a

GAO

United States General Accounting Office

Financial Management and Assurance

December 2001 FINANCIAL AUDIT 

GUIDE

Auditing the 

Statement of 

Budgetary Resources

GAO-02-126G

Page i GAO-02-126G Guide for Auditing the SBR

Preface 1

Introduction 3

Using This Guide 3

Other Matters Related to This Guide 4

Appendix I SBR Preparation and Linkage to the President’s

Budget 5

Appendix II Linkage Between SBR and the President’s Budget 8

Appendix III Issues Related to the Preparation and Audit of the

SBR 11

Appendix IV Audit Guidance 13

I. Planning Phase 14

II. Internal Control Phase 18

III. Testing Phase 22

IV. Integration of Budgetary and Proprietary Accounting Testing 38

V. Presentation and Disclosure 39

VI. Overall Analytical Procedures 42

VII. Required Supplementary Information 42

Figures

Figure 1: Example of Combining SBR Supplementary Information 8

Figure 2: Example of a President’s Budget P&F Schedule 9

Figure 3: Budgetary Resources Section of the SBR (Effective for

Fiscal Year 2001) 24

Figure 4: Budgetary Resources Section of the SBR (Effective for

Fiscal Year 2002) 25

Figure 5: Status of Budgetary Resources Section of the SBR

(Effective for Fiscal Year 2001) 30

Contents
Page ii GAO-02-126G Guide for Auditing the SBR

Figure 6: Status of Budgetary Resources Section of the SBR

(Effective for Fiscal Year 2002) 30

Figure 7: Outlays Section of the SBR (Effective for Fiscal Year

2001) 33

Figure 8: Revised Outlays Section of the SBR (Effective for Fiscal

Year 2002) 33

Abbreviations

FACTS II Federal Agencies’ Centralized Trial Balance System II

FASAB Federal Accounting Standards Advisory Board

FFMIA Federal Financial Management Improvement Act

GAAP Generally Accepted Accounting Principles

OIG Office of Inspector General

OMB Office of Management and Budget

P&F Program and Financing Schedule of the President’s Budget

PCIE President’s Council on Integrity and Efficiency

SFFAS Statement of Federal Financial Accounting Standards

SBR Statement of Budgetary Resources

USSGL United States Standard General Ledger
Page 1 GAO-02-126G Guide for Auditing the SBR

Preface

Federal financial reporting should assist in fulfilling the government’s duty

to be publicly accountable for moneys raised from the public and for their

expenditure in accordance with applicable laws that establish the budget

and other related laws and regulations. As a means to help achieve this

objective, beginning with fiscal year 1998, executive agencies subject to

the Chief Financial Officers (CFO) Act of 1990, as expanded by the

Government Management Reform Act of 1994, were each required to

prepare and submit for audit a Statement of Budgetary Resources (SBR) in

addition to the other required financial statements.

The SBR and related disclosures provide information about budgetary

resources made available to an agency as well as the status of those

resources at the end of the fiscal year. The SBR and related note

disclosures serve as a tool to link budget execution data in an agency’s

financial statements to information reported in the “actual” column of the

Program and Financing (P&F) Schedules in the Appendix of the Budget of

the United States Government (hereafter referred to as the “President’s

Budget”). Coupled with the analysis of other budgetary data, the SBR’s

linkage to the President’s Budget provides a means to help assess the

reliability of budgetary data reported in the President’s Budget. The proper

preparation and audit of the SBR is key to this assessment.

Audit guidance in this document is intended to help auditors comply with

Generally Accepted Government Auditing Standards (GAGAS) as well as

implement the Office of Management and Budget (OMB) Bulletin No. 01-

02, Audit Requirements for Federal Financial Statements, and the GAO

and the President’s Council on Integrity and Efficiency (PCIE) Financial

Audit Manual.

To facilitate its use, this guide is located on the Internet on GAO’s home

page (www.gao.gov) under the heading “Other Publications” and the

subheading “Accounting and Financial Management.” Additional copies of

this guide can be obtained from the U.S. General Accounting Office,
Page 2 GAO-02-126G Guide for Auditing the SBR

Room 1100, 700 4th St. NW, Washington, D.C. 20548, or by calling (202)

512-6000, or TDD (202) 512-2537.

