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audit glossary

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A

Acts of fraud, waste, or abuse impact the resources of a government and its agencies. In the use of government funds or property, abuse is behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary given the facts and circumstances.

Due to the increased use of databases, the growth of access points on networks, and wireless technologies, virtually all entities subject to audits have some risk associated with access controls. Access controls are the rocedures designed to restrict access to online terminal devices, programs, and data. Access controls consist of “user authentication” and “user authorization.” User authentication typically attempts to identify a user through unique logon identifications, passwords, access cards, or biometric data. User authorization consists of access rules to determine the computer resources each user may access. Such procedures are designed to prevent or detect
    • unauthorized access to online terminal devices, programs, and data;
    • entry of unauthorized transactions;
    • unauthorized changes to data files;
    • use of computer programs by unauthorized personnel; and
    • use of computer programs that have not been authorized.

Accountability is the acknowledgment and assumption of responsibility for actions and decisions, and the obligation to report and respond to resulting consequences. According to Government Auditing Standards (also referred to as the Yellow Book), management and officials of government programs are responsible for providing reliable, useful, and timely information to ensure transparency and accountability of their programs. Government auditing is essential in providing accountability to legislators, oversight bodies, those charged with governance, and the public.


See also
• audit committee
• Financial Integrity Act
• Generally Accepted Government Auditing Standards (GAGAS)
• risk assessment
• transparency
• Yellow Book

See types of financial statement audit report opinions.
See types of Single Audit compliance report opinions.

Agency funds are used to account for the assets held by the state for individuals, private organizations, and other governments. The State of Tennessee’s agency funds are the Local Government Fund, Contingent Revenue Fund, and Retiree Health Funds.


See also
• fund/fund accounting

American Institute of CPAs is the world’s largest member association representing the accounting profession, with more than 418,000 members in 143 countries, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education, and consulting.

The AICPA’s Professional Ethics Executive Committee sets ethical standards for the profession and the Auditing Standards Board (ASB) sets U.S. auditing standards for private companies; nonprofit organizations; and federal, state, and local governments. It develops and grades the Uniform CPA Examination, and offers specialty credentials for CPAs who concentrate on personal financial planning; forensic accounting; business valuation; and information management and technology assurance. It participates with the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB) in establishing accounting principles.


See also
• Auditing Standards Board (ASB)
• Certified Public Accountant (CPA)
• Financial Accounting Standards Board (FASB)
• Governmental Accounting Standards Board (GASB)

Amortization is the systematic allocation of the cost of an intangible asset (e.g., patent, trademark, or computer software) over its useful life. For example, if something valued at $100 is to be amortized over 10 years, the financial reports will include an expense of $10 for each of the 10 years.


See also
• asset
• depreciation

Many local governments in Tennessee file an Annual Financial Report rather than a Comprehensive Annual Financial Report. The Annual Financial Report is not comprehensive in scope because it normally excludes a statistical section.


See also
• Comprehensive Annual Financial Report (CAFR)

Assertions are management’s implied or expressed representations to the auditor about certain aspects of the agency (e.g., all transactions have been recorded in the correct reporting period, all assets and liabilities have been reported, or the information in financial statements has been appropriately presented). Auditors test the validity of these assertions through a variety of audit tests, or analytical procedures.


See also
• analytical procedures

An asset is an accounting term for resources owned by a government that can be used to provide goods and services. Examples are cash, receivables, inventory, and equipment. Current assets are those that can reasonably be expected to be converted into cash, sold, or used in operations within a year. Examples are accounts receivable, prepaid expenses, and inventory. Longterm assets are resources that are expected to be held for at least a year. Examples are fixed assets (vehicles, land, buildings, office equipment, and computers); long-term investments (bonds, stocks, or notes); and intangible assets (patents and trademarks).

An audit is an independent, objective quality assurance activity designed to aid management of an organization to accomplish its objectives and improve its effectiveness. Audits provide a nonpartisan assessment of the stewardship, performance, or cost of government policies, programs, or operations, depending upon the type and scope of the audit. Internal auditing is conducted by a unit reporting to management (such as the internal audit division of a state agency), while external auditing is conducted by an independent organization (such as the Comptroller’s Office).


See also
• financial statement audit
• internal auditor
• performance audit 

The audit committee oversees an organization’s auditing and financial reporting and is a board’s tool for ensuring that top management is effectively managing the entity. The audit committee is the final control over top management, which, in the absence of an effective oversight structure, has the power to override the internal controls of the entity.

Through its oversight of top management, the audit committee also indirectly oversees the entity’s operations.

In Tennessee, any state governing board, council, commission, or equivalent body that has the authority to hire and terminate its employees or has the responsibility for the preparation of financial statements is required by Section 4-35-101 et seq., Tennessee Code Annotated, to create an audit committee.


