Accounting for Governmental Study Set 1

Answer:

The not-for-profit organisations and governmental entities are audited under the general auditing standards. These Government Auditing Standards are controlled by the U.S. Government Accountability Office. These audits involve assessment of the internal controls, assessment of fairness of the financial reports, selective verification of transactions and issuance of these audit reports. The audits of state and federal organizations are also subjected to Single Audit Act of 1984, to provide the federal assistance authority with uniform requirements to these organizations.
Most of the not-for-profit organizations are exempted from the federal income taxes but their incomes from business activities could be taxable. These are enforced by the Tax code section 501, where the organizations for charitable purpose are exempted from taxes.
a. In this chapter a 501(c)(3) organization is defined as "a corporation and any community chest, fund, or foundation organised and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, or to foster national or international amateur sports competition (so long as none of its activities involve the providing of athletic facilities or equipment) or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, participate or intervene in any political campaign."
b. Similarly a public charity is defined as " (1) a church, school, hospital, governmental unit, or publicly supported charity; (2) an organization that receives more than one-third of its support from a combination of contributions, membership fees, and gross receipts from exempt activities and no more than one-third of its support from a combination of investment income and net unrelated business income after taxes; (3) an organization operated exclusively for the benefit of organizations already described; or (4) an organization founded and operated exclusively for public safety."

Answer:

The not-for-profit organisations and governmental entities are audited under the general auditing standards. These Government Auditing Standards are controlled by the U.S. Government Accountability Office. These audits involve assessment of the internal controls, assessment of fairness of the financial reports, selective verification of transactions and issuance of these audit reports.
a. There are four types of professional engagements, which are financial audits, attestation engagements, performance audits and non-audit services.
1. Financial audits: The financial audits assures the fairness of the reporting of financial statements and are in accordance with the generally accepted accounting principles or a comprehensive basis of accounting.
2. Attestation engagements: The attestation engagements involves the examination, review, assessment and reporting of the agreed upon procedures. The attestation engagement could be a part of the financial audit or in other engagements.
3. Performance audits: The performance audit involves assessment of the performance and management of various programs and their objectives and the assessment of the practices by the organization and other information. It also provides information to improve the practices and to make decisions for corrective actions to be made and improve public accountability of the organization.
4. Non-audit services: The non-audit services involves the collection of information, providing this information to the decision makers and explaining them and assisting these decision makers by providing valuable advices.
b.
(1) In the financial statement audits, the factors to be considered are the compliance of these statements with the laws and regulations and internal control over financial reporting.
(2) In performance audits, for the performance audit of program effectiveness, the factors to be considered are the achievement of program goals. For economy and efficiency audits, the factors to be considered are the process of acquiring the resources, protecting them and their usage for achieving the program objectives.