, including the amount accrued, may be necessary for the 
financial statements not to be misleading. For example, if the amount 
recognized is large or unusual, disclosure should be considered. 
However, if no accrual is made for a loss contingency because one or 
more of the conditions in paragraph 1002.05 are not met, disclosure of 
the contingency should be made when there is at least a reasonable 
possibility that a loss has been incurred. The disclosure should 
include the nature of the contingency, and an estimate of the possible 
liability or range of possible liability, if estimable, or a statement 
that such an estimate cannot be made. In addition, if the Judgment Fund 
might be involved in the payment of the possible loss, the federal 
entity involved in the litigation should discuss the Judgment Fund's 
role in a note to the financial statements. 

.07: 
Although management often relies on advice of legal counsel about the 
(a) likelihood of an unfavorable outcome and (b) estimates of the 
amount or range of potential loss for litigation, claims, and 
assessments, management is ultimately responsible for determining 
whether these contingencies are probable, reasonably possible, or 
remote. Management does this to decide whether they should be 
recognized as liabilities and/or disclosed in the notes to the 
financial statements. Thus, the Office of Management and Budget's (OMB) 
audit guidance requires CFO Act agency management to prepare a schedule 
summarizing legal contingencies including whether they are probable, 
reasonably possible, or remote, and whether (and in what amounts) they 
have been accrued or disclosed in the financial statements (see example 
summary schedule in FAM section 1002 D). 

AUDIT PROCEDURES:

.08: 
The auditor should design procedures to test the entity's accounting 
for and disclosure of litigation, claims, and assessments. AU 337 (SAS 
12) provides guidance on the procedures to identify litigation, claims, 
and assessments so that the auditor may obtain evidence that they are 
appropriately accounted for and disclosed. AU 9337 provides auditing 
interpretations of AU 337. OMB guidance for audits of federal financial 
statements also contains procedures for inquiries of legal counsel. 
(See FAM section 1002 A for example audit procedures.)

.09: The auditor should obtain evidence relevant to the following factors 
with respect to litigation, claims, and assessments:

a. The existence of a condition, situation, or set of circumstances 
indicating uncertainty as to the possible loss to an entity arising 
from litigation, claims, and assessments. 

b. The period in which the underlying causes for legal action occurred. 

c. The likelihood of an unfavorable outcome (probable, reasonably 
possible, or remote). 

c. The amount or range of potential loss, if estimable. 

.10: 
The auditor should discuss with management the events or conditions 
that should be considered in the accounting for and reporting of 
litigation, claims, and assessments. The auditor should perform audit 
procedures to corroborate the information provided by management, 
including requesting that management send a legal letter request to the 
entity's legal counsel. An example audit program is in FAM section 1002 
A. The audit procedures should be modified, as appropriate, for the 
particular entity. 

.11:
A letter from legal counsel to the auditor, in response to a legal 
letter request from management to legal counsel, is the auditor's 
primary means of corroborating the information furnished by management 
concerning the accuracy and completeness of litigation, claims, and 
assessments. The legal letter request may include a list of pending or 
threatened litigation, claims, and assessments or a request by 
management that legal counsel prepare the list. The legal letter 
request also may include a list of unasserted claims and assessments 
considered probable of assertion, and that, if asserted, would have at 
least a reasonable possibility of an unfavorable outcome, to which 
legal counsel has devoted substantive attention on the entity's behalf 
in the form of legal consultation or representation (or a statement 
that management is not aware of any matters meeting the criteria). 
Legal counsel then would supplement management's information about 
those unasserted claims and assessments, including an explanation of 
matters where his or her views differ from those expressed by 
management in the legal letter request. In the federal government, 
where the general counsel may be part of management, the general 
counsel may instead provide the list of unasserted claims or 
assessments meeting the above criteria. The legal letter request should 
also include a request for legal counsel to make a statement that he or 
she will advise management about unasserted claims and assessments that 
should be considered for disclosure. (See the example request and 
response in FAM sections 1002 B and 1002 C.)

Timing of Legal Letter Request and Responses:

.12: 
The audit procedures for inquiries of legal counsel concerning 
litigation, claims, and assessments should be performed on a timely 
basis to give priority to the resolution of potential problem areas and 
to complete other procedures. To meet deadlines, the auditor, entity 
management, and legal counsel should coordinate the timing of legal 
letter requests, responses (including interim responses), and related 
management schedules. The auditor and the entity management should 
consider the due dates for providing legal letter responses for the 
entity financial statements as well as for the U.S. Government's 
Consolidated Financial Statements. (OMB sometimes provides these dates 
for the governmentwide audit.) The due dates should enable the auditors 
to timely complete their work, including the potential need for 
management to inquire of Department of Justice legal counsels on a 
case-specific basis. 

.13: 
In addition, when an entitywide audit team uses the work of entity 
component audit teams, the entitywide and component audit teams should 
coordinate the timing of legal letter requests, responses, and 
management schedules and consider the due dates for the component 
financial statements as well as the entitywide financial statements. 
The entitywide team generally should receive copies of the component 
letters. 

.14: 
The legal counsel's response should include matters that existed at the 
balance sheet date and through the end of fieldwork. The effective date 
(the latest date covered by the legal counsel's review) should be as 
close as feasible to the completion of fieldwork. If the effective date 
is substantially in advance of the end of fieldwork (for example, 
earlier than 2 weeks before end of fieldwork), the auditor should 
contact the legal counsel for an updated response. To avoid this 
situation, the legal letter request should clearly specify the period 
the legal counsel's response should cover and the date the auditor 
should receive the response. 

.15: 
To assist the auditor in completing the review of legal matters in a 
timely manner (and to assist management in preparing the financial 
statements), the auditor may ask management to request legal counsel to 
submit a preliminary or interim response covering matters that existed 
at the balance sheet date and through a point in time reasonably before 
the end of fieldwork so that a preliminary evaluation of the 
significance of material legal matters can be made. Then, the legal 
counsel should submit a final or updated response covering matters 
through the end of fieldwork. The updated response generally should 
contain only changes or a statement indicating there are no changes 
from the interim response. (See FAM section 1002 B for an example legal 
letter request that includes requests for interim and updated responses 
from legal counsel.)

Determining a Materiality Level:

.16: 
The auditor may limit the inquiry to matters that are considered 
individually or collectively material to the financial statements, 
provided the entity and the auditor have reached an understanding and 
agreement on the materiality level. The materiality level, if used, 
should be documented in the legal letter request and in the response. 

.17: 
In determining a materiality level for the legal letter, the auditor 
should set the level sufficiently low that the cases not included in 
the legal letter would not be material to the financial statements 
taken as a whole when aggregated with (1) other cases not included in 
the letter, (2) all other types of contingencies, (3) all other items 
that would not be adjusted because they are judged immaterial 
(unadjusted misstatements), (4) all other amounts in the financial 
statements that would not be tested directly because they were judged 
to be immaterial, and (5) all other items resolved on the basis of 
materiality considerations. For example, 2. 5 percent of design 
materiality is used for individual cases in the U. S Government's 
Consolidated Financial Statements and 5 percent of design materiality 
is used for the aggregate of all cases. 

.18: 
In aggregating cases, the auditor and the entity may use two levels of 
aggregation. First, similar cases (such as employment discrimination 
cases, harbor maintenance fee cases, spent nuclear fuel cases, or 
military promotion board challenges) should be aggregated and treated 
as a group and compared with the individual materiality level. The 
aggregation generally should include a list of the individual cases 
that are aggregated and a discussion of the items of information 
requested to be included in the legal letter for the aggregated cases 
(see FAM sections 1002 B and 1002 C). Second, all cases not included in 
the legal letter individually or as part of a group of similar cases 
should be aggregated. A higher materiality level may be used for such 
an aggregation; however, this higher materiality level should be set 
sufficiently low that the cases not included in the legal letter would 
not be material to the financial statements taken as a whole when 
aggregated with the other items listed in the previous paragraph. 

.19: 
Where the entity engages more than one legal counsel, the auditor 
should exercise caution so that matters considered not material 
individually would not, when aggregated, exceed the materiality limit. 
In addition, when separate legal representation letters are issued on 
individual components/bureaus of a consolidated entity because of 
individual component audits, the auditor may determine materiality 
levels for each component/bureau. 

Legal Counsels from Whom Information Should Be Requested:

.20: 
Most federal agencies have a general counsel who has primary 
responsibility for and knowledge about the entity's litigation, claims, 
and assessments. The auditor should request entity management to send a 
legal letter request to the general counsel. In addition, the auditor 
should ask the management and/or general counsel whether the entity 
used outside legal counsel whose engagement may be limited to 
particular matters (e.g., specific litigation). 

.21: 
In the federal government, the main legal counsel outside of the entity 
is the Department of Justice. [Footnote 5] The entity's management, its 
legal counsel, or the auditor may consult with Justice as well as other 
outside legal counsel to assure completeness and accuracy of the 
presentation of matters related to litigation, claims, and assessments. 
Such consultation may include requesting a list of pending litigation, 
claims, and assessments from Justice or other outside legal counsel, or 
discussion of specific cases. 

.22: 
The legal response should cover all litigation, claims, and assessments 
pertaining to the federal reporting entity, including matters handled 
by Justice and other outside legal counsel on behalf of the entity. If 
the general counsel has overall responsibility for handling and 
evaluating litigation, claims, and assessments, his or her evaluation 
and responses ordinarily would be considered adequate. However, 
evidential matter obtained from inside legal counsel is not a 
substitute for information that outside legal counsel refuses to 
furnish to the auditor. 

.23: 
Where there is no general counsel and management has not consulted 
legal counsel, the auditor should obtain a written representation from 
management that legal counsel has not been consulted. Such 
representation may be incorporated as an item in the management 
representation letter. (See FAM sections 550 and 1001.) (An example 
item is: "We are not aware of any pending or threatened litigation, 
claims, or assessments or unasserted claims or assessments that are 
required to be accrued or disclosed in the financial statements in 
accordance with SFFAS No. 5. We have not consulted legal counsel 
concerning litigation, claims, or assessments. "):

Evaluation of Responses:

.24: 
Written responses from legal counsel will vary considerably in the 
scope of information provided and in the opinion expressed. In 
preparing the responses, legal counsels should consider the guidance 
contained in the American Bar Association's Statement of Policy 
Regarding Lawyers' Responses to Auditors' Requests for Information (ABA 
Policy Statement) (included in its entirety in AU 337 C). If legal 
counsel does not follow the ABA Policy Statement in responding to the 
auditor, the legal counsel's response nevertheless should meet the 
requirements of AU 337. 