See also
• Audit Committee Act of 2005
• internal control 

See working papers.

The Auditing Standards Board (ASB) is the senior technical committee designated by the American Institute of Certified Public Accountants (AICPA) to issue auditing, attestation, and quality control statements, as well as standards and guidance to Certified Public Accountants (CPA) for non-public company audits.


See also
• American Institute of Certified Public Accountants (AICPA)

The purposes of audit reports are to (1) communicate the results of audits to those charged with governance, the appropriate officials of the audited entity, and the appropriate oversight officials; (2) make the results less susceptible to misunderstanding; (3) make the results available to the public, unless specifically limited; and (4) facilitate follow-up to determine whether appropriate corrective actions have been taken.

The findings and conclusions of the audit report should be based on sufficient, appropriate evidence.


See also
• finding
• objectives

Audit resolution is the process used to implement and monitor the actions management must take to remedy the audit findings.

B

The balance sheet is one of a government’s basic financial statements. This statement is presented in a format that shows all accounts are in balance. The format demonstrates that assets plus deferred outflows of resources equal liabilities, deferred inflows of resources, and fund balances.


See also
• asset
• Comprehensive Annual Financial Report (CAFR)
• deferred outflows/inflows of resources
• evidence
• fund balance
• liability

A basis of accounting is an accounting method that defines when transactions or events are recognized in the accounts of an entity and reported in its financial statements. Examples are the modified accrual basis of accounting and the accrual basis of accounting.


See also
• accrual basis of accounting
• modified accrual basis of accounting

Best practices are methods or techniques that have consistently shown results superior to those achieved through other means, and are used as a benchmark. Best practices may include policies, procedures, or internal controls and may be used as audit criteria, which are the standards against which audit evidence is judged.


See also
• criteria
• elements of a finding
• finding

C

Capital asset is an accounting term for non-financial assets that have a useful life extending beyond one year. Examples are vehicles and buildings.

See also
• asset

Computer-assisted Audit Techniques (CAATs) are applications of auditing procedures using the computer as an audit tool. They are used to automate the auditor's data analysis process.

A contract is a voluntary arrangement between two or more parties that is enforceable by law as a binding legal agreement.

A contractor is a person or entity that contracts to provide services, supplies, or other work.

See components of internal control.

See components of internal control.

The term cost principles refers to the accounting principle that goods and services purchased should be recorded at their historical cost and not at their current market value.

Criteria provide the standards against which the audit evidence is judged. They are a set of reasonable and attainable standards of performance. Criteria provide the "what should be" benchmark.

See also
• best practices
• elements of a finding
• evidence

D

Computer-generated data from outside sources are often central audit evidence. To obtain evidence about the reliability of computer-generated information, auditors may evaluate the effectiveness of information systems controls. If the auditor concludes that information systems controls are effective, the auditor may reduce the extent of direct testing of data.

See also
•evidence

Deferred outflows and inflows of resources are transactions that are recorded on government financial statements that have a financial effect on net position in a future period. The Governmental Accounting Standards Board (GASB) requires that certain defined transactions that do not qualify for treatment as either assets or liabilities be accounted for and reported on government financial statements as either deferred outflows of resources or deferred inflows of resources. A deferred outflow of resources is a consumption of net assets by the government that is applicable to a future reporting period. A deferred inflow of resources is an acquisition of net assets by the government that is applicable to a future reporting period.

See also
• balance sheet
• Governmental Accounting Standards Board (GASB)

Depreciation is an accounting tool used to systematically expense certain assets based on the asset's assigned useful life. This tool recognizes that certain assets such as vehicles and buildings lose value over time and should be expensed over time. Amortization is a similar term that applies to the expensing of intangible capital assets such as water rights and premiums paid on long-term debt.

See also
• amortization
• asset

Disaster recovery refers to the ability to respond to an interruption in services by implementing corrective actions to restore an entity's critical business functions. Disaster recovery is one portion of the larger concept of business continuity, the ability to maintain business functions in the event of natural disasters, hardware or software failure, or human error or abuse, to name a few. In general, disaster recovery involves anticipating potential failures such as those noted above, and having resources available to relocate and restore services with minimal impact on business functions.

Due professional care refers to the diligence a person who possesses a special skill would exercise under a given set of circumstances. Auditors exercise due professional care by planning, conducting, and reporting in accordance with all applicable auditing standards.

E

At the beginning of an audit, the audit team conducts an entrance conference with auditee management to outline audit objectives, approximate time schedules, types of auditing tests, and the process of reporting the results of the audit.

