Impact of the New
Clarity Standards on Governmental
Audits
Presented by
Beila Sherman, CPA and
Enrique Llerena, CPA

Impact of the New Clarity Standards on
Governmental Audits – Session Objective
 To provide an overview of the various changes in auditing standards issued by the AICPA and their impact on upcoming governmental audits
 Effective for years ending on or after
December 15, 2012 (9/30/2013 Year Ends)
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The Clarified Standards
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The codification of the clarified standards uses section numbering established by SAS No.
122, Statements on Auditing Standards:
Clarification and Recodification, and contains
“AU-C” section numbers.
“AU-C” is a temporary identifier to avoid confusion with references to AU sections.
“AU-C” remains effective through 2013.
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The Clarity Standards Format
 Introduction
 Statement of objective;
 Definitions, where relevant;
 Requirements; and
 Application and other explanatory material, with paragraphs using an “A” prefix.
 The explanatory material in the “A” prefix paragraph is cross-referenced to the corresponding paragraphs in the requirements section. Auditors are responsible for considering the entire text of each standard in applying its requirements.
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Summary of Changes and Its Impact
AU-C 200
Overall Objectives of the Independent
Auditor and the Conduct of an Audit in
Accordance With Generally Accepted
Auditing Standards
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Summary of Changes and Its Impact
AU-C 210
Terms of Engagement
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Summary of Changes and Its Impact
AU-C 220
Quality Control for an Engagement
Conducted in Accordance With
Generally Accepted Auditing Standards
7

Summary of Changes and Its Impact
AU-C 230
Audit Documentation
8

Summary of Changes and Its Impact
AU-C 240
Consideration of Fraud in a Financial
Statement Audit
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Summary of Changes and Its Impact
AU-C 250
Consideration of Laws and Regulations in an Audit of Financial Statements
10

Summary of Changes and Its Impact
AU-C 260
The Auditor’s Communication With
Those Charged With Governance
11

Summary of Changes and Its Impact
AU-C 265
Communicating Internal Control
Related Matters Identified in an Audit
12

Summary of Changes and Its Impact
AU-C 300
Planning an Audit
13

Summary of Changes and Its Impact
AU-C 315
Understanding the Entity and Its
Environment and Assessing the Risks of Material Misstatement
14

Summary of Changes and Its Impact
AU-C 320
Materiality in Planning and Performing an Audit
15

Summary of Changes and Its Impact
AU-C 330
Performing Audit Procedures in
Response to Assessed Risks and
Evaluating the Audit Evidence
Obtained
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Summary of Changes and Its Impact
AU-C 402
Audit Considerations Relating to an
Entity Using a Service Organization
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Summary of Changes and Its Impact
AU-C 450
Evaluation of Misstatements Identified
During the Audit
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Summary of Changes and Its Impact
AU-C 500
Audit Evidence
19

Summary of Changes and Its Impact
AU-C 501
Audit Evidence – Specific
Considerations for Selected Items
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Summary of Changes and Its Impact
AU-C 505
External Confirmations
21

Summary of Changes and Its Impact
AU-C 510
Opening Balances – Initial Audit
Engagements, Including Reaudit
Engagements
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Summary of Changes and Its Impact
AU-C 520
Analytical Procedures
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Summary of Changes and Its Impact
AU-C 530
Audit Sampling
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Summary of Changes and Its Impact
AU-C 540
Auditing Accounting Estimates,
Including Fair Value Accounting
Estimates and Related Disclosures
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Summary of Changes and Its Impact
AU-C 550
Related Parties
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Summary of Changes
AU-C 560
Subsequent Events and Subsequently
Discovered Facts
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Summary of Changes and Its Impact
AU-C 570
The Auditor’s Consideration of an
Entity’s Ability to Continue as a
Going Concern
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Summary of Changes and Its Impact
AU-C 580
Written Representations
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Summary of Changes and Its Impact
AU-C 585
Consideration of Omitted Procedures
After the Report Release Date
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Summary of Changes and Its Impact
AU-C 600
Special Considerations – Audits of
Group Financial Statements (Including the Work of Component Auditors)
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Summary of Changes and Its Impact
AU-C 610
The Auditor’s Consideration of the
Internal Audit Function in an Audit of
Financial Statements (In Process)
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Summary of Changes and Its Impact
AU-C 620
Using the Work of an Auditor’s
Specialist
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Summary of Changes and Its Impact
AU-C 700
Forming an Opinion and Reporting on
Financial Statements
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Forming an Opinion and Reporting on
Financial Statements – AU-C 700
Headings and
Subheadings
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City X, as of and for the year ended
September 30, 2013, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards,
1
issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
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1
For financial audits performed in accordance with Government Auditing Standards , chapters 1–4 of Government
Auditing Standards apply.

