[Federal Register Volume 72, Number 122 (Tuesday, June 26, 2007)]
[Notices]
[Pages 35080-35081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-12320]
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OFFICE OF MANAGEMENT AND BUDGET
Audits of States, Local Governments, and Non-Profit Organizations
AGENCY: Office of Management and Budget.
ACTION: Revisions to OMB Circular A-133.
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SUMMARY: This Notice revises Office of Management and Budget (OMB)
Circular A-133, ``Audits of States, Local Governments, and Non-Profit
Organizations,'' by (1) Updating the internal control terminology and
related definitions used in the Circular; and (2) simplifying the
auditee reporting package submission requirement to the Federal Audit
Clearinghouse (FAC).
DATES: All comments on this revision should be in writing, and must be
received by August 27, 2007. The revisions shall apply to audits of
fiscal years ending on or after December 15, 2006.
ADDRESSES: Due to potential delays in OMB's receipt and processing of
mail sent through the U.S. Postal Service, we encourage respondents to
submit comments electronically to ensure timely receipt. We cannot
guarantee that comments mailed will be received before the comment
closing date.
Electronic mail comments may be submitted to: [email protected]. Please include ``A-133 Comments'' in the subject line
and the full body of your comments in the text of the electronic
message and as an attachment. Please include your name, title,
organization, postal address, telephone number, and e-mail address in
the text of the message. Comments may also be submitted via facsimile
to 202-395-4915.
Comments may be mailed to Gilbert Tran, Office of Federal Financial
Management, Office of Management and Budget, Room 6025, New Executive
Office Building, Washington, DC 20503.
A copy of the current Circular A-133 published in the Federal
Register on June 27, 2003 is available on the Internet at http://www.whitehouse.gov/omb/circulars/a133/a133.pdf.
FOR FURTHER INFORMATION CONTACT: Gilbert Tran, Office of Federal
Financial Management, Office of Management and Budget, telephone 202-
395-3052 (direct) or 202-395-3993 (main office) and e-mail: [email protected].
SUPPLEMENTARY INFORMATION:
A. Revisions of Internal Control Definitions and Related Matters
OMB Circular A-133 includes guidelines for the reporting of
``reportable conditions'' and ``material weaknesses'' in internal
control in several places. These terms and/or their related definitions
have become outdated and need updating due to recently issued standards
by both the American Institute of Certified Public Accountants (AICPA)
and the Government Accountability Office (GAO). The AICPA issued
Statement on Auditing Standards (SAS) No. 112, Communicating Internal
Control Related Matters Identified in an Audit (AICPA, Professional
Standards, vol. 1, AU 325), which became effective for audits of
periods ending on or after December 15, 2006. With regard to internal
control over financial reporting, the SAS introduced and defined the
term ``control deficiency;'' replaced the term ``reportable condition''
with ``significant deficiency'' and redefined that term; and also
revised the definition of the term ``material weakness.'' Recently, the
GAO issued a revision to Government Auditing Standards (GAS) and posted
a related notice to its Web site that requires the new internal control
terminology and definitions to be used in all financial audits
performed under GAS as of the effective date of SAS 112. Therefore, to
be consistent with the recent revisions to professional auditing
standards, references to ``reportable condition'' and ``material
weakness'' in internal control over financial reporting related to the
audit of the financial statements in Circular A-133 are replaced by the
terms ``significant deficiency'' and ``material weakness'' as those
terms are defined in SAS 112 and GAS. This change is effective for
single audits of periods ending on or after December 15, 2006.
As noted above, SAS 112 and GAS define control deficiencies in
internal control over financial reporting. Because Circular A-133 also
requires the auditor to report on internal control over compliance
related to major federal programs, similar definitions had to be
developed for control deficiencies in internal control over compliance.
The AICPA, working with OMB and other federal agency staff, is issuing
AICPA Auditing Interpretation No. 1, ``Communicating Deficiencies in
Internal Control Over Compliance in an Office of Management and Budget
Circular A-133 Audit'' of SAS No. 112 (AICPA, Professional Standards,
vol. 1, AU 9325.01-.02), which can be found at the following link
(http://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/Audit+and+Attest+Standards/Authoritative+Standards+and+Related+Guidance+for+Non-Issuers/Recently+Issued+Audit+and+Attestation+Interpretations.htm). That
interpretation includes the following definitions which should be used
in single audits of periods ending on or after December 15, 2006:
A control deficiency exists when the design or operation of a
control does not allow management or employees, in the normal course
of performing their assigned functions, to prevent or detect on a
timely basis noncompliance with a type of compliance requirement of
a Federal program.\1\
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\1\ This reference to ``type of compliance requirement'' refers
to the first 13 types of compliance requirements (that is, types of
compliance requirements identified as ``A'' through ``M'') described
in Part 3 of the OMB Circular A-133 Compliance Supplement (the
Compliance Supplement) and each individual special test and
provision identified in Part 4 of the Compliance Supplement for each
federal program. When a federal program is not included in the
Compliance Supplement, the identification of types of compliance
requirements that apply and are material to a federal program
(including special tests and provisions) is made through a review of
the program's contract and grant agreements and referenced laws and
regulations.
