What the 2007 Government Auditing Standards’ Revisions Mean to Michigan Schools
School Advisor, 2007 Issue No. 1  

All Michigan school districts are required to be audited using Generally Accepted Government Auditing Standards (GAGAS), in addition to Generally Accepted Auditing Standards (GAAS). This requirement is not new. However, on January 31, 2007 the Government Accountability Office issued significant revisions to these audit standards. These changes will impact how audits are completed and how results are reported. There is some “good news” in it, however!

First, the Good News: Most of the significant changes will not be effective until the school district’s June 30, 2009 financial statement, federal program, and bond/ sinking fund audits. Now that you think you can stop reading, keep going!

Now, the not so Good News: GAGAS has adopted the new SAS No. 112 on reporting of internal control issues called “significant deficiencies.” It also has adopted the new SAS No. 103 on audit documentation. Both of these changes are required to be implemented for the June 30, 2007 school district financial statement, federal program, and bond/sinking fund audits. Some key implications of these changes include:

• Increased likelihood that internal control issues will be reported as findings in the single audit report. This will apply to all three audit engagements discussed above.
• Changes in how the “letters” read that discuss internal control issues. The letters will include new terminology and may refer to the schedule of findings and questioned costs when a district may have historically not had findings.
• A need to file a “corrective action plan” if federal program internal control findings are identified. The requirement is not new. However, with the change increasing the likelihood that findings will be reported, some districts may be completing a corrective action plan for the first time.
• Increased discussion with the Board of Education regarding why issues that have not been discussed previously are now in the schedule of findings and questioned costs.
• Potential for district not retaining “low-risk auditee” status if certain issues are reported in the schedule of findings and questioned costs. This would mean that in 2008 the number of federal programs required to be tested could increase.
• Increased need to plan the beginning and the end of the audit process to insure completion is smooth and all necessary information (schedules, confirmations, representation letters, and management acceptance of the financial report) are received timely. Now, the audit cannot be “completed” and dated until all these activities are finished.

The GAGAS changes for 2009, located at http://www.gao.gov/govaud/ybk01.htm, are very important and will impact many aspects of how the audit is completed. We will save those issues for another day!

As you plan for this year’s audits, begin to evaluate the issues outlined above. We will be discussing these and other issues with each of our school district clients. We will make sure there is a clear understanding of the changes and help the district plan for the changes. The new requirements will create change, and we hope to help you minimize the impact as much as possible.