THE CALIFORNIA STATE UNIVERSITY
GAAP REPORTING M ANUAL
CHAPTER 9 – PREPARING FOR AN AUDIT
INTRODUCTION
For many organizations the word “auditor” sends a message of negativity and panic; however, the audit
process can be virtually painless if you are ready and your staff is educated on the audit process.
This section of the manual is designed to provide the user with an understanding of how to prepare for a
successful audit and, in addition, describes the roles of the independent auditors and campus personnel
in the audit process.
Understanding the Role of the Independent Auditor
The role of the independent auditor is to examine, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement
presentation.
It is not the responsibility of the independent auditor to prepare the financial statements or the footnote
disclosures. It is also not the responsibility of the independent auditor to reconcile accounting
information or to compile data for analysis or for financial statement or footnote disclosure. The
independent auditor is available to assist with such matters, which are usually considered to be outside
of the scope of an audit.
It is the responsibility of the campus and audit teams to develop “ground rules” for the conduct of the
audit. The following summarizes some key responsibilities of the independent auditor:
•
To provide a listing (PBC List) of items that will be required for the audit in advance of the start of
fieldwork. The auditors will provide a preliminary listing; however, other requests should be
expected based on a review of the documents provided
•
To meet all deadlines set by the campus and audit teams
•
To plan and conduct the audit in a professional and effective manner
•
To be courteous to campus personnel and be mindful of their other work commitments
•
To communicate progress and any difficulties or issues encountered promptly and effectively to
members of the campus management.
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The California State University
GAAP Reporting Manual
June 2004
Understanding the Role of the Campus
Management of each campus is responsible for preparing the reporting package provided by the
Chancellor’s Office and their stand-alone financial statements, including footnotes and MD&A. Further,
management is responsible for the fair presentation of the financial statements in conformity with
accounting principles generally accepted in the United States of America.
The following summarizes additional responsibilities of the campus team:
•
To have all requested schedules, on the PBC list, including the reporting package provided by the
Chancellor’s office, prepared prior to the beginning of fieldwork. See sample schedules at the
end of this chapter for further guidance and CSU Accounting website for the updated 2004
reporting package template (www.calstate.edu/acct/).
•
To provide a suitable work area for three to four people in close proximity to accounting and
financial reporting personnel. If possible, the work areas should include a phone and data line and
access to a fax machine.
•
To communicate any difficulties or issues encountered during the audit process promptly to either
the manager or partner of the audit team.
•
To provide a central contact to the audit team.
•
To meet all deadlines set by the Chancellor’s office, the campus and audit teams, as follows:
Key Deadlines:
•
Unaudited debt allocations and Energy Lease information will be passed down from the
Chancellor’s office - August 30, 2004
•
Campuses to complete their June 30, 2004 reporting package – Prior to the start of final
fieldwork and arrival of their KPMG audit team.
•
Audited auxiliary financial statements due to the Chancellor’s office September 30, 2004
•
Audited risk pool allocation passed down from the Chancellor’s office - October 1, 2004
•
KPMG audit teams to submit their campus’ Schedule of Expenditures of Federal Awards,
FISAP, and any findings to the systemwide team - October 25, 2004
(The final Schedule of Expenditures of Federal Awards and any findings should be
discussed with campus personnel prior to submission)
•
University audited reporting package due to the Chancellor’s office – October 25,
2004
(All university reporting packages must be reviewed by their campus senior and
manager prior to submission)
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The California State University
GAAP Reporting Manual
June 2004
Planning
Because of the significant resources needed to complete an audit, it is essential that the campus plan
properly for the audit process. Campus staff that will need to be available should be notified of the
timing several months before the audit to ensure that they will be available. Key personnel should not
plan to take vacations during audit fieldwork or during the time surrounding the submission deadline of
the campus reporting package to the Chancellor’s Office. In addition, time should be set aside to
prepare the audit schedules needed by KPMG prior to the start of fieldwork.
The independent auditor should make every effort to request and utilize schedules and reports that are
already prepared by campus personnel in the conduct of their monthly or annual closing procedures.
However, certain schedules that may be required to support financial statement disclosures may be
unique to the GAAP financial reporting process.
If these audit requests have not been sent to you early enough for you to prepare, this should be
communicated to your audit manager or partner. If items included on the PBC Lists are not clear to
you, clarify these items with a member of your assigned audit team prior to their arrival for performance
of fieldwork.