Linda M. Calbom

Director, Financial Management and Assurance
Introduction

Page 3 GAO-02-126G Guide for Auditing the SBR

The audit of the SBR and related disclosures provides the means to assess

the reliability of reported budget execution data and a tool to help assess

the reliability of the amounts reported as “actual” in the President’s

Budget. The audit also includes the testing of significant provisions of

relevant laws and regulations that have a direct and material effect on the

financial statements, including budget restrictions.

Our previous review of the documentation related to the preparation and

audit of the SBR showed that the SBR was not always properly audited

and that explanations of material differences between the SBR and the

President’s Budget were not always disclosed as required. The inability to

properly audit the SBR and the lack of explanations for differences

between amounts in the SBR and comparable amounts in the President’s

Budget, breaks the linkage between these documents and limits the ability

to assess the reliability of budget execution data.

This guide provides the auditor with a tool for designing audit procedures

for budgetary accounts. It should be understood that this guide is not an

authoritative part of auditing standards and is solely intended as a

supplemental guide to help auditors comply with GAGAS and OMB audit

guidance. It focuses on matters that the auditor should consider during the

SBR audit and should be used in conjunction with the OMB Bulletin No.

01-02 and the GAO/PCIE Financial Audit Manual. In addition, due to

differences in agency budgets as well as in their systems, procedures, and

controls, the auditor should use professional judgment interpreting this

guidance and in designing and executing the appropriate audit steps to

achieve the SBR audit objectives.

This guide includes four appendixes which provide (1) general information

on the preparation of the SBR and its linkage to the President’s Budget,

(2) an example of how SBR information presented in supplementary

schedules can be linked to information in the President’s Budget,

(3) information about certain issues related to the preparation and audit of

the SBR, and (4) guidance to assist auditors in developing audit plans and

programs for their audits of the SBRs.

Audit guidance in appendix IV of this guide includes information and

suggested procedures for the SBR that auditors should perform during the

planning, internal control, and testing phases of the audit. The testing

section is focused on the SBR format used in OMB Bulletin No. 97-01,

Form and Content of Agency Financial Statements. It includes a general

Introduction

Using This Guide
Introduction

Page 4 GAO-02-126G Guide for Auditing the SBR

description of the line items, risks, and audit objectives and guidance

related to the existence and completeness financial statement assertions.

For fiscal years beginning after September 30, 2001, OMB Bulletin 01-09,

Form and Content of Agency Financial Statements, revised the form and

content of the SBR. Information related to these form and content changes

is included in appendix I of this guide.

A previous draft of this guide was provided to officials from OMB and the

24 CFO agencies’ offices of inspectors general (OIG) for their review and

comment. Officials from OMB and the OIGs generally agreed with the

guide and provided comments, which were incorporated in this guide as

appropriate. In addition, OMB officials reviewed changes made to this

guide resulting from the OMB Bulletin No. 01-09, and their comments were

incorporated as applicable.

Other Matters Related

to This Guide
Appendix I: SBR Preparation and Linkage to

the President’s Budget

Page 5 GAO-02-126G Guide for Auditing the SBR

The SBR and its linkage to the President’s Budget are key components of

the federal financial accounting and reporting framework designed to

achieve “budgetary integrity.” Budgetary integrity, as defined by the

Federal Accounting Standards Advisory Board’s (FASAB)1

 accounting

concepts, means that federal financial reporting should assist in fulfilling

the government’s duty to be publicly accountable for moneys raised

through taxes and other means and for their expenditure in accordance

with related laws and regulations. In particular, FASAB’s Statement of

Federal Financial Accounting Concepts No. 1, Objectives of Federal

Financial Reporting, states that federal financial reporting should provide

information that helps users determine

• how budgetary resources have been obtained and used and whether their

acquisition and use were in accordance with legal authorization and

• the status of budgetary resources.

An additional aspect of the budgetary integrity objective, which is not the

focus of this guide, is to help users determine how information on the use

of budgetary resources relates to information on the cost of program

operations, and whether information on the status of budgetary resources

is consistent with other accounting information on assets and liabilities.

This objective can be best achieved through the preparation of the

Statement of Financing.

OMB issues guidance on the form and content of federal agencies’

financial statements, including the SBR. As mentioned before, OMB

Bulletin No. 97-01, Form and Content of Agency Financial Statements, as

amended was superseded by OMB Bulletin No. 01-09, Form and Content

of Agency Financial Statements, which contains changes that affect the

SBR’s form and content, effective for fiscal years beginning after

September 30, 2001. Major revisions to the SBR form and content include

the addition of

• a separate column for Non-Budgetary Credit Program Financing Accounts

and

• a new Offsetting Receipts line item to arrive at agencywide net outlays.