.25: 
The response should cover all components included in the financial 
statements being audited. Legal counsel generally should indicate the 
disposition of cases included in the prior year's letter that are no 
longer contingencies. 

.26: 
The auditor should evaluate each response in terms of sufficiency as 
evidence and consider (a) the possible limitations on the scope of 
legal counsel's responses and (b) the lack of sufficient opinion on the 
resolution of a case. AU 9337 provides guidance in evaluating legal 
counsel's responses. The auditor also should consider the legal 
counsel's response in light of any other information that comes to the 
auditor's attention. 

Possible Limitations on the Scope of Legal Counsel's Responses:

.27: 
When legal counsel limits his/her responses, the auditor should 
determine whether the limitation affects the auditor's report. A legal 
counsel may appropriately limit responses to certain matters; for 
example, to matters that (a) the legal counsel has given substantive 
attention to in the form of legal consultation or representation and 
(b) are considered individually or collectively material to the 
financial statements, provided the entity and the auditor have reached 
an understanding on materiality levels. These limitations are 
acceptable and not limitations on the scope of the audit. 

.28: 
The following are examples of limitations on legal counsel's responses 
that are not acceptable to the auditor and that would ordinarily result 
in a scope limitation:

a. Legal counsel refuses to furnish the requested information. When 
legal counsel refuses to furnish the information requested in the legal 
letter request, the auditor should consider this matter as a scope 
limitation sufficient to preclude an unqualified opinion. 

b. 
Legal counsel excludes matters requested. The legal counsel's responses 
may not address all information requested. The auditor should compare 
legal counsel's response with the legal letter request and determine 
whether legal counsel has addressed all the information requested. If 
legal counsel excluded any of the requested matters, the auditor should 
obtain responses for those matters from legal counsel. If the auditor 
is unable to obtain all the information needed, the auditor should 
consider this a scope limitation that could be sufficient to preclude 
an unqualified opinion. 

c. 
Legal counsel indicates that certain information is being withheld due 
to attorney-client privilege. Under the American Bar Association (ABA) 
Code of Professional Responsibility, legal counsel is required to 
preserve the confidences and secrets of the client. Legal counsel may 
disclose confidences to the auditor only with the consent of the 
client. If the legal letter request is prepared in accordance with AU 
337, the auditor should expect that legal counsel would be responsive; 
otherwise the scope of the audit would be restricted. (On the other 
hand, explanatory language in the legal letter request or in legal 
counsel's response emphasizing that management or legal counsel does 
not intend to waive attorney-client privilege or attorney work-product 
privilege does not result in a scope limitation.)

Lack of Sufficient Opinion on the Resolution of a Case:

.29: 
The following are examples of the legal counsel's responses that lack 
sufficient opinion on the resolution of a case. 

a. 
Uncertainties. A legal counsel may be unable to respond concerning the 
likelihood of an unfavorable outcome of litigation, claims, and 
assessments or the amount or range of potential loss, because of 
inherent uncertainties. In these circumstances, the auditor ordinarily 
will conclude that the financial statements are affected by an 
uncertainty concerning the outcome of a future event, which is not 
susceptible to reasonable estimation. The auditor should follow the 
guidance in FAM section 580 for reporting on uncertainties. 

b. Unclear responses. Legal counsels sometimes use general terms to 
indicate their evaluation of the outcome of a case. The ABA Policy 
Statement states that legal counsel may, in the appropriate 
circumstances, communicate to the auditor his/her view that an 
unfavorable outcome is "probable" or "remote. " The legal letter 
responses may include phrases that mean remote or probable. The phrases 
below are examples of opinions that provide sufficient clarity that the 
likelihood of an unfavorable outcome is remote:

* "We are of the opinion that this action will not result in any 
liability to the entity. ":

* "We believe that the plaintiff's case against the entity is without 
merit. ":

The following are examples of opinions that indicate significant 
uncertainty as to whether the entity will prevail:

* "In our opinion, the entity has a substantial chance of prevailing in 
this action. " (A "substantial chance," a "reasonable opportunity," and 
similar terms indicate more uncertainty than an opinion that the entity 
will prevail.)

* "It is our opinion that the entity will be able to assert meritorious 
defenses to this action. " (The term "meritorious defenses" indicates 
that the court will not summarily dismiss the entity's defenses; it 
does not indicate legal counsel's opinion that the entity will 
prevail.)

.30: 
To avoid unclear and incomplete responses, the auditor generally should 
ask management to request legal counsel to use Justice's standard forms 
to describe legal contingencies (see pages 1002 C-4 to 6 for examples 
of these forms). When legal counsel does not indicate whether the 
unfavorable outcome is probable or remote, management and the auditor 
should conclude that the outcome is reasonably possible and the case 
should be considered for disclosure. (Management, with legal counsel's 
advice, determines whether cases are probable, reasonably possible, or 
remote, to decide whether they should be recognized as liabilities and/
or disclosed in the notes to the financial statements.)

.31: 
If the auditor is not certain about the legal counsel's evaluation, the 
auditor should discuss the matters with the legal counsel and entity 
management (and document the oral discussion) and/or obtain written 
clarification in a follow-up letter. Sometimes legal counsel may give a 
clearer indication of likelihood orally. If legal counsel is unable to 
give a clear evaluation of the likelihood of an unfavorable outcome, 
management should disclose the uncertainty and the auditor should 
consider the uncertainty's effect on the audit report. 

Example Legal Letter Request:

.32: 
The legal letter request, which the auditor may assist management to 
draft, should be on the audited entity's letterhead, signed by the 
Chief Financial Officer (CFO), or equivalent, and request a reply 
directly to the auditor and a copy to management by specified due 
dates. FAM section 1002 B shows an example legal letter request that 
includes requests for interim and updated responses from legal counsel 
and matters that should be covered in the letter. 

Example Legal Counsel's Responses and Management's Schedule:

.33: 
The General Counsel should respond on General Counsel letterhead to the 
auditor with a copy to management by the agreed-upon due dates. The 
response should indicate that it is provided for the auditor's use in 
connection with the audit. 

.34: 
FAM section 1002 C shows an example of a legal counsel response, 
including the legal representation letter and Justice's legal 
contingency standard forms for each case or group of cases, 
respectively. Justice's forms (pages 1002 C-4 to 6) are on Justice's 
website: http://www. usdoj. gov/civil/forms/forms. htm. 

.35: 
FAM section 1002 D shows an example of management's schedule that 
documents how the information contained in the legal counsel's 
responses was considered in preparing the financial statements. 
Management should include each case discussed in the legal letter and 
indicate (1) the amount accrued for probable cases and (2) note 
disclosure for reasonably possible cases, probable cases where the 
amount cannot be estimated, and probable cases where a range of amounts 
above the accrued amount is estimated. The electronic templates for FAM 
sections 1002 C (pages 1002 C-1 to 3) and 1002 D are on OMB's website: 
http://www. whitehouse. gov/omb/bulletins/index. html. 

PRACTICE AIDS:

.36: The following practice aids are appended:

Section 1002 A - Example Audit Procedures;

Section 1002 B - Example Legal Letter Request;

Section 1002 C - Example Legal Representation Letter, including 
Justice's Example Legal Contingencies Forms; and:

Section 1002 D - Example Management Summary Schedule. 

[End of section] 

Reporting: 

1002 A - EXAMPLE AUDIT PROCEDURES FOR INQUIRIES OF LEGAL COUNSEL: 

Entity:

Period of financial statements:

Job code:

Example Audit Procedures:

I. Testing Procedures: 

1.  Ask management about the entity's policies and 
procedures for identifying, evaluating, and accounting for litigation, 
claims, and assessment. 

2. Obtain from management a description and evaluation of litigation, 
claims, and assessments existing as of the balance sheet date and 
through the date of management's response (which should be near the end 
of fieldwork). (This may instead be obtained from the entity's legal 
counsel.). 

3. 
To determine whether an outside legal counsel is performing services 
for the entity, inquire of management whether outside legal counsel has 
been used by the entity and matters handled. Ask management for a list 
of pending litigation, claims, and assessments from the Department of 
Justice and/or examine correspondence and invoices from other outside 
legal counsel (e.g., for legal fees), if any. 

4. 
Ask whether the entity has changed its general counsel or outside legal 
counsel or the general counsel or outside legal counsel has resigned or 
has indicated an intention to resign. If so, determine if there are 
matters that may affect the financial statements. For example, in 
appropriate circumstances, a legal counsel may be required by the ABA 
Code of Professional Responsibility to resign the engagement if the 
legal counsel's advice concerning disclosures is disregarded by the 
entity. 

5. To identify litigation, claims, and assessments read minutes of 
management meetings, contracts, loan agreements, leases, and 
correspondence from other government entities and discuss pertinent 
items with management. 

6. If information comes to the auditor's attention that may indicate a 
potential contingency with respect to litigation, claims, or 
assessments that may require adjustment to or disclosure in the 
financial statements, discuss with the entity its possible need to 
consult legal counsel. Depending on the severity of the matter, refusal 
by the entity to consult legal counsel in those circumstances may 
result in a scope limitation. Consider the effect of such a limitation 
on the auditor's report. 

7. 
Request entity management to send a legal letter request to the general 
counsel asking counsel to respond directly to the auditor. (Obtain a 
copy of the legal letter request.) Consider whether to also request 
legal letters from any outside legal counsel. The legal letter should 
cover litigation, claims, and assessments pertaining to the reporting 
entity, including matters handled by the Department of Justice or other 
outside legal counsel. (See Sections 1002 B for an example legal letter 
request.) Coordinate with management and legal counsel to; 

* determine 
the timing of legal letter requests and responses and related 
management's summary/schedules of information contained in legal 
responses and; 

* determine a materiality level to be included in the 
legal representation letter. 

8. 
Read the legal letter responses and management's schedules to identify 
litigation, claims, and assessments. 

9. 
Compare the description and evaluation of the current year's legal 
letter responses to the prior year's audit documentation. If this 
comparison indicates that certain legal matters in the prior year are 
no longer included, discuss these matters with management or legal 
counsel to obtain an understanding of the reasons for the changes. 