Forming an Opinion and Reporting on
Financial Statements – AU-C 700
Opinion
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the [ CITY OF EXAMPLE, ANY STATE] , as of [ DATE] , and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of
America.
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Forming an Opinion and Reporting on
Financial Statements – AU-C 700
Other Reporting Responsibilities
(Yellow Book Report reference)
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditor’s report will vary depending on the nature of the auditor’s other reporting responsibilities.]
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Summary of Changes and Its Impact
AU-C 705
Modification to the Opinion in the
Independent Auditor’s Report
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Modifications to the Opinion – AU-C 705
Basis for qualified, adverse, or disclaimer
(placed before opinion paragraph)
Basis for Adverse Opinion
Management has not included the Aviation Fund in the City of X, State Y’s, financial statements.
Accounting principles generally accepted in the United States of America require the Aviation
Fund to be presented as a major enterprise fund and financial information about the Aviation
Fund to be part of the business-type activities, thus increasing that activity’s assets, liabilities, revenues, and expenses, and changing its net position. The amount by which this departure would affect the assets, liabilities, net position, revenues, and expenses of the business-type activities and the omitted major fund has not been determined.
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Modifications to the Opinion – AU-C 705
Modified opinion (Qualified,
Adverse, or Disclaimer
Adverse Opinion
In our opinion, because of the significance of the matter described in the “Basis for Adverse
Opinion on Aviation Fund and Qualified Opinion on Business-Type Activities” paragraph, the financial statements referred to above do not present fairly the financial position of the Aviation
Fund of the City of X, State Y, as of June 30, 20X1, or the changes in financial position or cash flows thereof for the year then ended.
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Summary of Changes and Its Impact
AU-C 706
Emphasis-of-Matter Paragraphs and
Other-Matter Paragraphs in the
Independent Auditor’s Report
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Summary of Changes and Its Impact
AU-C 706
Emphasis-of-Matter
Refers to a matter appropriately presented or disclosed in the financial statements that, in the auditors’ professional judgment, is of such importance that it is fundamental to users in understanding the financial statements.
Examples are a going concern, litigation, change in policy like when GASB 54 implemented, significant related parties …
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Summary of Changes and Its Impact
AU-C 706
Other-Matter Paragraphs
Refers to a matter other than those presented or disclosed in the financial statements that, in the auditors’ professional judgment, is relevant to users’ understanding of the audit, auditors’ responsibilities, or the auditors’ report
Examples are if prior periods presented, regulatory financials, in relation to opinion, RSI, other SI
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Emphasis of Matter and Other Matter
Paragraphs – AU-C 706
Emphasis of Matters
• Matters appropriately presented or disclosed
Emphasis of Matter
The accompanying financial statements have been prepared assuming that the City of X, State Y will continue as a going concern. As discussed in Note Z to the financial statements, the City
[Describe conditions that indicate that the City may not be able to continue as a going concern].
These conditions raise substantial doubt about its ability to continue as a going concern.
Management’s plans regarding those matters also are described in Note Z. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our opinion is not modified with respect to this matter.
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Emphasis of Matter and Other Matter
Paragraphs – AU-C 706
Other Matter
• To understand audit matters (Combining statements, SI, RSI, SEFA)
Other Matter
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of X, State Y’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements.
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Summary of Changes and Its Impact
AU-C 708
Consistency of Financial Statements
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Summary of Changes and Its Impact
AU-C 720
Other Information in Documents
Containing Audited Financial
Statements
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Summary of Changes and Its Impact
AU-C 725
Supplementary Information in Relation to the Financial Statements as a Whole
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Summary of Changes and Its Impact
AU-C 730
Required Supplementary Information
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Summary of Changes and Its Impact
AU-C 800
Special Considerations
Audits of Financial Statements
Prepared in Accordance with
Special Purpose Framework
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Summary of Changes and Its Impact
AU-C 805
Special Considerations Audits of Single
Financial Statements and Specific
Elements, Accounts, or Items of a
Financial Statement
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Summary of Changes and Its Impact
AU-C 806
Reporting on Compliance With Aspects of Contractual Agreements or
Regulatory Requirements in
Connection With Audited Financial
Statements
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Summary of Changes and Its Impact
AU-C 810
Engagements to Report on Summary
Financial Statements
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Summary of Changes and Its Impact
AU-C 905
Alert That Restricts the Use of the
Auditor’s Written Communication
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Summary of Changes and Its Impact
AU-C 905
Alert That Restricts the Use of the Auditor’s Written
Communication
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
(
(Replaces the restricted use alert with a restricted purpose alert)
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Summary of Changes and Its Impact
AU-C 910
Financial Statements Prepared in
Accordance With a Financial Reporting
Framework Generally Accepted in
Another Country
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Summary of Changes and Its Impact
AU-C 915
Reports on Application of
Requirements of an Applicable
Financial Reporting Framework
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Summary of Changes and Its Impact
AU-C 920
Letters for Underwriters and Certain
Other Requesting Parties
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Summary of Changes and Its Impact
AU-C 925
Filings With the U.S. Securities and
Exchange Commission Under the
Securities Act of 1933
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Summary of Changes and Its Impact
AU-C 930
Interim Financial Information
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Summary of Changes and Its Impact
AU-C 935
Compliance Audits
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Resources: AICPA Financial Reporting Center
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Beila Sherman
Marcum LLP
Senior Manager
450 East Las Olas Boulevard, Suite 950
Fort Lauderdale, Florida 33301
954.320.8032
beila.sherman@marcumllp.com
Enrique Llerena
Marcum LLP
Manager
One Southeast Third Avenue, 10 th Floor
Miami, Florida 33131
305.995-9614 enrique.llerena@marcumllp.com