 1

FASAB promulgates generally accepted accounting principles for federal government

financial statement reporting to address the financial information needs of the Congress,

executive agencies, and other users of federal financial information. Budgetary integrity is

the first reporting objective of FASAB’s framework.

Appendix I: SBR Preparation and Linkage to

the President’s Budget
Appendix I: SBR Preparation and Linkage to

the President’s Budget

Page 6 GAO-02-126G Guide for Auditing the SBR

In addition, to help ensure consistency between amounts in the SBR and

budget execution reports, OMB added more detailed SBR line item

components to assist agencies in identifying the proper placement of

information on the statements. OMB guidance states that lines may be

combined, using discretion, where balances are related in nature;

however, material components should continue to be displayed separately

on the face of the statement or in a note disclosure.

According to OMB guidance, agencies are to report budgetary information

in the SBR based on budget terminology, definitions, and guidance issued

in OMB Circular No. A-34, Instructions on Budget Execution. OMB

guidance also states that information on the SBR should be consistent

with budget execution information reported in the President’s Budget and

the SF 133, Report on Budget Execution and Budgetary Resources. The

SF 133 reports are submitted to OMB by agencies so that OMB can

monitor compliance with the appropriation and apportionment

requirements to ensure adequate funds control.

The U.S. Standard General Ledger (USSGL) accounts and instructions to

prepare the SBR and the SF 133 are generally the same and should result

in minimal or no differences in the information reported in the two

documents. The SBR is prepared using general ledger account balances,

and the SF 133s and most of the President’s Budget “actuals” are prepared

using general ledger amounts submitted to OMB through the Federal

Agencies’ Centralized Trial Balance System (FACTS) II.2

Since the underlying information for these documents is similar, amounts

in the SBR should be able to be linked to amounts in the “actual” column

of the P&F Schedule.3

 (See appendix II for an illustration of the linkage

between the SBR and the President’s Budget.) However, differences in

amounts may exist between the SBR and the President’s Budget because

 2

FACTS II is a Treasury-run system that agencies use to submit one set of financial data

(mostly budgetary and some proprietary using USSGL account structure) that fulfills the

needs of the SF 133, FMS 2108 Year-End Closing Statement, and much of the information

included in the prior year column (actuals) of the P&F Schedules.

3

The linkage between the SBR and the President’s Budget P&F Schedule is evident when

SBR information is organized by budgetary account, as in the supplementary information

section of the financial statements, provided that accounts are aligned with the budget

accounts as they appear in the President’s Budget. OMB Circular No. A-34 provides a

crosswalk from the SF 133 to the P&F Schedule actuals, which is helpful when reconciling

amounts reported. The Treasury Financial Manual USSGL supplement contains crosswalks

from the USSGL to the SF 133, P&F Schedules, and FMS 2108.
Appendix I: SBR Preparation and Linkage to

the President’s Budget

Page 7 GAO-02-126G Guide for Auditing the SBR

of (1) reporting requirement differences between the guidance used to

prepare the SBR and the guidance used for recording the actuals in the

President’s Budget,4 (2) the fact that budgetary information is submitted

for the President’s Budget prior to the completion of most agency audits

(timing differences) causing audit adjustments not to be reflected in the

President’s Budget balances, and (3) there may be errors in either the SBR

or the President’s Budget.

Recognizing that there may be differences between the amounts presented

in the SBR and in the President’s Budget, generally accepted accounting

principles (GAAP), specifically Statement of Federal Financial Accounting

Standards (SFFAS) No. 7, Accounting for Revenue and Other Financing

Sources and Concepts for Reconciling Budgetary and Financial

Accounting, requires agencies to provide financial statement note

explanations of material differences between amounts presented in the

SBR and amounts described as “actual” in the President’s Budget. (See

section V of appendix IV for information on this and other required

disclosures related to the SBR and refer to SFFAS No. 7 and OMB’s form

and content guidance for additional required disclosures.)

In addition, OMB Bulletin No. 01-09, will require agencies, beginning with

fiscal year 2002, to disclose material differences between comparable

amounts in the SBR, SF 133s and the “actuals” in the President’s Budget.

Because of this, the auditor should understand the agencies’ process for

verifying the accuracy of USSGL data entered into the FACTS II system.

The auditor also needs to determine whether controls exist to ensure that

amounts in the USSGL and amounts submitted (including subsequent

adjustments) via FACTS II agree, and test controls where necessary.