Communication
Communication with your own staff as well as your audit team is critical. It is important that you
communicate issues, deadlines, and expectations in initial meetings with your campus and audit team. It
is likely that your audit team will communicate expectations they have for you as well. If they don’t,
ask!! Communicate with your audit team regarding how and when audit adjustments will be discussed
– all together at the end or throughout audit fieldwork. Discuss with your audit team how staff should
be contacted – through a central contact or directly, whether they can be “dropped in on” or if
appointments are preferred. Additionally, weekly “hands-on” meetings with the campus central contact
and audit team are suggested to help facilitate an efficient audit.
Central Contact
Although it is very important that the responsibility for audit preparation be delegated to relevant campus
staff, it is key that one person from the campus acts as the central contact. This person should be
responsible for ensuring that all the requested schedules are completed properly and on-time. In
addition, this person should be responsible for accumulating all the audit schedules from the various
preparers and ensuring that these detailed schedules agree to the general ledger and the financial
statements.
Audit Terminology
The terminology used by independent auditors may not be understood by the individuals responsible for
preparing audit schedules and thus they cannot provide the information requested. Following are some
key terms with their definitions used by independent auditors:
General ledger - The accounting system in which all account balances and changes in fund balances
are recorded. For audit purposes, the SAM 07 is considered to be the general ledger of the CSU.
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The California State University
GAAP Reporting Manual
June 2004
Reconciliation – A procedure performed to ensure that one set of information agrees to another. A
reconciliation often maps how detailed information (i.e., a subledger or other listing) agrees to the
general ledger. A proper reconciliation provides a summary of reconciling items, the nature of their
balances and their proposed disposition.
Roll forward – A schedule prepared that reflects beginning balances, additions, deletions, and the
balance at year-end. The ending balances in the rollforward schedule should agree to the general ledger
and beginning balances should agree to the prior year audit report. This type of schedule is typically
requested for capital asset accounts, net assets, and prepaid assets, if significant.
PBC listing – The schedule of initial audit requests provided by the campus audit team, which are to be
prepared by campus personnel. PBC stands for “Prepared By Client.” Other requests should be
expected throughout final fieldwork.
Subledger – A detailed listing of individual account balances (e.g., capital assets, student and other
receivables, and inventory). These listings should not be rollforwards of the accounts, but rather a
summary of the ending balance or composition of each account. For example, a listing that shows
additions and deletions to an inventory account is not a useful listing because it cannot be used to
determine the composition of the ending balance.
Aging report – A type of subledger that groups account balances by the amount of time that has
passed since the balance originated (e.g., a receivable report that lists all accounts that are current, 3060 days past due, etc.). The total balance on this report should agree to the total balance of the account
on the general ledger.
Leadsheet – A summary sheet of all items or accounts and their outstanding balances that are included
in one line item on the financial statements (e.g., a listing of all cash accounts and their balances that
agrees in total to the cash balance presented in the financial statements).
Check register – A listing of all checks processed and disbursed in a certain period. At the CSU, a
check register is the equivalent of a warrant register or claim listing.
Methodology – Thought process or reasoning behind the development of certain financial statement
accounts, the recording of which requires judgment or a selection from alternative methods of
accounting.
Trial balance – A summary schedule of the general ledger, which includes the ending balances of each
type of account at year-end. For CSU audit purposes, the GAAP conversion template prepared for
each fund will be considered a trial balance.
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The California State University
GAAP Reporting Manual
June 2004
List of CSU Reports Commonly Used During the Audit and GAAP Conversion Process
SAM 99* - Provides State Controller’s Office (SCO) balances available for General, Lottery, and
Capital Outlay funds. This report is utilized to verify that the GAAP receivable for State Appropriations
has been recorded accurately.
SAM 18A* - Utilized to prepare journal entry to eliminate expenses (general and capital outlay funds)
accrued on the legal basis books for goods and services not received. (i.e., encumbrances)
SAM 07 - Pre-closing trial balance used to prepare the Excel spreadsheets (or other equivalents) in
legal basis books for balance sheet accounts that support the GAAP template. Commonly referred to
as the general ledger for the audit process.
SAM 18B* - Used to eliminate due to/due from other funds from within a fund group.
SAM 6C - Used to breakdown expenses by program for the GAAP template. (Unrestricted and
Invested in capital assets, net of related debt only)
SAM 6B - Provides budget amounts that are used for the schedule of State Appropriations revenue in
General Fund and to record adjustments for State Appropriations receivable.
SAM 19A* - Capital Assets & Deletions of Capital Assets.
AMO94* - Used to analyze Accounts Receivable by type for footnotes.
AMO95* - Used to breakdown revenues and expenses by type for the GAAP template. (Used for
breakdown of expenses for the Restricted fund only)
* Only available to campuses that use Financial Reporting System (FRS).