See also
• audit report
• exit conference
• objectives

Evidence comprises the qualitative and quantitative facts that auditors use to assess program conditions. The evidence serves as the foundation for audit findings. According to Generally Accepted Government Auditing Standards, auditors should obtain sufficient, appropriate evidence that supports the findings, conclusions, and recommendations contained in the audit report. Audit evidence includes both information contained in the government records and other information.

The basic types of evidence are
• physical evidence obtained by auditors’ direct inspection or observation of people, property, or events, such as an inspection or count of a tangible asset such as inventory;
• documentary evidence obtained in the form of existing information, such as letters, contracts, accounting records, invoices, spreadsheets, database extracts, electronically stored information, and management information on performance; and
• testimonial evidence obtained through inquiries, interviews, focus groups, public forums, or questionnaires. 

See also
• appropriateness (of audit evidence)
• elements of a finding
• finding
• Generally Accepted Government Auditing Standards (GAGAS)
• relevance (of audit evidence)
• sufficiency (of audit evidence) 

The purpose of the exit conference is to share the auditor's findings, conclusions, and recommendations with the auditee and discuss other improvement suggestions that may not have risen to a formal recommendation.

See also
• entrance conference
• finding

F

A federal award is financial assistance from a federal agency to a recipient to carry out a program for the benefit of the public. Awards could be federal financial assistance and federal cost-reimbursement contracts that non-federal entities receive directly from federal awarding agencies or indirectly from pass-through entities. Federal awards do not include procurement contracts used to buy goods or services from contractors.

Examples in Tennessee include the Special Supplemental Nutrition Program for Women, Infants, and Children and the Child and Adult Care Food Program.

See also
• federal program

A federal awarding agency is a federal agency that provides an award to a recipient.

See also
• compliance requirements in a Single Audit
• federal award
• Single Audit

A federal program is a project, service, or activity provided by the federal government that directly assists domestic governments, organizations, or individuals in areas like education, health, public safety, public welfare, and public works. Examples of federal programs are the Special Supplemental Nutrition Program for Women, Infants, and Children and the Summer Food Program for Children.

See also
• major federal program

Findings result from an evaluation of the collected audit evidence against audit criteria. Criteria provide a context for evaluating evidence and understanding the findings. Audit criteria may include laws, regulations, contracts, grant agreements, standards, measures, expected performance, defined business practices, and benchmarks against which performance is compared or evaluated.

In both financial audits and attestation engagements, findings may involve deficiencies in internal control; noncompliance with provisions of laws, regulations, contracts, or grant agreements; fraud; or abuse.

In a performance audit, auditors should present sufficient, appropriate evidence to support the findings and conclusions in relation to the audit objectives.

Clearly developed findings assist management and oversight officials of the audited entity in understanding the need for corrective action.

See also
• abuse
• attestation engagements
• elements of a finding
• financial statement audit
• fraud
• internal control
• performance audit

A fiscal year (FY) is a period that a company or government uses for accounting purposes and preparing financial statements. A fiscal year may not be the same as a calendar year. A fiscal year usually refers to a 12-month accounting, reporting, and budgeting period that does not end on December 31. (The accounting year of January 1 through December 31 is usually referred to as a calendar year.) In Tennessee, the fiscal year runs from July 1 through June 30.

Acts of fraud, waste, or abuse impact the resources of state government and its agencies. Fraud is any intentional act by one or more individuals (including management, those charged with governance, employees, or third parties) involving the use of deception that violates a law or the public trust to obtain an unjust or illegal advantage.

Since October 1983, the Comptroller's Office has provided a toll-free hotline for reporting fraud, waste, and abuse of government funds and property.

See also
• abuse
• fraud risk factors
• fraudulent financial reporting
• waste 

Fund balance is the difference between assets and liabilities in a governmental fund. The fund balance in any given fund is essentially what is left over after the fund's assets have been used to meet its liabilities.

See also
• asset
• liability

Fund types are categories into which all individual funds can be categorized: governmental fund types (general fund, special revenue funds, debt service funds, capital project funds, and permanent funds); proprietary fund types (enterprise funds and internal service funds); and fiduciary fund types (pension and other employee benefit trust funds, investment trust funds, private-purpose trust funds, and agency funds).

G

A general fund is a type of governmental fund. It typically serves as the chief operating fund of a government and is used to account for all financial resources not accounted for in another fund.


See also
• fund/fund accounting  

The going concern principle in the governmental environment is the government's inability to continue to meet its obligations as they become due without substantial disposition of assets outside the ordinary course of governmental operations, restructuring of debt, submission to the oversight of a separate fiscal assistance authority or financial review board, or similar actions. According to Generally Accepted Auditing Standards (GAAS), a government is considered a going concern unless there is substantial doubt about the government's ability to continue to operate within the next twelve months beyond the financial statement date.

See also
• financial statements
• Generally Accepted Auditing Standards (GAAS)

A government grant is a financial award given by the federal, state, or local government to an eligible recipient, or "grantee." Government grants are not expected to be repaid.