10. 
Determine whether the information in the legal representation letter is 
consistent with management's schedule summarizing the information in 
the letter and related supporting documentation. 

11. 
Discuss with legal counsel if the information obtained is not complete, 
clear, or consistent. 

12. 
Evaluate legal counsel's responses and determine the effects of the 
responses on liabilities and related note disclosures in the financial 
statements and on the auditor's report. 

13. 
If a response date is substantially in advance of the audit report 
date, for example, earlier than 2 weeks prior to date of auditors' 
report, obtain a written or oral update response. (The longer the 
period between the legal letter and the audit report date, the more 
important a written update becomes.). 

II. Reporting Procedures: 

Obtain a representation from management in 
the management representation letter (see FAM sections 550 and 1001) 
that the entity has disclosed all unasserted claims that legal counsel 
has advised are probable of assertion that, if asserted, would have at 
least a reasonable possibility of an unfavorable outcome and must be 
disclosed. 

1. Discuss the description and evaluation of litigation, 
claims, and assessments obtained with management to determine if, 
subsequent to the date of legal counsel's response, there have been any 
changes in status of the matters, changes in management's evaluation of 
the outcome, or additional matters to be considered. 

2. 
If there are significant changes in the status of the matters or new 
matters, obtain a written confirmation or updated response from legal 
counsel. 

3. Have management include in the management representation letter 
representations related to contingencies and determine if they are 
appropriately accrued and disclosed as required by SFFAS No. 5, as 
amended. If management has not consulted legal counsel, obtain a 
written representation from management that legal counsel has not been 
consulted. This representation may be incorporated in the management 
representation letter (see FAM sections 550 and 1001). 

4. Read the entity's financial statements and notes and: 

a. consider the 
adequacy of financial statement disclosure for contingencies with 
respect to litigation, claims, and assessments. 

b. determine if the financial statement disclosures for contingencies 
with respect to litigation, claims, and assessments are prepared in 
accordance with the OMB guidance on form and content of agency 
financial statements; and. 

c. 
for federal entities involved in litigation for which the Judgment Fund 
is a likely source of judgment or settlement, determine if a note to 
the financial statements discusses the Judgment Fund's role in the 
payment of a possible loss, as required by FASAB Interpretation No. 2, 
Accounting for Treasury Judgment Fund Transactions. 

5. Document conclusions reached concerning the accounting for and 
disclosure of litigation, claims, and assessments, determine if 
adjustments are necessary, and consider whether modification of the 
auditor's report is appropriate (see FAM section 580). 

[End of section] 

Reporting: 

1002 B - EXAMPLE LEGAL LETTER REQUEST: 

[Audited Entity Letterhead]

Date: [date]

To: General Counsel:

From: Chief Financial Officer [signed]

Subject: [Auditor's] Audits of the Fiscal Years 20X1 and 20X0 
Financial Statements:

Pursuant to 31 U.S.C.3515, [Auditor name] is performing audits of the 
financial statements of [entity] as of and for the fiscal years ended 
September 30, 20X1, and 20X0. In performing audits of government 
entities, auditors comply with Government Auditing Standards, issued by 
the Comptroller General of the United States (the "yellow book"). For 
financial statement audits, Government Auditing Standards incorporate 
the fieldwork and reporting standards of the American Institute of 
Certified Public Accountants (AICPA) and the Statements on Auditing 
Standards that interpret them. Consistent with the procedures contained 
in AU 337 of the AICPA's Codification of Statements on Auditing 
Standards, [Auditor] has inquired about litigation, claims, and 
assessments to obtain evidence as to the financial accounting and 
reporting of such matters with respect to the financial statements. The 
purpose of this letter is to request your assistance in responding to 
that inquiry. The American Bar Association Statement of Policy 
Regarding Lawyers' Responses to Auditors' Request for Information 
(December 1975) provides relevant guidance for the lawyer 's response 
to the Auditor's request. 

In accordance with Statement of Federal Financial Accounting Standards 
(SFFAS) Number 5, Accounting for Liabilities of the Federal Government, 
as amended by SFFAS Number 12, and Interpretation Number 2 of SFFAS 
Numbers 4 and 5, [entity] reports certain information in its financial 
statements and notes concerning contingent liabilities for litigation, 
claims, and assessments. We request that you provide [Auditor] (with a 
copy to me) with information on matters with respect to which you have 
been engaged and to which you have devoted substantive attention on 
behalf of the [entity] in the form of legal consultation or 
representation. You should furnish an interim response by [agreed-upon 
date], including matters that existed as of September 30, 20X1, and 
from that date through at least [interim date]. You should furnish an 
updated response by [agreed-upon date], that is effective no earlier 
than [agreed-upon date], that includes any changes from the interim 
response or furnish a statement that there are no changes. 

Include any cases with respect to which you have been engaged and to 
which you have devoted substantive attention on behalf of the [entity] 
in the form of legal consultation or representation, even those cases 
for which you believe the Judgment Fund or some financing source other 
than [entity]'s budgetary resources will pay any potential loss. Under 
generally accepted accounting principles, these amounts should be 
included as liabilities or disclosure items in the [entity]'s financial 
statements. Cases similar in nature should be aggregated where 
appropriate. It would be helpful if you could list the matters in order 
of the amount of potential loss, starting with the largest. 

Pending or Threatened Litigation (excluding unasserted claims):

We and [Auditor] have determined that any matters for which the amount 
of potential loss exceeds $XX, individually or in the aggregate, could 
be material to the financial statements. Please provide to [Auditor] 
the information described below about pending or threatened litigation 
where the amount of potential loss exceeds $XX:

1. The nature of the matter. Include a description of the case or cases 
and amount claimed, if specified. 

2. The progress of the case to date. 

3. The government's response or planned response (for example, to 
contest the case vigorously or to seek an out-of-court settlement). 

4. An evaluation of the likelihood of unfavorable outcome. Please 
categorize likelihood as probable (an unfavorable outcome is likely to 
occur), reasonably possible (the chance of an unfavorable outcome is 
less than probable but more than remote), or remote (the chance of an 
unfavorable outcome is slight). 

5. An estimate of the amount or range of potential loss, if one can be 
made, for losses considered to be probable or reasonably possible. 

6. The name of the [entity]'s legal counsel handling the case and 
names of any outside legal counsel/other lawyers representing or 
advising the government in the matter (Department of Justice or 
outside law firms). 

Unasserted Claims and Assessments:

[If legal counsel is a part of management use this paragraph. ] Please 
provide the following information for all unasserted claims and 
assessments that you consider to be probable of assertion and which, if 
asserted, would have at least a reasonable possibility (more that 
remote) of an unfavorable outcome in an amount over $XX, individually 
or in the aggregate, involving matters to which you have devoted 
substantive attention. 

[If the legal letter request will be sent to a legal counsel that is 
not part of management, such as an outside legal counsel, use this 
paragraph. ] We have provided an attachment to this request that lists 
the unasserted claims and assessments that we believe are probable of 
assertion and which, if asserted, would have at least a reasonable 
possibility (more than remote) of an unfavorable outcome in an amount 
over $XX, individually or in the aggregate, involving matters to which 
you have devoted substantive attention. Please provide the following 
information for each matter and for any additional matters that you 
believe meet these criteria. 

1. A description of the nature of the matter. 

2. The government's planned response if the claim is asserted. 

3. An evaluation of the likelihooD of an unfavorable outcome. 
(Categorize likelihood as probable (likely to occur) or reasonably 
possible (less than probable but more than remote).)

4. An estimate of the amount or range of potential loss, if one can be 
made. 

Please specifically confirm to [Auditor] that our understanding of the 
following is correct: Whenever, in the course of performing legal 
services for us, with respect to a matter recognized to involve an 
unasserted possible claim or assessment that may call for financial 
statement disclosure, if you have formed a professional conclusion that 
we should disclose or consider disclosure concerning such possible 
claim or assessment, as a matter of professional responsibility to us, 
you will (1) advise us of your conclusion and (2) consult with us 
concerning the question of such disclosure and the applicable 
requirements of SFFAS No. 5, as amended. 

Please separately identify any cases with respect to which you have 
been engaged and to which you have devoted substantive attention on 
behalf of the [entity] in the form of legal consultation or 
representation for which you believe another government entity will be 
responsible for any potential liability. 

Please specifically identify the nature of and reasons for any 
limitations on your response to this request. 

Please address your reply to [Auditor], and contact him/her at (phone 
number), when your reply is available for pick up, and send a copy of 
your reply to me. Do not hesitate to contact me or [Auditor] if you 
have any questions about this request. 

[End of section] 

Reporting: 

1002 C - EXAMPLE LEGAL REPRESENTATION LETTER: 

[General Counsel Letterhead]

[Date]

[Auditor]

[Title]

[Agency or Firm Name]

[City]

Subject: Legal Response in Connection with the Fiscal Years 20X1 and 
20X0 Financial Statement Audits of [entity name]

Dear [Auditor]:

As General Counsel of [entity], I am writing in response to the legal 
letter request from the [entity]'s Chief Financial Officer (CFO) dated 
[date], in connection with the audit of [entity]'s financial statements 
as of and for the fiscal years ended September 30, 20X1 and 20X0. [In 
an interim response, add "I will, as further requested by the CFO, 
provide an updated response by [date]. "]

I call your attention to the fact that as General Counsel for [entity], 
I have general supervision of [entity]'s legal affairs. [If the general 
legal supervisory responsibilities of the person signing the letter are 
limited, set forth a clear description of those legal matters over 
which such person exercises general supervision, indicating exceptions 
to such supervision and situations where primary reliance should be 
placed on other sources. ] In such capacity, I have reviewed litigation 
and claims threatened or asserted involving [entity] and have consulted 
with outside legal counsel about them when I have deemed appropriate. 