 4

OMB Circular No. A-34 is the guidance used to prepare the SF 133s and the SBR, and OMB

Circular No. A-11, Preparation and Submission of Budget Estimates, is the guidance used

to report the “actuals” in the President’s Budget.
Appendix II: Linkage Between SBR and the

President’s Budget

Page 8 GAO-02-126G Guide for Auditing the SBR

The following example shows how SBR information by major budget

accounts included in the supplementary section of the financial statements

can be linked to related information reported in the President’s Budget.

This example was also incorporated in a prior GAO report entitled Federal

Accounting and Reporting: Framework for Assessing the Reliability of

Budget Execution Data Is Not Yet Fully Implemented.

1

 As previously

discussed, OMB guidance for preparing agencies’ financial statements was

changed and the new guidance changes the SBR format effective in fiscal

year 2002. Even though the SBR will change, the substance of the

information is the same, and figures 1 and 2 demonstrate how amounts

can be linked. An explanation of the linkage follows figure 2.

Figure 1: Example of Combining SBR Supplementary Information

Source: Fiscal Year 1999 Health Care Financing Administration Financial Report, Combining

Statement of Budgetary Resources (Supplementary Information Section).

 1

GAO-01-43, October 6, 2000.

Appendix II: Linkage Between SBR and the

President’s Budget

1

2

3
Appendix II: Linkage Between SBR and the

President’s Budget

Page 9 GAO-02-126G Guide for Auditing the SBR

Figure 2: Example of a President’s Budget P&F Schedule

Note: Minor differences between the P&F Schedule and the SBR are due to rounding.

Source: Budget of the United States Government, Fiscal Year 2001—Appendix.

HEALTH CARE FINANCING ADMINISTRATION

 Federal Funds

General and Special Funds: 

 GRANTS TO STATES FOR MEDICAID

*

*

 2

 3

 1

Detail

of 73.10

Detail

of 73.20

Detail

of 22.00
Appendix II: Linkage Between SBR and the

President’s Budget

Page 10 GAO-02-126G Guide for Auditing the SBR

Note that circled items 1, 2, and 3 on the SBR relate to data in the “actual”

column in the P&F Schedule. For example, “Total Budgetary Resources”

of $112,258 in the SBR, equals line 23.90 entitled “Total Budgetary Sources

Available for Obligation” in the P&F Schedule. Other sections of the P&F

Schedule, such as “New budget authority (gross), detail,” provide detailed

information about other P&F Schedule lines. For example, lines 60.00

through 70.00 in the P&F Schedule in figure 2 provide the detail for the

“New budget authority” line, which is included in the circled item 1 and

also as “Budget authority” in the Budgetary Resources section of the SBR

in figure 1. However, as discussed previously, differences may exist

between the two documents, and the linkage may not be clear without

proper reconciliation.
Appendix III: Issues Related to the

Preparation and Audit of the SBR

Page 11 GAO-02-126G Guide for Auditing the SBR

Our work on 22 major budgetary accounts at 10 federal agencies,

constituting approximately 77 percent of total federal fiscal year 1999 net

outlays, showed that several agencies did not fully implement the

accounting and reporting framework to prepare their SBRs. This limited

the capability to determine the reliability of budget execution information

in the SBRs and therefore in the President’s Budget.1

We found that

• data quality problems, which affected the financial statements, including

the SBRs, precluded the auditor’s determination of the reliability of the

amounts presented and

• lack of disclosure of significant differences between the SBRs and the P&F

Schedules resulted in the inability to reconcile amounts in these two

documents and therefore to assess the reliability of budget execution data.

Our review of financial statement audits also showed that some audit

workpapers lacked evidence that adequate SBR audit procedures were

performed. For example we found the following.

• Workpapers for the audit of one budgetary account reviewed did not

include audit programs or other key documentation, such as audit

summary memos, indicating that tests were performed for significant SBR

line items and describing the test results. Therefore, it was not evident

whether the procedures performed were adequate.

• For two audits, auditors indicated that they relied on their work on

proprietary accounts to obtain assurance over certain SBR balances.

However, there was no documented link between the proprietary account

amounts and those in the SBRs.