The term "grant" specifically applies to awards to administer programs and does not include other types of federal financial assistance such as technical assistance, loans or loan guarantees, interest rate subsidies, direct appropriations, or revenue sharing. Over 26 federal agencies administer more than 1,000 grant programs annually to provide funding for the arts, educational institutions, agricultural projects, and more. Government grants help fund ideas and projects that provide public services and stimulate the economy. Grants support critical recovery initiatives, innovative research, and other programs listed in the Catalog of Federal Domestic Assistance (CFDA).

Because government grants are funded by tax dollars, they require stringent compliance and reporting measures for ensuring the money is well spent. Grants from the federal government are authorized and appropriated through bills passed by Congress and signed by the President.

See also
• Catalog of Federal Domestic Assistance (CFDA)
• grantor

A grantee is a recipient or organization that receives a grant.

See also
• Catalog of Federal Domestic Assistance (CFDA)
• grant
• grantor 

A grantor refers to a state or federal agency that reviews grant applications and selects projects to be funded.

See also
• Catalog of Federal Domestic Assistance (CFDA)
• grant
• grantee

H

No terms available 

I

An improper payment occurs when grant funds go to the wrong recipient, when the recipient receives the incorrect amount of funds, or when the recipient uses the funds in an improper manner. These can be underpayments and overpayments. 

In all matters relating to the audit work, the audit organization and the individual auditor performing the audit must be independent.

Independence includes the following:

• Independence of Mind: The state of mind that permits the performance of an audit without being affected by influences that compromise professional judgment. Independence of mind allows an individual to act with integrity and exercise objectivity and professional skepticism.
• Independence in Appearance: The absence of circumstances that would cause a reasonable and informed third party, having knowledge of the relevant information, to reasonably conclude that the integrity, objectivity, or professional skepticism of an audit organization or member of the audit team had been compromised. 

Auditors and audit organizations maintain independence so that their opinions, findings, conclusions, judgments, and recommendations will be impartial and viewed as impartial by reasonable and informed third parties. Auditors should avoid situations that could lead reasonable and informed third parties to conclude that the auditors are not independent and thus are not capable of exercising objective and impartial judgment on all issues associated with conducting the audit and reporting on the work.

Generally, auditors should be independent from an audited entity during both the period of time covered by the financial statements or subject matter of the audit, and the period of the professional engagement.

See also
• audit
• audit report
• financial statements
• finding
• independent auditor (external auditor)
• professional judgment/professional skepticism

In relation to federal financial assistance programs, indirect costs represent the expenses of doing business that are not readily identified with a particular grant, contract, project function, or activity, but are necessary for the organization's general operations and activities. Depending on the structure of each particular program, these costs may include items that are not project-specific such as certain supplies, salaries for administrative or support staff, rent, or utilities.

See also
• federal award
• indirect cost rate

Inherent risk is the risk of a material misstatement in the financial statements arising due to error or omission as a result of factors other than the failure of controls.

Inherent risk is generally considered to be higher where a high degree of judgment and estimation is involved or where transactions of the entity are highly complex.

See also
• control risk
• detection risk
• risk

In relation to federal financial assistance programs, the federal government may suggest or require that grant recipients expend nonfederal resources toward program and project objectives. One source for meeting requirements for a non-federal share is a "third party" in-kind contribution for goods or services that would have been allowable had an expenditure of cash been made.

In-kind contributions are resources (e.g., donations) provided at no charge to the program or project by some party other than the federal government or the grantee.

See also
• federal award
• grant
• grantee

Internal auditors are those employed within departments or agencies to function as part of a government's comprehensive framework of internal 51 control. Typically, internal auditors assist management of individual departments or agencies in assessing risk; designing, implementing, and monitoring compensating controls; and correcting issues before they are discovered by independent (or external) auditors.

See also
• independent auditor (external auditor)

Internal control is a process, affected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. Internal control is also integral to detecting fraud. An internal control system provides reasonable, though not absolute, assurance that an entity's objectives will be achieved.

The staff of an organization makes an internal control system function. Management is responsible for establishing an effective internal control system, setting the entity's objectives, implementing controls, and evaluating the internal control system. Personnel throughout an entity play important roles in implementing and operating an effective internal control system.

Under Tennessee's Financial Integrity Act, state agencies, as well as units of local government, are required to establish and maintain effective internal controls, and report on them annually to the Commissioner of Finance and Administration and the Comptroller of the Treasury.

See also
• components of internal control
• Financial Integrity Act
• fraud
• Standards for Internal Control in the Federal Government (Green Book)

An internal control deficiency is a flaw in the design or operation of internal controls that hinders management or employees, in the normal course of performing their assigned functions, from preventing or timely detecting misstatements and noncompliance.