Subject to the foregoing and to the last paragraph of this letter, I 
advise you that since [insert date of beginning of fiscal year period 
under audit] neither I, nor any of the lawyers over whom I exercise 
general legal supervision, have given substantive attention to, or 
represented [entity] in connection with loss contingencies [over the 
amount of (state materiality level agreed to with auditor and stated in 
request letter)] coming within the scope of clause (a) of Paragraph 5 
of the Statement of Policy referred to in the last paragraph of this 
letter, except as follows:

[Describe litigation and claims that fit the foregoing criteria as 
follows (it is recommended that general counsels use the attached 
Department of Justice forms (one for pending or threatened litigation, 
another for unasserted claims) to describe the cases):][Footnote 6]

Pending or Threatened Litigation (excluding unasserted claims):

1. Nature of the matter (include a description of the case or cases and 
amount claimed, if specified). 

2. Progress of the case to date. 

3. Current or intended response. 

4. Evaluation of the likelihood of an unfavorable outcome (categorize 
likelihood as probable, reasonably possible, or remote). 

5. Estimated amount or range of potential loss, if determinable, for 
losses considered to be probable or reasonably possible. 

6. Name of [entity]'s legal counsel handling the case and names of any 
outside legal counsel representing or advising the government in the 
matter. 

With respect to matters that have been specifically identified as 
contemplated by clauses (b) or (c) of paragraph 5 of the ABA Statement 
of Policy, I advise you, subject to the last paragraph of this letter, 
as follows:

Unasserted Claims and Assessments (considered to be probable of 
assertion and which, if asserted, would have at least a reasonable 
possibility of an unfavorable outcome):

1. Nature of the matter. 

2. Intended response if claim would be asserted. 

3. Evaluation of the likelihood of an unfavorable outcome. (Categorize 
likelihood as probable or reasonably possible.)

4. Estimated amount or range of potential loss, if determinable. 

The information set forth herein is [(as of the date of this letter) or 
(as of (insert date), the date on which we commenced our internal 
review procedures for purposes of preparing this response)], except as 
otherwise noted. [If an interim response, add "Upon submission of the 
updated response, which is due on [date],"] I disclaim any undertaking 
to advise you of changes that, thereafter, may be brought to my 
attention or the attention of our lawyers over whom I exercise general 
legal supervision. 

This response is limited by, and in accordance with, the ABA Statement 
of Policy Regarding Lawyers' Responses to Auditors' Requests for 
Information (December 1975); without limiting the generality of the 
foregoing, the limitations set forth in such statement on the scope and 
use of this response (Paragraphs 2 and 7) are specifically incorporated 
herein by reference, and any description herein of any "loss 
contingencies" is qualified in its entirety by Paragraph 5 of the 
statement and the accompanying commentary (which is an integral part of 
the statement). Consistent with the last sentence of Paragraph 6 of the 
ABA Statement of Policy, this will confirm as correct [entity]'s 
understanding that whenever, in the course of performing legal services 
for [entity] with respect to a matter recognized to involve an 
unasserted possible claim or assessment that may call for financial 
statement disclosure, I have formed a professional conclusion that the 
entity must disclose or consider disclosure concerning such possible 
claim or assessment, I, as a matter of professional responsibility to 
[entity], will so advise [entity] and will consult with [entity] 
concerning the question of such disclosure and the applicable 
requirements of Statement of Federal Financial Accounting Standards 
(SFFAS) Number 5, Accounting for Liabilities of the Federal Government, 
as amended by SFFAS Number 12, and Interpretation Number 2 of SFFAS 
Numbers 4 and 5. [Describe any other or additional limitation as 
indicated by Paragraph 4 of the statement. ]

Sincerely yours,

[Name of General Counsel]

[Title]

cc: Chief Financial Officer:

SUGGESTED DEPARTMENT OF JUSTICE FORM: PENDING OR THREATENED 
LITIGATION. 

AGENCY/COMPONENT:

Amount of potential loss exceeds the agency/component materiality 
threshold of: 

1. Case name. (Include case citation, case number, and other names by 
which the case or group of cases is commonly known.) 

2. Nature of matter. (Include a description of the case or cases and 
amount claimed, if specified.) 

3. Progress of the case: 

4. The government's response or planned response. (For example, to 
contest the case vigorously or to seek an out-of-court settlement.)

5. An evaluation of the likelihood of unfavorable outcome. (Choose 
one.)

PROBABLE - An unfavorable outcome is likely to occur:

REASONABLY POSSIBLE - the chance of an unfavorable outcome is less 
than probable but more than remote: 

REMOTE - the chance of an unfavorable outcome is slight:

6. An estimate of the amount or range of potential loss (if one can be 
made, for losses considered to be probable or reasonably possible):

7. The name and phone number of the government attorney handling the 
case (and names and phone numbers of any outside legal counsel/other 
lawyers representing or advising the government in the matter.)

8. The sequence number (based on the total number of pending or 
threatened cases in litigation, claims, and assessments the agency/
component is submitting. e.g., Number of ) (#) (total):

SUGGESTED DEPARTMENT OF JUSTICE FORM: 

UNASSERTED CLAIMS AND ASSESSMENTS: 

[See PDF for image]

[End of figure]

[End of section] 

Reporting: 

1002 D - Example Management Summary Schedule: 

[See PDF for image]

[End of figure]

[End of section] 

Reporting: 

Reporting:

1003 - FINANCIAL STATEMENT AUDIT COMPLETION CHECKLIST:

Entity:

Job Code:

Principal Report:

Other Reports (including management letters and testimonies):

INSTRUCTIONS:

.01: This checklist is a tool to help auditors of financial statements 
conform with U.S. generally accepted government auditing standards 
(GAGAS), OMB audit guidance, and provisions of the FAM. This checklist 
should be completed before the report is issued and should be prepared 
by the audit manager and reviewed by the assistant director and audit 
director. If the audit is conducted at multiple sites, the site 
supervisor may complete parts of the checklist for each site (with the 
audit manager completing an overall checklist). While parts of the 
checklist are useful in audit planning, no specific signatures are 
required on the checklist in the planning phase.

.02: The detailed questions in this checklist are to be answered "no," 
"N/A" (not applicable), or "yes." For some questions, "no" answers 
might indicate departures from professional standards or from policies. 
The auditor should explain all "no" answers at the end of this 
checklist and should consider the effects and significance of "no" 
answers, including any effect on the auditor's report. Check "N/A" when 
the item does not exist or when the item exists but is judged to be not 
material. Because the checklist is designed for the wide range of 
financial statement audits, there sometimes might be many "N/A" 
answers. If the reason why a question is not applicable is not obvious, 
the auditor should document the reason on the checklist or in an 
attachment. It is not necessary to create additional documentation to 
support the "yes" answers, but a column is provided to insert a 
reference to related documentation ("ref."). The questions are 
summarized; for most questions, there is a reference to professional 
literature that provides more detail.

.03: Section V has questions on GAO's report considerations; section VI 
has questions on GAO's quality control. GAO auditors should complete 
these sections. IG auditors and other auditors may use these sections 
or may substitute forms that consider their reporting style and quality 
controls.

.04: See section 650 related to reviewing this checklist (or 
equivalent) when using the work of others.

.05: The FAM includes a separate "Checklist for Federal Accounting, 
Reporting, and Disclosures" (section 1050) that covers accounting, 
financial reporting, and disclosure requirements related to financial 
statements prepared using U.S. generally accepted accounting principles 
promulgated by FASAB. The AICPA has published a disclosure checklist 
for requirements related to financial statements prepared using U.S. 
generally accepted accounting principles promulgated by FASB. The 
auditor should prepare (or review, if prepared by the entity) either 
the Checklist for Federal Accounting, Reporting, and Disclosures or the 
AICPA disclosure checklist, as applicable, or an equivalent checklist 
that addresses the applicable accounting, financial reporting, and 
disclosure requirements. These checklists may be tailored for the needs 
of the individual agency financial statements.

.06: GAO auditors should prepare the "GAO Audit Documentation Set" that 
provides guidance on documentation. IG and other auditors may develop 
similar tools.

.07: For GAO's financial audits, a second partner review should be 
performed and the Chief Accountant should read the report. These 
reviews by the second partner and/or Chief Accountant are documented on 
the last two pages of this checklist. IG auditors and other auditors 
should consider the need for similar reviews.

CONTENTS;

Section;

I: Planning and Concluding the Audit:

II: Key Audit Areas:

III: Consultation:

IV: Report:

V: GAO's Report Considerations:

VI: GAO's Quality Control:

VII: Explanation of "No" Answers and Other Comments:

VIII: Conclusions:

IX: Second Partner's concurrence:

X: Chief Accountant's concurrence:

References:

AICPA Professional Standards (vol. 1): AU;

GAO/PCIE Financial Audit Manual: FAM;

Government Auditing Standards: GAGAS;

Section I: Planning and Concluding the Audit:

1: Has the audit team documented that it has established an 
understanding with the individuals requesting the audit and officials 
of the entity as to the objectives of the work; management's 
responsibilities; auditors' responsibilities; the nature, timing, and 
extent of planned testing and reporting; the planned level of 
assurance; and any limitations of the work? (FAM 280 and GAGAS, par. 
4.06);

2: Were entrance conferences held?

3: Does the entity profile (or equivalent) document an understanding of 
the entity sufficient to plan the audit? (FAM 290.03);

4: Does the documentation contain an adequate general risk analysis or 
the equivalent? (FAM 290.04);

5: Did the audit team adequately perform and document the following 
planning steps? (FAM 290.04);

a: Perform preliminary analytical procedures (FAM 225);

b: Determine planning, design, and test materiality (FAM 230);

c: Identify significant laws and regulations (FAM 245);

d: Identify relevant budget restrictions (FAM 250);

e: Understand the budget formulation process (FAM 260.51);

f: Assess inherent risk and the overall effectiveness of the control 
environment, risk assessment, communication, and monitoring, including 
whether weaknesses in the control environment, risk assessment, 
communication, and monitoring preclude the effectiveness of specific 
control activities (FAM 260);

g: Conduct brainstorming meeting(s), obtain information to identify 
fraud risks, and identify and assess fraud risks (FAM 260);

h: Respond to fraud risks, including any related to revenue and to 
management override of controls, and exercise professional skepticism 
throughout the audit (FAM 260);

i: Design the audit to achieve an acceptable level of audit assurance 
that the financial statements are not materially misstated (GAO uses 95 
percent) (FAM 260.04);

j: Consider the effects of information technology, including service 
centers (FAM 220, 260.17, 260.41-42, and 270);

k: Assess the FMFIA process (FAM 260.43);

l: Consider operations controls to be tested (FAM 275);

m: Understand performance measures controls (FAM 275);

n: Plan other procedures (representation letters, related party 
transactions, sensitive payments) (FAM 280);

o: Consider locations to be visited (FAM 285);

p: Plan procedures to test whether the entity's financial management 
systems substantially comply with the requirements of FFMIA (FAM 
350.02);

q: Consider staffing requirements;

r. Consider timing of procedures and milestones (FAM 295 D);

s. Consider assistance from entity personnel;

6: Does the general risk analysis or the equivalent reflect appropriate 
consideration of findings and recommendations from previous audits that 
could affect the current audit objectives? (GAGAS, par. 4.14);

7: Did the audit team identify budget controls for each relevant budget 
restriction and perform sufficient work to support the conclusions on 
internal control? (FAM 250, 310.05, 330.09);

8: Did the audit team identify compliance controls and perform 
sufficient work to support the conclusions on internal control? (FAM 
245, 310.05, 330.09);

9: If the audit team used the work of others (CPA firms, IGs, internal 
auditors, or specialists), did the audit team meet the requirements of 
FAM 650?

