materiality in accounting by abe27

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									                                                   Attachment A
                                                2008 Optional Topics

Effective Internal Control in State and Local Government
Public reporting of internal control weaknesses has been part of Government Auditing Standards for several decades.
The Federal Managers’ Financial Integrity Act (FMFIA) in 1982 called for management to make annual assessments of
internal controls across the federal entity. Recently under OMB Bulletin A136, management makes assertions about
internal control. In addition, OMB Bulletin A123 has added requirements for internal control assessments similar to
those in Sarbanes-Oxley. Some state and local governments have adopted similar requirements. What have been the
benefits, costs, scope and nature of these requirements? How effective have the legislative or administrative actions
been at strengthening internal controls in their target government? What information and assurances do users need
and want concerning internal controls?

Effective Internal Control in Federal Government
Public reporting of internal control weaknesses has been part of Government Auditing Standards for several decades.
The Federal Managers’ Financial Integrity Act (FMFIA) in 1982 called for management to make annual assessments of
internal controls across the federal entity. The Federal Financial Management Improvement Act (FFMIA) of 1996
required auditors to report whether federal entity systems met three requirements. Recently under OMB Bulletin A136,
management makes assertions about internal control. In addition, OMB Bulletin A123 has added requirements for
internal control assessments similar to those in Sarbanes-Oxley. What have been the benefits, costs, scope and nature
of these requirements? How effective have the requirements been at strengthening internal controls in their federal
agencies? What information and assurances do users need and want concerning internal controls?

The Role of Controllership in Modern Government Financial Operations
Historically, governmental entities have been driven by different financial and controls goals from those in private
sector entities. Working with taxpayer funds with no direct profit motive, definitions of success and failure have been
more complex and more politically exposed than in private sector entities. Increasingly, prompted by taxpayer and
oversight attention to proper financial and performance challenges, government financial managers have been pressed
to focus on increasing efficiency and effectiveness in controlling public funds. A study of the various roles and functions
defined at state, municipal and federal levels for controllers and chief financial officers (and their offices) would be
beneficial. Such a study could focus on comparisons of models at state, municipal and federal levels; their differing
definitions of authority and responsibility; definition of existing measures of controller effectiveness and the various
models' relative effectiveness in meeting different goals.

Defining and Evaluating the Role of Shared Services in Governmental Financial Operations
Prompted by perceived economies of scale and a desire to normalize like financial functions across different operating
entities, government began decades ago to use shared service centers. Government functions with clear private sector
parallels, such as payroll or debt collection, have been operating in shared environments for many years. Others, such
as travel, audit and the like, are still "finding their way" into shared environments. This study may identify the most
common forms of state and federal shared service arrangements for financial operations and present the models most
often used at both levels. A framework for comparative analysis of the most dominant models may be developed and
used to identify the relative strengths and weaknesses of the most prevalent models along key performance goals,
including efficiency, customer service impact and quality control metrics.

Evaluation of Materiality in Government Financial Reporting and Auditing
Government financial managers use materiality in deciding what to report and disclose and how much misstatement to
allow in their reports. The materiality threshold that the auditor uses in a governmental audit has a significant impact on
the nature, timing and extent of testing. The level set should consider how users use financial statements in making
decisions, what financial statement users consider important in the financial statements, and how much misstatement
they can tolerate before a financial statement is misleading. However, in the public sector, materiality considerations
go beyond the merely quantitative aspects of financial misstatement, and involve qualitative issues that relate to the
importance of retaining the public’s trust in government. Research proposals on how users use financial statements,
the relationship between determinations of materiality for accounting or auditing purposes versus the public’s
perceptions of materiality and significance would be welcome.

Timely Financial Reporting in the Government Environment
Timeliness of the information improves the decision-utility of financial reports. Although the various users of all
government financial reports deserve timely information to support their decision-making, federal, state and local
governments vary markedly in the timeliness of their financial reporting. Research examining and documenting those
factors that contribute to timely versus untimely reporting among and between different government entities could
provide insights and best practices to the government accounting community. Research may include characteristics of
government entities that fall along the spectrum of timeliness in financial reporting.

Using Generally Accepted Accounting Principles in Government Decision Making
The budget is state and local governments’ major financial decision-making process. Few if any of these budgets are
prepared in accordance with Generally Accepted Accounting Principles (GAAP). Although the governmental entity’s
annual financial report (CAFR) provides information that would be useful during this process, it has seldom been used.
Reasons for the “disconnect” between government’s plan (budget) and its annual report (CAFR) include timing issues
and incompatible accounting approaches. Specifically, a governmental entity’s GAAP based comprehensive annual
financial report (CAFR) provides information usually materially divergent with that developed in the budget process.
Research examining and documenting the availability and use of the CAFR information during the budget process
could provide insights and best practices to government accounting community. Research should include reasons why
GAAP is not used in preparing budgets and ways to make the CAFR information more useful during this process.

Relationship and Organization Dynamics between CFO & CIO and How It Affects Service Delivery to
Taxpayers
The Chief Financial Officer (CFO) and Chief Information Officer (CIO) relationship and organizational dynamics
significantly impact many aspects of the organization, including service delivery to taxpayers. The Chief Financial
Officers (CFO) Act of 1990 established the CFO in the federal government. Many state and local government
organizations also include CFO (controller) leadership. A study of the organizational reporting structure and inter-
relationship of CFO’s and CIO’s that compares and contrasts effective service delivery of the entities would provide the
government accounting community with information on successful organizational structure.

Single Audit Act
What have been the results both positive and negative of the Act? Have the objectives of the act been achieved both
by the Federal program agencies and the state audit community? A study of the progress and any suggested changes
may contribute to the governmental financial community.




Note: The above topics are not the only topics of interest to the Academy Board of Trustees. Other topics related to
government financial management or auditing, especially if it involves fiscal responsibility through citizen empowerment,
will be considered for funding.

								
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