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A significant deficiency \2\ is a control deficiency, or
combination of control deficiencies, that adversely affects the
entity's ability to administer a Federal program such that there is
more than a remote likelihood \3\ that noncompliance with a type of
compliance requirement \4\ of a Federal program that is more than
inconsequential \5\ will not be prevented or detected.
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\2\ The term significant deficiency replaces the term reportable
condition currently used in Circular A-133.
\3\ The term remote likelihood as used in the definitions of the
terms significant deficiency and material weakness has the same
meaning as the term remote as used in Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 5, Accounting
for Contingencies, found at the following link (http://www.aicpa.org/download/members/div/auditstd/AU-00325.PDF).
Therefore, the likelihood of an event is ``more than remote'' when
it is at least reasonably possible.
\4\ See footnote 1.
\5\ Noncompliance with a type of compliance requirement is
inconsequential if a reasonable person would conclude, after
considering the possibility of further undetected noncompliance,
that the noncompliance, either individually or when aggregated with
other noncompliance related to the same type of compliance
requirement, would clearly be immaterial to a federal program. If a
reasonable person would not reach such a conclusion regarding a
particular noncompliance, that noncompliance is more than
inconsequential.
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A material weakness is a significant deficiency, or combination
of significant deficiencies, that results in more than a remote
likelihood that material noncompliance with a type of compliance
requirement \6\ of a Federal program will not be prevented or
detected.
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\6\ See footnote 1.
In addition to the Interpretation, the AICPA has issued updated
illustrative Circular A-133 audit reports that can be accessed on the
AICPA Governmental Audit Quality Center Web site at the following link
(http://gaqc.aicpa.org/Resources/Illustrative+Auditors+Reports/).
Further, updated illustrative reporting for financial statement audits
performed under GAS can also be found at the same Web site link.
This change in terminology and related definitions may result in
the reporting of additional internal control matters than had been
reported using the previous terminology and definitions. The reporting
of such additional matters may affect the scope of single audits,
particularly as it relates to the determination of major programs and
the auditee's low-risk status.
Auditees submitting single audits of periods ending between
December 15, 2006 and December 31, 2006, should use the approved Data
Collection Form (Form SF-SAC) for fiscal years ending 2004, 2005 and
2006 when filing with the Federal Audit Clearinghouse. Since this Form
SF-SAC has not yet been updated for the new internal control
terminology, any ``significant deficiency'' should be recorded under
the term ``reportable condition'' on the following items: Part II--
items 3 and 4, Part III--items 4 and 5, and Part 3, item 10(a). The
Form SF-SAC terminology will be updated in the next SF-SAC form
scheduled for January 1, 2008.
The Form SF-SAC approved for audits with fiscal period end dates in
2004, 2005, and 2006, is extended to apply to audits with fiscal period
end dates in 2007. All submissions with fiscal period end dates in 2007
must use the 2004-2006 version of Form SF-SAC.
B. Streamlined Submission of Reporting Package to the Federal Audit
Clearinghouse (FAC)
We are also streamlining the auditee's submission of the reporting
package to the FAC. Due to technology advances, starting January 1,
2007, the auditee is no longer required to submit multiple copies of
the reporting package to the FAC, in accordance with section 320(d) of
Circular A-133. Instead, only one copy of the reporting package is
necessary. However, Part III, item 8, of the Form SF-SAC should
continue to be completed noting all agencies required to receive a copy
of the reporting package.
Rob Portman,
Director.
Circular A-133 is revised as follows:
1. In the following sections, replace ``reportable conditions''
with ``significant deficiencies'': Sec. --.320(b)(2)(ii); Sec.
--.320(b)(2)(iv); Sec. --.500(c)(3); Sec. --.505(d)(1)(ii); Sec.
--.505(d)(1)(iv); Sec. --.510(a)(1), and Sec. --.520(d)(1).
2. Replace Sec. --.320(d) with the following:
(d) Submission to clearinghouse. All auditees shall submit to the
Federal clearinghouse designated by OMB a single copy of the data
collection form described in paragraph (b) of this section and the
reporting package described in paragraph (c) of this section.
[FR Doc. E7-12320 Filed 6-25-07; 8:45 am]
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