In addition, a separate review of another agency disclosed that the SBR

was misstated by hundreds of millions of dollars because the agency

misinterpreted applicable guidance and made errors in the ad hoc process

used to generate the budgetary information. Agency auditors did not

detect this misstatement because insufficient audit work was performed.2

 1

Federal Accounting and Reporting: Framework for Assessing the Reliability of Budget

Execution Data Is Not Yet Fully Implemented (GAO-01-43, October 6, 2000).

2

Financial Management: Misstatement of NASA’s Statement of Budgetary Resources

(GAO-01-438, March 30, 2001).

Appendix III: Issues Related to the

Preparation and Audit of the SBR
Appendix III: Issues Related to the

Preparation and Audit of the SBR

Page 12 GAO-02-126G Guide for Auditing the SBR

Under FASAB’s accounting framework, reliable SBR information is key in

helping determine the reliability of budget execution data in the

President’s Budget. For this reason, agencies need to properly prepare the

SBRs and reconcile budget execution data included in the SBR to data in

the President’s Budget to determine and report on any significant

differences. Auditors also need to perform adequate procedures to render

opinions on whether the SBRs are fairly stated. Failure to do so limits the

assurance on related amounts included in the President’s Budget. In

addition, because outlays reported in the P&F Schedules are used along

with receipts and other amounts in determining the amount of the annual

federal budget surplus or deficit, the successful implementation of

FASAB’s framework provides the means to help assess the reliability of

that calculation as well.3

 3

The lack of evidence that sufficient audit procedures were performed increases the risk

that, if significant errors exist in agency financial statements, including the SBR, they will

not be detected by the auditor and will lead to an inappropriate audit opinion.
Appendix IV: Audit Guidance

Page 13 GAO-02-126G Guide for Auditing the SBR

An effective audit of the SBR, including related note disclosures, provides

users of agency financial statements with a mechanism to help assess the

reliability of budgetary data presented in the “actual” column of the

President’s Budget P&F Schedules.1

Government auditing standards2 require auditors of agency financial

statements to (1) report on whether financial statements as a whole are

fairly presented in all material respects in conformity with GAAP,

(2) obtain a sufficient understanding of internal control to plan the audit

and determine the nature, timing, and extent of tests to be performed, and

report internal control weaknesses, and (3) test compliance with laws and

regulations that have a direct and material effect on the financial

statements and report identified instances of noncompliance. These

standards also require that auditors obtain sufficient competent evidential

matter through inspection, observation, inquiries, and confirmations to

afford a reasonable basis for an opinion on the financial statements, and

that audit workpapers contain sufficient information to enable an

experienced auditor having no previous connection with the audit to

ascertain from them the evidence that supports the auditors’ significant

conclusions and judgments.

In addition, OMB Bulletin No. 01-02, Audit Requirements for Federal

Financial Statements, requires auditors to assess the level of control risk

relevant to the assertions embodied in the classes of transactions, account

balances, and disclosure components of the financial statements. For

controls that have been placed in operation, the auditor should perform

sufficient tests to support a low assessed level of control risk, and report

on those internal controls that have not been properly designed or placed

 1

Auditors use the concept of materiality in determining the scope of the financial audit and

in deciding on the opinion to be rendered on the financial statements. Thus, it is important

to note that even if the opinion is unqualified, complete assurance over all amounts

presented is not provided by the audit. In addition, unqualified audit opinions do not

guarantee that agencies have the financial systems needed to consistently produce reliable

financial information. Adequate systems and effective internal controls are essential to

reach the goal of useful, relevant, and reliable data to support decision-making on a day-today basis. Further, an unqualified audit opinion may be issued even if there is

noncompliance with applicable laws, such as the Antideficiency Act, if the effects of the

noncompliance are not material to the financial statements. Noncompliance is reported in

the compliance section of the audit report.

2

See the Comptroller General’s Government Auditing Standards (GAO/OCG-94-4, June

1994). For financial statement audits, these standards incorporate the American Institute of

Certified Public Accountants’ generally accepted audit standards.

Appendix IV: Audit Guidance
Appendix IV: Audit Guidance

Page 14 GAO-02-126G Guide for Auditing the SBR

in operation and those internal controls that are found to be ineffective.

For compliance with laws and regulations, OMB requires testing of laws

that could have a direct and material effect on the financial statements,

including laws governing the use of budget authority, and any other laws

identified in appendix C3

 of its bulletin on audit requirements.

Auditors also should perform tests and report whether the entity’s systems

comply with requirements of section 803(a) of the Federal Financial

Management Improvement Act of 1996 (FFMIA), which states that “each

agency shall implement and maintain financial management systems that

comply substantially with federal financial management systems

requirements, applicable federal accounting standards, and the United

States Government Standard General Ledger (USSGL) at the transaction

level.”