Design deficiencies occur when a control is missing entirely or when an existing control does not actually meet management's objective.

Operational deficiencies occur when an employee lacks the necessary competence or authority to execute the properly designed control.

See also
• internal control
• material noncompliance
• material weakness
• misstatement/material misstatement
• significant deficiency

An internal service fund is a proprietary fund-type (i.e., one that is used when a governmental entity acts similar to a business in some respects) used when a government provides goods and services to other funds, departments, or agencies of the primary government and its component units, or to other governments, on a cost-reimbursement basis. An internal service fund is accounted for on a cost-reimbursement basis. The State of Tennessee has 14 internal service funds, including Risk Management, General Services Printing, Employee Group Insurance Funds, Human Resources, and Edison.

See also
• fund/fund accounting

J

No terms available

K

No terms available

L

Liabilities are obligations to sacrifice resources that the government has little or no discretion to avoid. Examples would be trade accounts payable and general bonded debt.

See also
• expenditure/expense

When certain information is classified or otherwise prohibited from general disclosure by federal, state, or local laws or regulations, auditors may issue a separate classified or limited official use report containing such information and may distribute the report only to persons authorized by law or regulation to receive it. If certain pertinent information is prohibited from public disclosure or is excluded from a report due to the confidential or sensitive nature of the information, auditors disclose in the report that certain information has been omitted and the reason or other circumstances that make the omission necessary.

For example, Section 10-7-504(i), Tennessee Code Annotated, specifically prohibits publishing information that would allow a person to obtain unauthorized access to confidential information or to government property. The law clarifies that "government property" includes electronic information processing systems, telecommunication systems, or other communication systems of a governmental entity.

M

A major fund is a governmental fund or enterprise fund reported as a separate column in the fund financial statements and is subject to a separate opinion in the Independent Auditor's Report because of its significance to the government. Major funds represent the government's most important funds and are determined by a mathematical calculation.

See also
• Comprehensive Annual Financial Report (CAFR)
• fund/fund accounting
• Independent Auditor’s Report
• nonmajor fund

In the context of financial reporting, materiality is the threshold above which missing or incorrect information in financial statements is considered to have an impact on the decision making of users of the financial statements. Evaluation of a particular item's materiality is complex, involving both quantitative and qualitative considerations and requiring auditors' professional judgment.

In performance auditing, materiality is also referred to as significance.

See also
• financial statements
• performance audit
• professional judgment/professional skepticism
• significance

For major federal programs, material noncompliance is a failure to follow federal statutes, regulations, or award terms and conditions that- either individually or when combined with other noncompliance-is quantitatively or qualitatively material. Material noncompliance is noncompliance that is pervasive throughout the entity.

See also
• major federal program
• material/materiality

A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis. In financial statement audits, material weaknesses occur in internal controls over financial reporting. In compliance audits, material weaknesses occur in internal controls over compliance.

See also
• compliance requirements in a Single Audit
• financial statements
• internal control deficiency
• material/materiality
• material noncompliance
• significant deficiency 

Methodology describes the nature and extent of audit procedures for gathering and analyzing evidence to address the audit objectives. Audit procedures are the specific steps and tests auditors perform to address the audit objectives. Auditors design the methodology to obtain reasonable assurance that the evidence is sufficient and appropriate to support the auditors' findings and conclusions in relation to the audit objectives and to reduce audit risk to an acceptable level.

In a performance audit, auditors should identify significant assumptions made in conducting the audit; describe comparative techniques applied; describe the criteria used; and, when sampling significantly supports the auditors' findings, conclusions, or recommendations, describe the sample design and state why the design was chosen, including whether the results can be projected to the intended population.

See also
• evidence
• finding
• objectives
• risk
• sampling

The purpose of modified accrual accounting is to measure flows of current financial resources in governmental fund financial statements. The method, commonly used by government agencies, modifies the accrual basis of accounting in two important ways: (1) revenues are not recognized until they are measurable and available, and (2) expenditures are recognized in the period in which governments normally liquidate the related liability rather than when the liability is first incurred (if earlier).

See also
• accrual basis of accounting
• expenditure/expense
• liability
• modified opinion
• revenue
• types of financial statement audit report opinions
• types of Single Audit compliance report opinions

Monitoring is an ongoing process directed by management, involving evaluation of an entity's system of quality control that is designed to provide reasonable assurance that it is operating appropriately and effectively. Auditors assess the effectiveness of management's monitoring and evaluation activities.

See also
• internal control

 

 

N

Net position is the residual of all other financial statement elements presented in a statement of financial position. 

Noncompliance is the failure or refusal to comply, as with a law, regulation, or term of a contract.

