Chapter 2: Types of Government Audits

a. Financial statement audits provide reasonable assurance about whether the financial statements of an audited entity present fairly the financial position, results of operations, and cash flows in conformity with generally accepted accounting principles.¹ Financial statement audits also include audits of financial statements prepared in conformity with any of several other bases of accounting discussed in auditing standards issued by the American Institute of Certified Public Accountants (AICPA).

b. Financial related audits include determining whether (1) financial information is presented in accordance with established or stated criteria, (2) the entity has adhered to specific financial compliance requirements, or (3) the entity's internal control structure over financial reporting and/or safeguarding assets is suitably designed and implemented to achieve the control objectives.

[NOTE 1: Three authoritative bodies for generally accepted accounting principles are the Governmental Accounting Standards Board (GASB), the Financial Accounting Standards Board (FASB), and the sponsors of the Federal Accounting Standards Advisory Board (FASAB). GASB establishes accounting principles and financial reporting standards for state and local government entities. FASB establishes accounting principles and financial reporting standards for nongovernment entities. The sponsors of FASAB--the Secretary of the Treasury, the Director of the Office of Management and Budget, and the Comptroller General--jointly establish accounting principles and financial reporting standards for the federal government, based on recommendations from FASAB.]

a. Segments of financial statements; financial information (for example, statement of revenue and expenses, statement of cash receipts and disbursements, statement of fixed assets); budget requests; and variances between estimated and actual financial performance.

b. Internal controls over compliance with laws and regulations, such as those governing the (1) bidding for, (2) accounting for, and (3) reporting on grants and contracts (including proposals, amounts billed, amounts due on termination claims, and so forth).

c. Internal controls over financial reporting and/or safeguarding assets, including controls using computer-based systems.

d. Compliance with laws and regulations and allegations of fraud.

a. Economy and efficiency audits include determining (1) whether the entity is acquiring, protecting, and using its resources (such as personnel, property, and space) economically and efficiently, (2) the causes of inefficiencies or uneconomical practices, and (3) whether the entity has complied with laws and regulations on matters of economy and efficiency.

b. Program audits include determining (1) the extent to which the desired results or benefits established by the legislature or other authorizing body are being achieved, (2) the effectiveness of organizations, programs, activities, or functions, and (3) whether the entity has complied with significant laws and regulations applicable to the program.

a. is following sound procurement practices;

b. is acquiring the appropriate type, quality, and amount of resources at an appropriate cost;

c. is properly protecting and maintaining its resources;

d. is avoiding duplication of effort by employees and work that serves little or no purpose;

e. is avoiding idleness and overstaffing;

f. is using efficient operating procedures;

g. is using the optimum amount of resources (staff, equipment, and facilities) in producing or delivering the appropriate quantity and quality of goods or services in a timely manner;

h. is complying with requirements of laws and regulations that could significantly affect the acquisition, protection, and use of the entity's resources;

i. has an adequate management control system for measuring, reporting, and monitoring a program's economy and efficiency; and

j. has reported measures of economy and efficiency that are valid and reliable.

a. assess whether the objectives of a new, or ongoing program are proper, suitable, or relevant;

b. determine the extent to which a program achieves a desired level of program results;

c. assess the effectiveness of the program and/or of individual program components;

d. identify factors inhibiting satisfactory performance;

e. determine whether management has considered alternatives for carrying out the program that might yield desired results more effectively or at a lower cost;

f. determine whether the program complements, duplicates, overlaps, or conflicts with other related programs;

g. identify ways of making programs work better;

h. assess compliance with laws and regulations applicable to the program;

i. assess the adequacy of the management control system for measuring, reporting, and monitoring a program's effectiveness; and

j. determine whether management has reported measures of program effectiveness that are valid and reliable.

[NOTE 2: These audits may apply to services, activities, and functions as well as programs.]

a. assist a legislative body by developing questions for use at hearings,

b. develop methods and approaches to be applied in evaluating a new or a proposed program,

c. forecast potential program outcomes under various assumptions without evaluating current operations, and

d. perform investigative work.