Other reports that proved valuable for preparation of the GAAP template and audit process are the
following:
•
A locally-developed report that analyzes the reimbursed activities in the general fund accounts to
make sure that revenues equaled expenses for purposes of elimination or reclassification as
necessary. (AMO61 could be used for this also)
•
A locally-developed report for payments made and received from “related parties” for footnote
disclosure purposes.
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The California State University
GAAP Reporting Manual
June 2004
•
A locally-developed Focus report run against the Customer Information Retrieval System (CIRS)
database to analyze vacation accruals for GAAP purposes.
•
The June 30th report from AMS (formally EFG Technologies), third party loan service provider,
regarding Perkins Loan accounts receivable balances. This report can be used to determine entries
needed for accrued interest income and allowances for doubtful accounts.
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THE CALIFORNIA STATE UNIVERSITY
GAAP REPORTING M ANUAL
CHAPTER 9 – INDEX- SAMPLE SCHEDULES
EXHIBIT
1. GAAP Conversion Template - Unrestricted Net Assets, including prior year amounts and change
columns
2. Cash Lead Sheet
3. Receivables Lead Sheet
4. Allowance for Doubtful Accounts
5. Policy on Allowance for Uncollectible Accounts
6. Accounts Receivable from Auxiliary Organizations
7. Other Receivables
8. Schedule of Prepaid Expenses
9. Schedule of Investments and Other Investments
10. Roll forward of Capital Assets
11. Detail of Equipment Additions
12. Accounts Payable Analysis
13. Accrued Salaries and Benefits
14. Compensated Absences
15. Tuition and Fee Reasonableness Test
16. Deferred Revenue Analysis
17. Roll forward of Debt
18. Future Minimum Rent Schedule - Capital Leases
19. Roll forward of Net Assets
20. Schedule of Expenditures of Federal Awards
21. Student Financial Aid System – Roadmap to Access
22. Higher Scope- Single Audit Requests
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23. Limited Scope Single Audit Requests
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Exhibit 21
THE CALIFORNIA STATE UNIVERSITY
GAAP REPORTING M ANUAL
CHAPTER 9 –STUDENT FINANCIAL AID SYSTEM
SAMPLE ROADMAP TO ACCESS
J UNE 30, 2004
Information to be accessed
Screen #
Transcripts
110
Cumulative Loan Balance
120
Amounts Awarded
130
Amounts Disbursed
140
Student Academic Progress Report
210
ISIR
310
To move within system:
To log onto system, type “1043”.
Enter student number at prompt.
To view information, press the F2 function key and type “V” in the field before the screen to be
viewed.
To return to the main menu and enter a new student number, press the F7 function key.
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Exhibit 22
California State University, _____________
Higher Scope - Single Audit Campus Team Instructions
June 30, 2004
General
•
Schedule of Expenditures of Federal Awards for the year ended June 30, 2004. This
schedule should include the funding source, program name, amount expended for the year,
and the program’s CFDA number. This schedule should include Federal Student Financial
Aid expenditures, including FFELP and Direct loans disbursed, as well as other Federal
Financial Assistance expended. For example schedule, see the GAAP Reporting
Manual, Chapter 9, page 9-29 (must include CFDA number).
•
Inquire of Director of Finance (or equivalent) about the existence of additional Federal
expenditures (i.e., Research and Development) and inform the systemwide team of the
CFDA number, program title, if program should be included in the Research and
Development Cluster, and amount of expenditures. Please inform the systemwide team as
soon as the expenditures are identified for inclusion in the systemwide risk assessment.
•
Complete the Single Audit Reporting Package for additional note disclosures used in
preparation of the report (see sample in the GAAP Reporting Manual, Chapter 9, page 929).
•
Complete the Single Audit Checklist
Student Financial Aid
•
Listing of all students receiving Federal student financial aid during the 2003/2004 year.
This listing should include the student’s name and the amount of each award received.
(Note: The total at the end of this report should agree or be reconciled to the Schedule of
Expenditures of Federal Awards.) This listing will be utilized by KPMG to select their
sample of files.
•
Reconciliation of Schedule of Expenditures of Federal Awards to the SAM 7, FISAP and
explanation of any differences. For example schedule, see the GAAP reporting manual,
Chapter 9, page 9-29 (must include CFDA number).