Nonmajor funds are all governmental funds or enterprise funds that are not significant enough to be reported in a separate column. These funds are combined in a single column for presentation in the fund financial statements and are subject to a separate opinion in the Independent Auditor's Report.

See also
• fund/fund accounting
• Independent Auditor’s Report
• major fund

O

Objectives form the basis of the audit. The objective states the subject matter under examination and how performance will be assessed. An example of an audit objective for a performance audit is “The objective is to determine whether the agency conducted restaurant inspections consistent with its established plans and procedures."

An observation is an issue discovered during an audit that does not warrant an audit finding but is still a cause for concern, or may be of interest to the reader. The Comptroller's Office's performance audits include observations, which may report concerns such as weak practices or internal controls.

See also
• methodology

An opinion unit is a reporting unit, or aggregation of reporting units, of the governmental entity on which the auditor expresses an opinion.

P

Peer Review is the evaluation of an audit organization by audit professionals to determine if the quality control system ensures compliance with audit standards.

Government Auditing Standards require an audit organization to obtain an external peer review at least once every three years and to make its most recent peer review report publically available.

The Comptroller's Office's Department of Audit undergoes an external review of its quality control system every two years by the National State Auditors Association. Section 8-4-102, Tennessee Code Annotated, states:

Previous to the convening of each biennial general assembly, the speaker of the senate and the speaker of the house jointly may contract for the services of an independent public accounting firm to audit or review the operations of the office of the comptroller, or may call upon the director of the division of state audit to review with them a current audit of the comptroller of the treasury. The speakers may appoint a committee of the general assembly for the purpose of such review.

The most recent review was performed in July 2016 by Certified Public Accountants from several local, state, and federal audit organizations, as well as other executive-level posts in federal and state governments. The purpose of the review was to ensure that the Department of Audit is meeting its responsibility to perform audit work in accordance with government auditing standards generally accepted in the United States of America. The report of the peer review for the year ended June 30, 2016, rendered a pass opinion on the department's system of quality control, meaning that our quality control system is designed appropriately and our working papers demonstrate compliance with auditing standards. The 2016 peer review report on the Comptroller's Department of Audit is posted to the Comptroller's website.

A population is the entire set of data about which the auditor wishes to draw conclusions, such as all travel expenditures for a period of time. In order to be cost effective, auditors usually test a representative sample of the population, rather than the entire population, to draw conclusions.

See also
• sampling 

A primary government may be a state government, a general local purpose government, or a special purpose government that is legally separate and fiscally independent from other state or local governments (e.g., a utility district). The primary government is the focus of the financial reporting entity. For example, the State of Tennessee, and not its component units, is the focus of the financial reporting entity.

Program income is income earned by a grant recipient that is directly generated by a supported activity or earned as a result of the award. Program income must be spent according to the terms of the award. In most cases, it must be put back into the program.

All records, regardless of form, made or received pursuant to law or in connection with any governmental agency's official business are public. However, some records are designated as "confidential public records," meaning information or matters within the record is considered to be privileged and access to the general public is statutorily denied.

Q

R

A recipient is a non-federal entity, such as a state, municipality, or nonprofit organization, that receives federal awards directly from the federal government to carry out a federal program.

See also
• federal award
• subrecipient

A recommendation is a course of action suggested by the auditor relating to correcting problems defined in an audit finding.

See also
• elements of a finding
• finding

Required supplementary information (RSI) is information that a designated accounting standards setter requires to accompany an entity's basic financial statements. RSI is not part of the basic financial statements; however, it is considered to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. The auditor applies certain limited procedures to the RSI but does not express an opinion or provide any assurance on the information because the limited procedures do not provide sufficient evidence to do so.

See also
• financial statements

Revenue is the income attributable to a designated fiscal accounting period that will affect the balance (surplus) or deficit resulting from the operations of that period.

See attestation engagements.

Risk, specifically audit risk, is the possibility that auditors' findings, conclusions, recommendations, or assurances may be improper or incomplete, as a result of insufficient, misleading, or omitted evidence due to misrepresentation or fraud. Audit risk includes the risk that auditors will not detect a mistake, inconsistency, significant error, or fraud in the evidence supporting the audit. Audit risk can be reduced by taking actions such as increasing the scope of work; adding specialists, additional reviewers, and other resources to perform the audit; changing the methodology to obtain additional evidence, higher quality evidence, or alternative forms of corroborating evidence; or aligning the findings and conclusions to reflect the evidence obtained.

The two components of audit risk are the risk of material misstatement (i.e., inherent risk and control risk) and detection risk.

See also
• control risk
• detection risk
• evidence
• finding
• fraud
• inherent risk
• methodology
• misstatement/material misstatement
• scope

A risk assessment is a systematic process for identifying risks that may be involved in a particular program or entity. The assessment includes evaluating the likelihood that an identified risk will occur and its potential impact. Risks can result from, for example, new and complex entity programs or prior audit findings.