10: Did the audit team perform overall analytical procedures, including 
documentation of the following?

a: Expectations;

b: Data/sources;

c: Parameters;

d: Explanations/corroboration;

e: Conclusions (FAM 590.04);

11: Does the documentation indicate that the audit team properly 
performed the following procedures in the reporting phase of the audit? 
(FAM 590.01);

a: Evaluate misstatements, including considering whether any 
misstatements are indicative of fraud (FAM 540);

b: Bring all misstatements to the attention of entity management (FAM 
540.07):

c. Obtain attorneys' representations (FAM 550.02);

d: Review subsequent events (FAM 550.04 and 1005);

e: Obtain management representations (FAM 550.08 and 1001);

f: Identify and test related party transactions (FAM 550.12 and 1006);

g: Review the consistency of other information accompanying the 
financial statements (FAM 580.76);

12: Does the audit summary memorandum or equivalent properly summarize 
or refer to documentation addressing the following? (FAM 590.02-.03);

a: Changes from original risk assessments;

b: Additional fraud risks or other conditions identified during the 
audit calling for an additional response and the additional response;

c: The basis for conclusions on significant auditing, accounting, and 
reporting issues;

d: Conclusions on adequacy of procedures;

e: Unadjusted misstatements;

f: Conclusions on financial statements;

g: Conclusions on internal control;

h: Conclusions on whether the entity's financial management systems 
meet the requirements of FFMIA;

i: Conclusions on compliance with laws and regulations;

j: Conclusions on the consistency of accompanying information with the 
principal statements;

13: Has the Audit Director determined that appropriate communications 
have occurred among the audit team members regarding fraud risks? (FAM 
540.19);

14: Is there documentation that the following occurred?

a: Deviations from the "should" procedures in the FAM and the basis 
therefore were approved by the assistant director with copies of the 
documentation sent to the audit director and the Reviewer;

b: Deviations from the "must" procedures in the FAM were approved by 
the Reviewer (FAM 100.28);

Answer these questions for each key audit area or cycle. Indicate the 
key audit areas and cycles to which these questions:

1: Did the audit team prepare the following documentation summarizing 
considerations in planning and performing the work in the key audit 
areas and cycles?

a: Cycle Matrix or an equivalent (or documentation in Account Risk 
Analysis or an equivalent) showing links between accounts, cycles, 
applications and line items (FAM 290.05);

b: Account Risk Analysis or an equivalent (FAM 290.06);

c: Cycle Memorandum and/or flowchart or equivalents (FAM 390.04-.05);

d: Specific Control Evaluation or an equivalent (FAM 390.06);

e: Written audit program (AU 311.05);

2: If conditions changed during the course of the audit, was the audit 
program modified as appropriate in the circumstances? (AU 311.05);

3: When the audit team performed sampling, did it properly determine 
and document the following?

a: The method used in relation to test objectives;

b: Sample size and the method of determining it;

c: Tests performed;

d: Results (misstatements and deviations found);

e: Evaluation (including projection to the population);

f: Conclusions (FAM 490.07);

4: When the audit team performed substantive analytical procedures, did 
it properly document the following?

a: Expectations and the method used to develop them;

b: Data sources/reliability;

c: Limit/criteria;

d: Client explanations and corroborating evidence;

e: Additional steps needed;

f: Conclusions (FAM 490.07);

5: When the audit team performed interim testing, did it do the 
following?

a: Test the rollforward period;

b: Properly document:

i: The basis for using interim testing;

ii: The procedures performed;

iii: The effects of any misstatements found (FAM 495C.06);

6: Did the audit team evaluate the reasonableness of significant 
accounting estimates made by management? (AU 342);

7: Were known and likely misstatements identified in the testing of the 
key area carried forward to the summary of possible adjustments? (FAM 
540.04);

8: Did an information systems auditor review the specific control 
evaluation to evaluate the audit team's decision on which controls are 
computer-related (including controls relating to service-center-
produced records)? (FAM 350.10);

9: Based on the inherent and control risk, did the audit team perform 
adequate substantive tests of the following? (If not a key area, check 
the N/A box.);

Fund Balance with Treasury (FBWT):

Consider these issues:

* Did the audit team test the agency's year-end reconciliation of Fund 
Balances with Treasury to Treasury account ledgers and trial balance 
reports (Financial Management Service (FMS) Forms 6653, 6655)?

* Did the audit team determine whether the auditee did the following?

a: Researched and resolved differences before making adjustments;

b: Recorded any necessary adjustments in the agency's FBWT accounts;

c: Reported the adjustments to Treasury;

d: Disclosed in the notes to the financial statements material 
unreconciled differences and budget clearing account differences at 
year-end, and material unreconciled differences written off by the 
agency during the year?

* Did the audit team assess (at absolute value) the materiality of 
unreconciled differences, such as those reported on the Statement of 
Differences (FMS form 6652) and those included in budget clearing 
accounts (such as budget accounts F3875, F3878, F3879)? (GAO/AIMD-97-
104R);

Receivables:

Consider these issues:

* Where practical, were accounts receivable confirmed and appropriate 
follow-up steps taken, including second requests and alternate 
procedures? (AU 330.30-.31);

* If substantive test were performed prior to year-end, was there an 
adequate review of transactions from the interim date to the balance 
sheet date? (AU 313.08-.09);

* If a significant number and amount of accounts receivable were not 
confirmed, were other appropriate auditing procedures performed? (AU 
330.31-.32);

Inventories:

Consider these issues:

* Were physical inventories observed at all locations where material 
amounts were located? (AU 331);

* If perpetual inventory records are maintained, does the documentation 
indicate that differences disclosed by the physical inventory (or cycle 
counts) are properly reflected in the financial statements? (AU 331);

* When the physical inventory is taken at a date other than the balance 
sheet date (or where rotating procedures are used), did the auditor 
consider inventory transactions between the inventory date(s) and the 
balance sheet date? (AU 313.08-.09);

* Does the documentation contain evidence that counts were correctly 
made and recorded (was control over inventory tags or count sheets 
maintained) and test count quantities were reconciled with the counts 
reflected in the final inventory? (AU 331.09);

Inventories (continued);

* Were there adequate tests of the following?

a: Clerical accuracy of the inventory;

b: Costing methods and substantiation of costs used in pricing all 
elements of the inventory;

c: Cutoff:

* Were analytical procedures used to test the overall valuation of 
inventories?

Investments:

Consider these issues:

* Was a summary schedule prepared (or obtained) and details tested with 
respect to the description, purchase price and date, changes during the 
period, income, market value, etc. of investments?

* Were securities either examined or confirmed? (AU 332.04);

Property, Plant, and Equipment:

Consider these issues:

* Was a summary schedule prepared (or obtained) to show beginning 
balances, changes during the period, and ending balances for the 
following?

a: Property, plant, and equipment;

b: Accumulated depreciation;

* If samples were used to determine opening balances, were the samples 
appropriate?

* Did the audit team perform tests of completeness, such as by testing 
from disbursements to property records?

* Do the tests appear adequate and were proper conclusions drawn?

Liabilities:

Consider these issues:

* Did the audit team perform an adequate search for unrecorded 
liabilities?

* Did the audit team consider expenses that might require accrual 
(e.g., pensions, compensated absences, other postretirement benefits, 
or postemployment benefits provided to former or inactive employees 
prior to retirement), and whether accrued expenses were reasonably 
stated?

Revenue and Expenses:

Consider these issues:

* Did the audit team compare revenue and expenses for the period to 
expectations, based on the budget and the results of the preceding 
period? (AU 329);

* Were significant variances and fluctuations from expectations 
explained? (AU 329);

* Did the audit team consider the following?

a: The entity's revenue recognition policy;

b: Unusual transactions;

c: Fraud risks;

* Do tests appear adequate and were proper conclusions drawn?

Statement of Budgetary Resources:

Consider these issues:

* Were appropriate procedures applied, such as the following?

a: Understanding and testing the budget execution controls;

b: Tests of the process of preparing the statement;

c: Tests of undelivered orders;

d: Review of reconciliation to the President's Budget;

1: Where warranted by the complexity or unusual nature of an issue (for 
example, issues where the FAM requires consultation, issues not 
discussed in FAM or professional standards, going concern issues, 
economic dependency issues, issues arising after report issuance), was 
there appropriate consultation with specialists, including the 
following?

* The Reviewer (FAM Appendix A);

* The Statistician (FAM Appendix A);

* The Office of General Counsel (FAM Appendix A);

* The Technical Accounting and Auditing Expert? (FAM 100.25);

2: Were significant consultations appropriately documented? (FAM 
100.24);

3: Were the persons consulted made aware of all relevant facts and 
circumstances?

1: Does the auditor's report include the following?

a: Introduction;

b: Significant matters (if applicable);

c: Conclusions on:

i: Financial statements;

ii: Internal control;

iii: Whether the entity's financial management systems substantially 
complied with the requirements of the Federal Financial Management 
Improvement Act of 1996 (FFMIA);

iv: Compliance with laws and regulations;

v: Consistency of other information with financial statements;

d: Objectives, scope, and methodology, including description of all 
instances where GAGAS and OMB audit guidance were not followed;

e: Agency comments (FAM 580.04, 580.81);

2: Is the auditor's report appropriate as to the following?

a: Wording;

b: Scope of work;

c: U.S. generally accepted accounting principles;

d: Explanatory paragraphs;

e: Opinion on financial statements;

f: Conclusions on internal control;

g: Conclusions on whether the entity's financial management systems 
substantially comply with the requirements of FFMIA;

h: Reporting on compliance with laws and regulations (FAM 580);

3: Is background material (purpose, authority, and functions of 
programs/activities) limited to what is necessary?

