In this video, we walk through 5 AUD practice questions teaching about single audits. These questions are from AUD content area 2 on the AICPA CPA exam blueprints: Assessing Risk and Developing a Planned Response.
The best way to use this video is to pause each time we get to a new question in the video, and then make your own attempt at the question before watching us go through it.
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Single Audits
Single audits are a critical requirement for entities that receive federal funding, ensuring accountability and compliance with federal regulations. This article breaks down key aspects of single audits, including when they are required, how federal awards are identified, and how major programs are determined.
What Is a Single Audit?
A single audit is an engagement that combines two main components:
- A financial statement audit performed under Generally Accepted Government Auditing Standards (GAGAS).
- A compliance audit focused on how an entity spends federal funds, ensuring they are used according to federal laws and regulations.
For example, if a nonprofit organization receives federal grants for disaster relief, a single audit would confirm that these funds were spent appropriately and in compliance with grant agreements.
When Is a Single Audit Required?
Entities that expend $750,000 or more in federal awards during a fiscal year must undergo a single audit. This threshold was increased to $1,000,000 in October 2024, but the CPA exam appears to still test the previous limit.
For example, if a city government receives $1.2 million in federal funds to repair roads and enhance public transportation, it would need a single audit to verify proper fund usage and compliance with federal regulations.
Auditor Responsibilities in a Single Audit
During a single audit, the auditor is responsible for:
- Determining compliance with federal laws, regulations, and grant provisions.
- Assessing whether management has identified and addressed regulations that have a direct and material effect on the financial statements.
- Evaluating internal controls related to compliance with federal requirements.
For instance, if a university receives federal research grants, the auditor must ensure the institution complies with spending restrictions and reporting obligations.
Identifying Federal Awards
Federal awards come in various forms, including:
- Grants (e.g., an education grant from the Department of Education)
- Cooperative agreements
- Loan guarantees (e.g., small business loan programs backed by the SBA)
- Donated property (e.g., surplus government equipment provided to nonprofits)
Auditors identify federal awards by examining grant agreements, contracts, and financial records to determine funding sources. For example, if a state government receives federal funds and distributes them to local governments, the local governments act as subrecipients and must comply with federal audit requirements.
Determining Major Programs in a Single Audit
Auditors must identify major programs using a risk-based approach, considering:
- Program size (larger programs are more likely to be major)
- Prior audit findings (programs with past issues may be high-risk)
- Complexity of compliance requirements (some programs have more extensive regulations)
- Changes in program operations (new or significantly modified programs may have greater risk)
For example, if a nonprofit receives multiple federal grants, an auditor would assess each grant based on these risk factors to determine which ones require in-depth compliance testing.
Conclusion
Single audits are essential for maintaining financial transparency and ensuring federal funds are used properly. Understanding when a single audit is required, how federal awards are identified, and how major programs are determined is crucial for compliance with the Uniform Guidance. Organizations receiving federal funds must work closely with auditors to meet these requirements and avoid potential issues related to noncompliance.