Risk assessment helps management achieve the entity's goals and objectives and prevent loss of resources. Risk management also helps ensure effective reporting and compliance with laws and regulations, and helps avoid damage to the entity's reputation and associated consequences.

See also
• Financial Integrity Act
• Standards for Internal Control in the Federal Government (Green Book)

Risk of material misstatement is the risk that an entity's financial statements are materially misstated prior to the audit. This risk may stem from two factors: inherent risk, which may result from complex transactions or estimation; and control risk, or weak internal controls.

See also
• control risk
• detection risk
• inherent risk
• internal control
• misstatement/material misstatement
• risk

Risk of material noncompliance is the risk that an entity, due to either error or fraud, has failed to comply with grant compliance requirements and the noncompliance is considered pervasive. Examples of risks of material noncompliance include an entity with a history of poor recordkeeping for its federal programs and an entity that is experiencing financial difficulties and could divert federal funds for unauthorized purposes.

S

Sampling is the examination of less than 100 percent of the items within a population to provide the auditor with a reasonable basis on which to draw conclusions about the entire population. There are two general approaches to audit sampling: nonstatistical and statistical. Both approaches require the auditor to use professional judgment in planning, performing, and evaluating a sample and in relating the audit evidence produced by the sample to other audit evidence when forming a conclusion about the related account balance, class of transactions, or processes.


See also
• evidence
• population
• professional judgment/professional skepticism
• sampling risk

Sampling risk is the probability that the auditor has reached an incorrect conclusion because an audit sample, rather than the whole population, was tested. While sampling risk can be reduced to an acceptably low level by using an appropriate sample size and selection method, it can never be eliminated.

Scope defines the subject matter that auditors will assess and report on, such as a particular program; the necessary documents or records; the period of time reviewed; and the locations that will be included.

According to Generally Accepted Governmental Auditing Standards (GAGAS), a limitation on the scope of the audit occurs when the auditor does not receive all information and explanations necessary to complete the audit. Examples of scope limitations include an entity restricting or limiting an auditor's access to accounting records or destroying records. Limitation of scope means the auditor cannot give an objective conclusion. Auditors issue modified opinions for scope limitations (i.e., disclaimer of opinion).

See also
• types of financial statement audit report opinions
• types of Single Audit compliance report opinions

Shared services refers to the consolidation of business operations that are used by multiple parts of the same organization.

Shared services are cost efficient because they centralize back-office operations that are used by multiple agencies of the same government and eliminate redundancy. Today, most states employ a shared services model for finance, human resources management, and information technology. The goal of a shared services delivery model is to allow each agency to focus its limited resources on activities that support the agency's goals. Technology has often been the driver for shared services within an organization because it can be expensive to purchase, maintain, and train employees to use.

The Strategic Technology Solutions Division provides centralized computer and data services for the State of Tennessee.

The Single Audit is performed annually in accordance with the federal Single Audit Act of 1984 (as amended) and the Office of Management and Budget's (OMB) Uniform Guidance. Rather than individually auditing each federal grant or award, the Single Audit Act allows or requires governments (depending on the amount of federal assistance received) to have one audit performed to meet the needs of all federal grantor agencies. The Single Audit is a rigorous, organization-wide audit or examination of an entity that expends $750,000 or more of federal financial assistance (commonly known as federal funds, federal grants, or federal awards).

As part of the Single Audit, the auditor must prepare and submit three individual reports to the recipient and to the federal government. The first report is an opinion, or a disclaimer, on whether the recipient's financial statements are presented in accordance with generally accepted accounting principles. The second report addresses the status of internal controls relative to the financial statements and major programs. The third report is an opinion, or a disclaimer, on the degree to which the entity receiving federal funds has complied with the laws, regulations, and terms and conditions of the federal financial assistance awards.

If the Single Audit produces audit findings, the auditor must prepare the Schedule of Findings and Questioned Costs.

See also
• Compliance Supplement
• federal award
• questioned costs
• Schedule of Findings and Questioned Costs
• types of Single Audit compliance report opinions

A software application is a program used to direct the operation of a computer.

An auditor's specialist is an individual or organization possessing expertise in a field other than accounting or auditing, whom an auditor might rely on to obtain sufficient, appropriate audit evidence. A specialist may be either internal (someone within the auditing agency) or external. The Comptroller's Office occasionally uses internal specialists in its audits.

A subaward is a federal grant or award that is first given to a passthrough entity, such as a state agency, which then passes the award on to a subrecipient. The subrecipient, which may be a local government or a nonprofit entity, is the ultimate recipient of the award and carries out the federal program.

A subrecipient is not a contractor who provides services to the passthrough entity.