4: Is the auditor's report dated in conformity with professional 
standards? (AU 530, FAM 1601);

5: Does the auditor's report cover all periods for which financial 
statements are presented? (AU 508.65);

6: If the financial statements of a prior period are presented and have 
been audited by a predecessor auditor whose report is not presented, 
does the auditor's report refer to the predecessor auditor's report? 
(AU 508.74);

7: Does the auditor's report describe the responsibility the auditor is 
taking for supplementary information, including stewardship 
information? (AU 551; FAM 580.76-.79);

8: a: When illegal acts involve funds received from other governmental 
entities, did the audit team satisfy itself that the audited entity 
notified the proper officials of those entities within a reasonable 
time?

b: If the entity did not, or was unable to do so because the top 
official was involved, did the audit team report these acts to the 
officials of those other governmental entities? (GAGAS, par. 5.23);

9: Does the auditor's report include the following?

a: Identification of which matters are reportable conditions and which 
of the reportable conditions are material weaknesses (GAGAS, par. 
5.14);

b: Reference to a separate letter, if applicable, describing 
nonreportable conditions (GAGAS, par. 5.16);

c: Presentation of all identified (1) instances of fraud and illegal 
acts unless clearly inconsequential, (2) significant violations of 
provisions of contracts or grant agreements, and (3) significant abuse 
(GAGAS, par. 5.12);

10: When appropriate, did the audit team report directly to outside 
parties on fraud, illegal acts, violations of provisions of contracts 
or grant agreements, or significant abuse? (GAGAS, par. 5.21);

11: Did the auditor consider the status of all known significant 
findings and recommendations from prior audits that affect current 
audit objectives, including whether any failure to follow up and 
correct previously identified deficiencies in internal control 
represent reportable conditions? (GAGAS pars. 4.16, 5.12, and 5.13j.);

12: Is a reasonable basis documented for the following?

a: The opinion about whether the financial statements and disclosures 
comply in all material respects with U.S. generally accepted accounting 
principles (FAM 560);

b: The conclusions on internal control;

c: The conclusions on whether the entity's financial management systems 
substantially comply with the requirements of FFMIA;

d: The conclusions about compliance with laws and regulations;

13: Is a reasonable basis documented for reported findings, including 
the following? (FAM 590.05-.06);

a: Internal control weaknesses;

b: Instances of the entity's financial management systems lack of 
substantial compliance with the requirements of FFMIA;

c: Instances of noncompliance with laws and regulations;

14: Do the findings include (where appropriate) the following?

a: Condition (describe the existing situation);

b: Criteria (state what we are comparing to);

c: Cause (reflect reason or reasons why the condition and criteria 
differ);

d: Effect (describe the result of the difference between the condition 
and criteria);

15: Are recommendations and suggestions reasonable, doable, and cost-
effective?

16: Does the presentation of agency comments include the following?

a: Type of comments obtained (oral, written);

b: Title of the most senior official(s) involved;

c: Accurate characterization of general agreement or disagreement with 
the report;

d: Description of the substance of the comments;

e: Resolution of all substantive comments;

1: Overall, does the report have the following characteristics?

a: Professional (the work reflects an understanding of the issues, an 
awareness of the external environment, including sensitivity to 
relevant trends, and a practical approach to what can be done to deal 
with the problems noted);

b: Accurate (presents information or findings accurately; contains no 
notable errors in logic or reasoning);

c: Objective (presentation is fair and impartial; tone is constructive 
and objective);

d: Fact-based (states information and findings completely, includes all 
necessary facts and/or explanations, distinguishes between fact and 
unproven or uncorroborated material, and resolves conflicting 
evidence);

e: Balanced (presents sound and logical evidence to support 
conclusions, does not use adjectives or adverbs to characterize 
evidence in a way that implies criticism or conclusions by innuendo, 
and appropriately recognizes positive aspects of the programs or issues 
reviewed);

f: Timely and useful (provides relevant and timely information);

g: Clear and concise (presentation is clear, concise, and well 
organized; message is presented logically; and writing style is adapted 
to the audience);

Section VI: GAO's Quality Control:

1: Was the report reviewed by the following?

a: Audit Director;

b: Office of the General Counsel;

c: Chief Accountant;

d: Second Partner;

2: Did the audit director review the following? (FAM 1301.17);

a: General risk analysis or equivalent, including sampling approach;

b: Account risk analyses or equivalent for material areas with high or 
moderate combined risk;

c: Memoranda on key accounting and auditing issues;

d: Summary memoranda for material areas with high or moderate combined 
risk;

e: Management representation letter;

f: Legal representation letter;

g: Summary of unadjusted misstatements;

h: Exit conference summary memorandum;

i: Audit summary memorandum;

j: Financial statements;

k: Referencing/Quality Assurance Review Sheet;

l: GAO Audit Documentation Set;

3: Did the assistant director review the following? (FAM 1301.17);

a: Entity profile or equivalent;

b: General risk analysis or equivalent, including sampling approach;

c: Account risk analyses or equivalent;

d: Initial audit programs;

e: Lead schedules;

f: Completed audit programs;

g: Memoranda on key accounting and auditing issues;

h: Summary memoranda;

i: Checklist for Federal Accounting Reporting, and Disclosures (for 
statements using GAAP promulgated by FASAB);

j: Financial reporting and disclosure checklist (for statements using 
GAAP promulgated by FASB);

k: Management representation letter;

l: Legal representation letter;

m: Summary of unadjusted misstatements;

n: Exit conference memorandum;

o: Audit summary memorandum;

p: Financial statements;

q: Referencing/Quality Assurance Review Sheet;

r: GAO Audit Documentation Set;

4: Did the assistant director or audit manager determine that all 
significant review notes were resolved appropriately? (FAM 1301.28);

5: Did an assistant director initial all bundle covers to indicate that 
all documentation was sufficiently reviewed? (FAM 1301.05);

6: Were review notes, superseded versions of documentation , and draft 
reports (except the referenced draft and the draft sent to the agency 
for comment), including review notes and superseded versions in 
electronic form, placed in a separate folder to be retained until the 
report is issued (unless the audit director decides to retain them 
until the next audit)? (FAM 1301.28);

7: Were review responsibilities communicated to all individuals on the 
assignment? (FAM 1301.23);

8: Was documentation prepared by an information systems auditor 
reviewed by an information systems auditor for technical content and by 
a member of the audit team to determine that related audit objectives 
were achieved? (FAM 1301.24);

9: For areas that are both material and have high combined risk, did 
the audit director or assistant director perform secondary reviews of 
the documentation? (FAM 1301.12);

10: Was all documentation prepared by the audit director or assistant 
directors read by audit managers or auditors in charge to determine its 
consistency with any related documentation? (FAM 1301.15);

11: If the documentation indicated a difference of opinion between 
engagement personnel or between engagement personnel and a specialist 
or other person consulted, was the difference resolved appropriately 
and was the basis of the resolution documented? (FAM 1302);

Section VII: Explanation of "NO" Answers* and Other Comments:

The following pages are provided for comments on all "no" answers* or 
to expand upon any of the "yes" and "N/A" answers.

* For some questions, "no" answers might indicate departures from 
professional standards or from policies. The auditor should explain all 
"no" answers below and should consider the effects and significance of 
"no" answers, including any effect on the auditor's report.

Page no.:

Question no.:

Explanatory comments:

Disposition of comments:

Section VIII: Conclusions: Based on your review and knowledge, do you 
believe the following?**;

1: The audit team performed the engagement, in all material respects, 
in accordance with U.S. generally accepted government auditing 
standards (which include U.S. generally accepted auditing standards) 
and applicable OMB guidance, or the auditor's report was appropriately 
modified;

2: The financial statements conformed, in all material respects, with 
U.S. generally accepted accounting principles, or the auditor's report 
was appropriately modified;

3: The auditor's report was appropriate in the circumstances;

4: The documentation on this engagement supports:

* The auditor's opinion on the financial statements;

* The auditor's conclusions on internal control;

* The auditor's conclusions on whether the entity's financial 
management systems substantially comply with the requirements of FFMIA;

* The auditor's conclusions on compliance with laws and regulations;

5: The audit team complied, in all material respects, with the audit 
organization's policies and procedures;

**If any of the above 5 statements have "no" responses, please describe 
the response in a memorandum to the Reviewer.

Date of completion of fieldwork:

Audit Manager:

Date:

Assistant Director:

Date:

Audit Director:

Date:

Section IX: Second Partner's Concurrence:

Objective of second partner review: To objectively review significant 
auditing, accounting, and reporting matters and to conclude, based on 
all facts the second partner has knowledge of, that, except as 
discussed in the report, no matters were found that caused the second 
partner to believe that (1) the audit was not performed in accordance 
with GAGAS and OMB audit guidance (if applicable), (2) the financial 
statements are not, in all material respects, in conformity with U.S. 
generally accepted accounting principles, and (3) the report does not 
meet professional standards and GAO's policies and core values.

Procedures: Before the report was issued, I performed the following 
procedures:

* Discussed significant auditing, accounting, and reporting issues with 
the Audit Director;

* Discussed the audit team's identification of high-risk balances and 
transactions and the audit of those balances and transactions;

* Reviewed documentation on the resolution of significant auditing, 
accounting, and reporting issues, including documentation of 
consultation with specialists such as the Chief Accountant, Chief 
Statistician, and IS professionals;

* Reviewed the summary of unadjusted misstatements;

* Read the audit summary memorandum;

* Read the financial statements and audit report; and;

* Confirmed with the Audit Director that there are no unresolved 
issues.

Conclusion:

Based on all the relevant facts of which I have knowledge, I found no 
matters, except as discussed in the report, that cause me to believe 
that (1) the audit was not performed in accordance with GAGAS and OMB 
audit guidance (if applicable), (2) the financial statements are not, 
in all material respects, in conformity with U.S. generally accepted 
accounting principles, and (3) the report is not in accordance with 
professional standards and GAO's policies and core values.