•
Access to student financial system and a written “cheat sheet” of which screens provide
what information (For example see GAAP Reporting Manual, Chapter 9, page 9-30)
•
Access to a campus copy of the Student Financial Aid Handbook
•
All correspondence received from the Department of Education except Dear Colleague
letters
•
Program Participation Agreement
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Exhibit 22
•
ECAR (Eligibility Certification Approval Report)
•
A list of all locations in which the University offers courses
•
Accreditation Letter
•
If Quality Assurance (QA) or experimental site-acknowledgement letter and waived
requirements
•
A copy of the 2003/2004 Student Catalog
•
A copy of the final 2003/2004 FISAP (when completed – campus must submit no later
than October 1, 2004)
•
Support of 5% of FWS used for community service
•
Cost of Attendance Budgets
•
Cost of Attendance Budgets utilized for Pell Awards
•
Pell Payment Schedule for the 2003/2004 year
•
A copy of the University’s final Statement of Account for Pell
•
Definition of your campus enrollment status (how many units are full-time, 3/4 time, 1/2 time
and less than 1/2 time status)
•
Definition of your campus academic year (how many standard terms do you have)
•
Copy of Satisfactory Academic Progress Policy for graduates and undergraduates
•
List of majors offered and the required units needed for this major to graduate (used for
SAP)
•
Copy of admissions policy
•
Copy of verification policy
•
Support for 25% match of FSEOG (please indicate the students and the amounts of other
grants or funds that they are receiving that will be used to meet the matching requirement)
•
Letter from the bank stating that the account contains federal funds or a copy of a bank
statement with the account name giving evidence that it contains federal funds
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Exhibit 23
California State University, _____________
Limited Scope - Single Audit Campus Team Instructions
June 30, 2004
General
Schedule of Expenditures of Federal Awards for the year ended June 30, 2004. This
schedule should include the funding source, program name, amount expended for the year,
and the program’s CFDA number. This schedule should include Federal Student Financial
Aid expenditures, including FFELP and Direct loans disbursed, as well as other Federal
Financial Assistance expended. For example schedule, see the GAAP Reporting
Manual, Chapter 9, page 9-29 (must include CFDA number).
•
Inquire of Director of Finance (or equivalent) about the existence of additional Federal
expenditures (i.e., Research and Development) and inform the systemwide team of the
CFDA number, program title, if program should be included in the Research and
Development Cluster, and amount of expenditures. Please inform the systemwide team as
soon as the expenditures are identified for inclusion in the systemwide risk assessment.
•
Complete the Single Audit Reporting Package for additional note disclosures used in
preparation of the report (see sample in the GAAP Reporting Manual, Chapter 9, page 929).
•
Complete the Single Audit Checklist
Student Financial Aid
•
Listing of all students receiving Federal student financial aid during the 2003/2004 year.
This listing should include the student’s name and the amount of each award received.
(Note: The total at the end of this report should agree or be reconciled to the Schedule of
Expenditures of Federal Awards.)
•
Reconciliation of Schedule of Expenditures of Federal Awards to the SAM 7, FISAP and
explanation of any differences. For example schedule, see the GAAP reporting manual,
Chapter 9, page 9-29 (must include CFDA number).
•
Access to student financial system and a written “cheat sheet” of which screens provide
what information (For example see GAAP Manual, Chapter 9, page 9-30).
•
A copy of the University’s final Statement of Account for Pell.
•
A copy of 2003/2004 FISAP (when completed – campus must submit no later than
October 1, 2004.
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Exhibit 5
CSU
Sample Policy on Allowance for Uncollectible Accounts
June 30, 2004
Student Accounts - The campus will reserve 50% for all student accounts 4 months
(120 days) or older. The campus will reserve 100% for all student accounts that are 6 months
are older (180 days). Any receivables that are still outstanding for a year will be completely
written off the books.
Vendor Accounts - The campus will review each outstanding receivable over 60 days and
contact the vendor to determine when payment will be rendered. Each vendor receivable still
outstanding over 90 days will be 50% reserved except for receivables from the state of
California. Any vendor receivables that still remain outstanding after 6 months will be 100%
reserved for. Any receivables that still remain outstanding for a year will be completely written
off the books.
Related Organization Receivables - The campus, on a minimum, will reconcile amounts
receivable from other campus auxiliaries on a quarterly basis and will evaluate the collectibility of
these accounts. In most cases, any outstanding receivables over 120 days would be reserved
for 50%. Any receivables outstanding 180 days or more would be 100% reserved for. Any
receivables that still remain outstanding for a year will be completely written off the books.
Loans Receivable - In addition to the required due diligence procedures at the end of each
fiscal year, the campus will review the status of loans outstanding for more than 240 days. The
campus will reserve for amounts to cover approximately 10%-15% of their outstanding loan
balance or amounts greater than 2 years whatever is greater.
*** These are example policies and each campus should evaluate their own write-off
history and create policies accordingly.
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