See also
• pass-through entity
• subrecipient 

A subrecipient is an entity that is a secondary or ultimate recipient of federal financial assistance. These federal funds are distributed, under contract or grant agreement, by a state or local government to the subrecipient and are used to carry out federal financial assistance 81 programs, usually at the local level.

An example of a subrecipient is a municipality that receives federal Housing and Urban Development Community Development Block Grant funds from the Tennessee Department of Economic and Community Development or a nonprofit receiving grants for the U.S. Department of Agriculture's Child and Adult Care Food Program from the Tennessee Department of Human Services.

See also
• compliance requirements in a Single Audit.
• pass-through entity
• Subrecipient Monitoring requirements

A sunset audit is a type of performance audit used by the Tennessee General Assembly's Government Operations Committees to recommend whether an entity should be continued, restructured, or terminated.

See also
• performance audit
• sunset hearing
• Tennessee Governmental Entity Review Law (Sunset Law)

When an entity reaches its termination date specified in statute, the subcommittees of the Joint Government Operations Committee hold sunset public hearings. The subcommittees review and take action on sunset audit reports and agency responses to questions issued by Comptroller's Office auditors to determine whether the entity should be continued, restructured, or terminated.

See also
• Question and Answer Review Process
• Tennessee Governmental Entity Review Law (Sunset Law)
• termination date

 

T

Tax abatement is a reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which (a) one or more governments promise to forgo tax revenues to which they are otherwise entitled and (b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments. 

Transparency is the clear disclosure of information, rules, plans, processes, and actions. Simply making information available is not sufficient to achieve transparency. Information needs to be relevant and accessible as well as timely and accurate. Transparency leads to more trust in government leaders and missions; improved workplace culture and employee morale; and more efficient problem-solving. An example of transparency would be making financial information available online.

See also
• accountability

In an auditor's report, the auditor expresses an opinion as to whether generally accepted accounting principles have been followed and applied on a basis consistent with that used the preceding year.

An unmodified opinion indicates that the financial statements are, in all material respects, presented fairly in accordance with generally accepted accounting principles.

Modified opinions include the following:

• qualified: with the presence of sufficient, appropriate audit evidence, misstatements are material but not pervasive to the financial statements; or, with the absence of sufficient, appropriate audit evidence, the possible effects on the financial statements of undetected misstatements could be material but not pervasive;
• disclaimer: the auditor is unable to obtain sufficient, appropriate audit evidence but concludes that the possible effects on the financial statements of undetected misstatements could be both material and pervasive; or 
• adverse: with the presence of sufficient, appropriate audit evidence, misstatements are both material and pervasive to the financial statements.

See also
• material/materiality
• misstatement/material misstatement 

U

The federal Office of Management and Budget's (OMB) Uniform Guidance establishes uniform cost principles and audit requirements for federal awards to nonfederal entities and administrative requirements for all federal grants and cooperative agreements.

See also
• compliance requirements in a Single Audit
• Compliance Supplement
• Office of Management and Budget (OMB)
• Single Audit

User permissions are rights granted to users that allow them to update, edit, or delete files in the computer system.

V

No terms available

W

Acts of fraud, waste, or abuse impact the resources of a government and its agencies. Waste is the mismanagement, inappropriate actions, and inadequate oversight that results in taxpayers not receiving reasonable value for money in connection with any government-funded activity. Since October 1983, the Comptroller’s Office has provided a tollfree hotline for reporting fraud, waste, and abuse of government funds and property.


See also
• abuse
• fraud

Working papers are audit documentation auditors create or gather to show the work they have done, the methods and procedures they have followed, and the conclusions they have developed in an audit of financial statements or other type of engagement. Audit working papers are used to provide reasonable assurance that the audit was performed in accordance with relevant auditing standards.

Tennessee law states that the Comptroller's Office's working papers are confidential and are not open for public inspection.

See also
• evidence

X

No terms available

Y

Z

No terms available

Acronyms

CFE ................................................. Certified Fraud Examiner
CGFM .................Certified Government Financial Manager
CISA......................... Certified Information Systems Auditor
CPA ............................................. Certified Public Accountant

AAA................................. American Accounting Association
AGA......................Association of Government Accountants
AICPA.................................... American Institute of Certified Public Accountants
COSO.................... Committee of Sponsoring Organizations of the Treadway Commission
GFOA.................. Government Finance Officers Association
IIA.............................................. Institute of Internal Auditors
IMA............................Institute of Management Accountants
ISACA...................................Information Systems Audit and Control Association

AFR ...................................................Annual Financial Report
CAFR ................... Comprehensive Annual Financial Report
CFDA......................Catalog of Federal Domestic Assistance
SEFA............... Schedule of Expenditures of Federal Awards