In signing this form, I acknowledge that there have been no personal or 
external impairments to independence regarding my work on this 
engagement.

Second Partner Name and Title:

Signature:

Date:

Section X: Chief Accountant's Concurrence:

When the Chief Accountant is not the second partner, the Chief 
Accountant should read the report. The Chief Accountant should then 
sign the conclusion below.

Conclusion:

Based on my reading of the report, I found no matters, except as 
discussed in the report, that cause me to believe that (1) the audit 
was not performed in accordance with GAGAS and OMB audit guidance (if 
applicable), (2) the financial statements are not, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles, and (3) the report is not in accordance with professional 
standards and GAO policies and core values.

In signing this form, I acknowledge that there have been no personal or 
external impairments to independence regarding my work on this 
engagement.

Chief Accountant's Signature:

Date:

[End of section] 

Reporting: 

Reporting:

1004 - Financial Reporting: Checklist for Reports Prepared Under the 
CFO Act:

Contents:

Abbreviations:

Sections:

I: Overview:

II: General Items:

III: Balance Sheet:

IV: Statement of Net Cost:

V: Statement of Changes in Net Position:

VI: Statement of Budgetary Resources:

VII: Statement of Financing:

VIII: Statement of Custodial Activity:

IX: Notes to Financial Statements (Significant Accounting Policies):

X: Supplementary Information:

Abbreviations:

AcSEC: Accounting Standards Executive Committee:

AICPA: American Institute of Certified Public Accountants:

CFO Act: Chief Financial Officers Act of 1990:

COTS: commercial-off-the-shelf software:

CSRS: Civil Service Retirement System:

FASAB: Federal Accounting Standards Advisory Board:

FASB: Financial Accounting Standards Board:

FERS: Federal Employees Retirement System:

FFMIA: Federal Financial Management Act:

FIFO: first-in, first-out:

FY: fiscal year:

GAAP: generally accepted accounting principles:

GDP: gross domestic product:

GPRA: Government Performance and Results Act of 1993:

HI: Hospital Insurance (Medicare Part A):

IMF: International Monetary Fund:

Imple. Guide: Implementation Guide:

IRS: Internal Revenue Service:

LIFO: last-in, first-out:

MD&A: Management Discussion and Analysis:

MRS: Military Retirement System:

NRV: net realizable value:

OASDI: Old Age, Survivors, and Disability Insurance (Social Security):

OMB: Office of Management and Budget:

OMB Bull.: OMB Bulletin:

OPEB: Other Postemployment Benefits:

ORB: Other Retirement Benefits:

PP&E: property, plant, and equipment:

RRB: Railroad Retirement Benefits:

RSSI: Required Supplementary Stewardship Information:

SFAS: Statement of Financial Accounting Standards:

SFFAC: Statements of Federal Financial Accounting Concepts:

SFFAS: Statements of Federal Financial Accounting Standards:

SGL: U.S. Government Standard General Ledger:

SMI: Supplementary Hospital Insurance (Medicare Part B):

SOP: Statement of Position:

UI: unemployment insurance:

UTF: Unemployment Trust Fund:

Section I Overview:

Introduction:

The Chief Financial Officers Act of 1990 and the Government Management 
and Reform Act of 1994 require, among other mandates, that agencies' 
chief financial officers submit annual reports to their agency heads 
and to the Office of Management and Budget (OMB). These annual reports 
should contain audited financial statements of their agencies. The 
financial statements are to be presented in accordance with the Federal 
Accounting Standards Advisory Board's (FASAB) approved statements and 
OMB Bulletin 97-01, Form and Content of Financial Statements, as 
revised. 

The checklist has been issued to assist agencies in preparing these 
statements and auditors in auditing them. Use of this checklist is not 
a requirement. Rather, it is intended to help provide for a systematic, 
organized, and structured approach to preparing or reviewing agency 
financial statements. Furthermore, it must be noted that, while the 
questions contained in the checklist are taken from authoritative 
sources, the checklist itself is not authoritative, nor is it a 
comprehensive guide. Preparers and auditors should also consult 
financial management regulations for the individual agencies, as the 
regulations may have specific guidance when the standards allow 
alternatives or management flexibility. 

Checklist Organization:

The checklist has 10 sections: an overview section; a section related 
to general items in the financial statements; a section for each of the 
six financial statements; and two additional sections. The six sections 
reflecting the financial statements are organized by the line items in 
financial statements to allow the user to proceed through each 
statement from the beginning to the end. The final two sections cover 
disclosures in the footnotes related to significant accounting policies 
and required supplementary information. 

Since the financial statements are interrelated, some questions 
concerning line items in one financial statement may also pertain to 
line items in another statement. For example, the questions covering 
loans receivable in the balance sheet section may also include 
questions on the related interest income and subsidy expense appearing 
in the statements of financing and net cost. The questions on related 
line items appearing in more than one statement are covered only in the 
first statement in which the line item appears. In the preceding 
example, questions concerning interest income and subsidy expense would 
appear only in the balance sheet. Further, questions related to 
footnote disclosure would also appear only under the line item of the 
initial financial statement and would not be duplicated in the related 
financial statement except for the section on notes to the financial 
statements about significant accounting policies. 

Except for sections I, II, VI, and IX, the first page of each section 
contains a list showing the number of questions in the section. This 
checklist has 715 questions as follows. 

General Items Related to the Financial Statements:

Balance Sheet:

Statement of Net Cost:

Statement of Changes in Net Position:

Statement of Budgetary Resources:

Statement of Financing:

Statement of Custodial Activity:

Notes to Financial Statements (Significant Accounting Policies):

Supplementary Information:

Authoritative Guidance:

Each question in this guide is referenced to a source. The sources 
cited are (1) the Statements of Federal Financial Accounting Standards 
(SFFAS) and (2) OMB Bulletin 97-01, Form and Content of Financial 
Statements (including the 1998 and 2000 revisions). 

FASAB-recommended statements approved by the principals include 
Statements of Federal Financial Accounting Concepts (SFFAC) and 
Statements of Federal Financial Accounting Standards (SFFAS). The three 
approved accounting concept statements are #1 Objectives of Federal 
Financial Reporting, 1993, #2 Entity and Display, 1995, and #3 
Management's Discussion and Analysis - Concepts, 1999. The nineteen 
SFFAS standards are:

1. Accounting for Selected Assets and Liabilities, 1993. 

2. Accounting for Direct Loans and Loan Guarantees, 1993. 

3. Accounting for Inventory and Related Property, 1994. 

4. Managerial Cost Accounting Concepts and Standards, 1995. 

5. Accounting for Liabilities of the Federal Government, 1997. 

6. Accounting for Property, Plant, and Equipment, 1995. 

7. Accounting for Revenue and Other Financing Sources, 1996. 

8. Supplementary Stewardship Reporting, 1996. 

9. Deferral of the Effective Date of Managerial Cost Accounting 
Standards for the Federal Government in SFFAS No.4, 1998. 

10. Accounting for Internal Use Software, 1998. 

11. Amendments to Accounting for Property, Plant, and Equipment - 
Definitional Changes, 1998 - Amending SFFAS No. 6 and SFFAS No 8: 
Accounting for Property Plant and Equipment and Supplementary 
Stewardship Reporting. 

12. Recognition of Contingent Liabilities Arising from Litigation: An 
Amendment of SFFAS No. 5, 1998 - Accounting for Liabilities of the 
Federal Government. 

Deferral of Paragraph 65.2 - Material Revenue-Related Transactions 
Disclosures, 1998 - Amending SFFAS No. 7, Accounting for Revenue and 
Other Financing Sources. 

14. Amendments to Deferred Maintenance Reporting, 1999 - Amending SFFAS 
No. 6, Accounting for Property, Plant, and Equipment and SFFAS No. 8, 
Supplementary Stewardship Reporting. 

Management's Discussion and Analysis, 1999. 

16. Amendments to Accounting for Property, Plant, and Equipment - 
Measurement and Reporting for Multi-Use Heritage Assets, 1999 - 
Amending SFFAS No. 6 and SFFAS No. 8, Accounting for Property, Plant, 
and Equipment and Supplementary Stewardship Reporting. 

17. Accounting for Social Insurance, 1999. 

Amendments to Accounting Standards For Direct Loans and Loans 
Guarantees, 2000. 

Technical Amendments to Accounting Standards for Direct Loans and Loan 
Guarantees In Statement of Federal Financial Accounting Standards No. 2, 
2001. 

OMB Bulletin 97-01 as amended (Jan. 7, 2000) as well as the attachment 
to OMB Memo M-00-05, OMB Bulletin 97-01 Technical Amendments as amended 
January 7, 2000, provide the detailed requirements for the form and 
content of financial statements. 

How to Use This Guide:

To the right of each question are two columns. The first column 
provides for a "yes," "no," or "NA" answer to each question. The third 
column provides for an explanation for the answer checked in one of the 
first three columns. A "yes" answer should indicate that the financial 
statements contain the information asked by the question. For each 
"yes" answer, the explanation column should include the page number or 
location in the financial statements where the information can be 
found. Also, other materials, such as accounting records, studies or 
working papers, or other documents, should be referenced or listed in 
the column where appropriate. 

A "no" answer indicates that the information asked in the question is 
not included in the financial statements. The fourth column should 
provide an explanation. Examples of explanations for a "no" answer 
might include: (1) the federal entity is working to have the 
information available for the statements in subsequent years, (2) 
management believes that the information does not enhance the 
usefulness of the statements, (3) the cost of compiling the information 
exceeds the benefit of providing it, and (4) the items are not 
material. However, it must be noted that explanations 1 - 3 do not 
necessarily imply that the information is not needed for fair 
presentation and compliance with the Federal Financial Management 
Improvement Act (FFMIA) of 1996; only explanation 4 implies this. Also, 
support, such as a cost-benefit analysis, should be referenced or 
listed in the column, where appropriate. 

An "N/A" answer might indicate that the question does not apply to the 
federal entity. For example, most federal agencies do not administer 
loan, loan guarantee, or loan insurance programs and, therefore, do not 
have credit program receivables and related property. Consequently, the 
questions on these receivables, property, and subsidies would not 
apply. A simple explanation indicating that the reporting entity does 
not administer loan programs would appear in the explanation column of 
the first question in the series. 

Section II: General Items Related to the Financial Statements:

There are 28 questions in this section. All the questions relate to the 
overall financial statements and are not further divided into 
categories. 

General Items (1 - 28): 

1. 
Does the entity's annual financial statement consist of the following 
items?; 

a. management's discussion and analysis (MD&A) of the reporting 
entity; 

b. financial statements and related notes; 

c. required supplementary stewardship information; 

d. required supplementary information; 

e. other 
accompanying information that in management's judgment provides users 
with relevant information (OMB Bull. 97-01 as amended (Jan. 7, 2000), 
pp. 4 & 5). 

2. Do the principal statements and notes include the following six 
statements?; 

a. Balance Sheet; 

b. Statement of Net Cost; 

c. Statement of Changes in Net Position; 

d. Statement of Budgetary Resources; 

e. Statement of Financing; 

f. Statement of Custodial Activity (OMB Bull. 97-01 as amended 
(Jan. 7, 2000), p. 5). 

3. 
Does the entity use the following hierarchy as its sources of guidance 
in preparing its financial statements?; 

a. Statements and interpretations 
of the Federal Financial Accounting Standards Advisory Board (FASAB) as 
well as applicable AICPA and FASB pronouncements; 

b. FASAB technical 
bulletins and, if specifically made applicable to federal government 
entities by FASAB, AICPA Industry Audit and Accounting Guides and AICPA 
Statements of Position; 

c. AICPA AcSEC Practice Bulletins if specifically 
made applicable to federal government entities and cleared by FASAB, as 
well as Technical Releases of the Accounting and Auditing Policy 
Committee of FASAB; 

d. accounting principles published by other authoritative standard-
setting bodies; 

i. in the absence of other guidance in the first three parts of this 
hierarchy, and; 

ii. if the use of such 
accounting principles improves the meaningfulness of the financial 
statements; (OMB Bull. 97-01 as amended (Jan. 7, 2000), p. 7; 
Statement on Auditing Standards (SAS) No. 91 - Federal Generally 
Accepted Accounting Principles (GAAP) Hierarchy. 

4. 
Do the descriptions and displays meet the authoritative standard that 
governs the nature and purpose of the statements, the recognition and 
measurement of items in the statements, and the required disclosures? 
(OMB Bull. 97-01 as amended (Jan. 7, 2000), p. 10, item 2); 
 
5. 
When presenting dollar amounts in the statements and the notes, does 
the entity do the following?; 

a. round dollar amounts to the nearest whole 
dollar, thousand, or million based on informative value to the 
reporting entity; 

b. maintain the chosen rounding level throughout the 
financial statements and footnotes; 

c. adjust the individual line items 
for differences created by rounding so that totals equal the sum of the 
addends in a column (OMB Bull. 97-01 as amended (Jan. 7, 2000), p. 10, 
item 5). 

6. Does the entity present comparative financial statements with full 
footnote disclosure? (OMB Bull. 97-01 as amended (Jan. 7, 2000), p. 10, 
item 3). 

7. Are immaterial but related line items combined? (OMB Bull. 97-01 as 
amended (Jan. 7, 2000), p. 10, item 6). 

8.
Are the statement line items, footnotes, and lines or columns that are 
not informative for the reporting entity excluded? (OMB Bull. 97-01 as 
amended (Jan. 7, 2000), p. 10, item 7). 

9.
Are material balances excluded from the "other" category and separately 
reported and designated by name? (OMB Bull. 97-01 as amended (Jan. 7, 
2000), p. 10, item 8). 

10.
Are footnotes sequentially numbered? (OMB Bull. 97-01 as amended (Jan. 
7, 2000), p. 10, item 10). 

11. 
Do total amounts presented in the footnotes tie to the amounts 
presented in the body of the financial statements? (OMB Bull. 97-01, p. 
10, item 10). 

Financial statements may be aggregated or disaggregated in different 
ways depending upon the nature of the statements. (OMB Bull. 97-01 as 
amended (Jan. 7, 2000), p. 11, item 11). 

12. When agencies present disaggregated information for component 
organizations, does the total column for the entity as a whole reflect 
consolidated totals net of intra-entity transactions? (OMB Bull. 97-01 
as amended (Jan. 7, 2000), p. 11, item 11). 

When a reporting entity presents its financial statements in a single 
column format, the statements are referred to as consolidating 
statements. Financial statements that use a multicolumn format to 
present information on an entity's major components or lines of 
business as well as the consolidated amounts are referred to as 
consolidating statements. (OMB Bull. 97-01 as amended (Jan. 7, 2000), 
p. 11, item 11). 

13. 
Are intra-entity transactions needed to arrive at the consolidated 
amounts presented in a column on the face of the consolidating 
statements? (OMB Bull. 97-01 as amended (Jan. 7, 2000), p. 11, item 
11). 

14. 
Does the reporting entity include franchise funds and other 
intragovernmental support revolving funds among the activities covered 
by its financial statements? (OMB Bull. 97-01 as amended (Jan. 7, 
2000), p. 11, item 11). 

15. 
If information about the assets, liabilities, costs, and revenues of 
these franchise funds and intragovernmental support revolving funds is 
not separately disclosed in the entity's financial statements, is this 
information reported as required supplementary information? (OMB Bull. 
97-01 as amended (Jan. 7, 2000), p. 11, item 11). 

The Department of the Treasury will issue separate guidance providing 
a crosswalk from the accounts or the Standard General Ledger (SGL) to 
required financial statements (OMB Bulletin 97-01 as amended (Jan. 7, 
2000), p. 11, item 13). 

16. 
If the entity it not yet using the accounts and data elements of the 
SGL, are the ledger accounts and data elements used crosswalked to 
those of the SGL? (OMB Bulletin 97-01 as amended (Jan. 7, 2000), p. 11, 
item 13). 

17.
Does the MD&A provide a clear and concise description of the reporting 
entity and its mission, activities, program and financial results, and 
financial condition? (OMB Bull. 97-01 as amended (Jan. 7, 2000), p. 
12). 

18. 
Does the MD&A, at a minimum, contain sections that address the 
following items concerning the entity?; 

a. mission and organizational structure; 

b. performance goals, objectives, and results; 

c. financial statements; 

d. systems controls and legal compliance; 

e. forward-looking 
information, either as a separate section of MD&A or incorporated with 
the sections listed above; 

f. important problems that need to be addressed 
and action taken or planned, either as a separate section of the MD&A 
or incorporated with the sections listed above (SFFAS 15, par. 2 - 4; 
OMB Bull. 97-01 as amended (Jan. 7, 2000), p. 12). 

19. Does the entity's mission statement have the following attributes?; 

a. 
a clear articulation of what the entity's major programs and activities 
are intended to accomplish; 

b. consistency with the entity's strategic 
plan? (OMB Bull. 97-01 as amended (Jan. 7, 2000), p. 12); 

20.
Are the entity's programs and financial results expressed in terms of 
objective and relevant measures that disclose the extent to which its 
programs are achieving their intended objectives? (OMB Bull. 97-01 as 
amended (Jan. 7, 2000), p. 12). 

21.
Has the entity attempted to develop and report objective measures that 
provide information about the cost effectiveness of programs? (OMB 
Bull. 97-01 as amended (Jan. 7, 2000), p. 13). 

22. 
Are the reported measures of program and financial performance 
consistent with the agency's strategic plan? (OMB Bull. 97-01, p. 12); 

23. Do the entity's performance measures meet the following criteria?; 

a. clearly set forth; 

b. objective and quantifiable; 

c. meaningful and relevant; 

d. related to measures developed in the entity's strategic planning 
processes; 

e. capable of presenting the outputs and outcomes of the 
programs, not just inputs or processes (OMB Bull. 97-01 as amended 
(Jan. 7, 2000), p. 13). 

24. 
Does the entity's presentation of its performance measures include the 
following?; 

a. both positive and negative results; 

b. presentation of future 
and historical trends, if possible; 

c. use of charts and graphs, whenever 
possible, for easy identification of trends; 

d. explanation of the significance of trends; 

e. comparisons of actual results to goals or benchmarks; 

f. variations from goals and trends; 

g. other explanatory 
information that helps readers understand the significance of the 
measures, results, and any variations from goals or plans (OMB Bull. 
97-01 as amended (Jan. 7, 2000), p. 13). 

25. 
Does the entity explain what needs to be done and what is planned to 
improve financial or program performance? (OMB Bull. 97-01 as amended 
(Jan. 7, 2000), p. 14). 

26. 
Do the performance measures presented in the MD&A include the following 
criteria?; 

a. related to program purposes and goals; 

b. consistent with 
measures previously included in budget documents and other materials 
related to implementation of the Government Performance and Results Act 
(GPRA); 

c. linked to the programs presented in the Statement of Net Cost; 

d. 
limited to the entity's most significant program and financial measures 
(OMB Bull. 97-01 as amended (Jan. 7, 2000), p. 14). 

27.
Are the less significant program and financial measures presented as 
"other accompanying information?" (OMB Bull. 97-01 as amended (Jan. 7, 
2000), p. 14). 

28.
Does the entity note the following in the section on limitations of the 
"Financial Statements?"; 

a. the financial statements have been prepared to 
report the financial position and results of operations of the entity, 
pursuant to the requirements of 31 U.S.C.3515(b); 

b. while the statements 
have been prepared from the books and records of the entity in 
accordance with the formats prescribed by OMB, the statements are in 
addition to the financial reports used to monitor and control budgetary 
resources that are prepared from the same books and records; 

c. the 
statements should be read with the realization that they are for a 
component of the U.S. government (OMB Bull. 97-01 as amended (Jan. 7, 
2000), p. 14). 

Section III: Balance Sheet: 

The questions related to the balance sheet are contained under 23 line 
items. The question numbers related to each line item follow. 

Question numbers:

General items: 1 - 4:

Assets:

1. Fund Balance with Treasury: 5 - 17:

2. Investments: 18 - 26:

3. Accounts Receivable (Net): 27 - 47:

4. Interest Receivable (Net): 48 - 51:

5. Credit Program Receivables: 52 - 92:

6. Cash and Other Monetary Assets: 93 - 95:

7. Inventory and Related Property: 96 - 112:

8. Operating Materials and Supplies: 1