This document focuses on matters the auditor should consider during the

planning, internal control, and testing phases of the SBR audit. Due to

differences in agency budgets as well as in their systems, procedures, and

controls, the auditor should use professional judgment in designing and

executing the appropriate audit steps to achieve the objective of the SBR

audit.4 In addition, certain audit procedures performed for the proprietary

accounts may be used to satisfy the objectives of the SBR audit. Examples

of testing procedures that combine budgetary and proprietary accounting

are included in section IV of this appendix.

During the planning phase, the auditor determines an effective and

efficient way to obtain the evidence necessary to report on the entity’s

financial statements. The nature, extent, and timing of planning varies with

the entity’s size and complexity, the auditor’s experience with the entity,

and the auditor’s knowledge of the entity’s operation. Typical audit

 3

Appendix C of OMB Bulletin No. 01-02 includes, for example, provisions from the

Antideficiency Act, the Prompt Payment Act, and the Federal Credit Reform Act of 1990.

4

The objective of auditing the SBR is to determine whether the SBR as a whole is fairly

presented in all material respects in conformity with GAAP. To achieve this objective,

auditors need to obtain sufficient understanding of budgetary controls to plan the SBR

audit and determine the nature, timing, and extent of tests to be performed, and whether

budgetary resources were executed in compliance with applicable laws and regulations

that have a direct and material effect on the SBR.

I. Planning Phase
Appendix IV: Audit Guidance

Page 15 GAO-02-126G Guide for Auditing the SBR

planning procedures are described in the GAO/PCIE Financial Audit

Manual.5

Typical audit planning procedures for financial statements, including the

SBR, include

• determining planning, design, and test materiality;

• identifying significant line items, accounts, and relevant assertions;

• identifying significant provisions of laws and regulations;6

• performing preliminary analytical procedures;

• identifying significant accounting applications7 and financial management

systems;

• assessing risk factors;8 and

• determining the likelihood of effective information systems (IS) related

controls.

In addition to these typical procedures, because the SBR uses budgetary

accounting, in planning the audit of the SBR, the auditor generally should

understand and document

• the agency’s appropriations structure;

• the types of budget authority the agency receives as well as the purpose,

amount, and period of availability of that authority;

• budget restrictions; and

• whether the agency may reprogram or transfer budget authority and under

what circumstances.

 5

The GAO/PCIE Financial Audit Manual can be accessed on GAO’s home page

www.gao.gov, by clicking “other publications,” and then “Accounting and Financial

Management,” or on the IGnet at www.ignet.gov/pande/audit.html.

6

A provision should be considered significant if (1) compliance with the provision can be

measured objectively, and (2) the provision has a material effect on determining financial

statement amounts.

7

Accounting applications are the procedures and records used to identify, record, process,

summarize, and report a class of transactions. Applications related to the SBR include, for

example, obligations, purchasing, disbursements, and outlays.

8

In the planning phase, the auditor should identify conditions that significantly increase

inherent, fraud, and control risk (based on identified control environment, risk assessment,

communication, and monitoring weaknesses). The auditor can read the prior year audit

report to determine if weaknesses reported have an effect on the information being tested.

For example, weaknesses in the agency’s reconciliation of its fund balance with Treasury

can affect the preliminary assessment of the reliability of the outlays in the SBR.
Appendix IV: Audit Guidance

Page 16 GAO-02-126G Guide for Auditing the SBR

To understand the financial statement reporting requirements for the SBR,

the auditor should read the following:

• SFFAS No. 7, Accounting for Revenue and Other Financing Sources and

Concepts for Reconciling Budgetary and Financial Accounting

(applicable SBR sections);

• OMB Bulletin No. 97-01, Form and Content of Agency Financial

Statements, as amended, or OMB Bulletin No. 01-09, Form and Content of

Agency Financial Statements (effective beginning in fiscal year 2002);

• OMB Circular No. A-34, Instructions on Budget Execution; and

• OMB Circular No. A-11, Preparation and Submission of Budget

Estimates.

To understand the agency’s budget structure and other relevant

information, the auditor should read the following information relating to

the entity’s budget authority for the period covered by the audit:

• enabling legislation;

• authorizing legislation;

• applicable appropriation and supplemental appropriation acts;

• apportionment and budget execution reports (SF 132s and SF 133s);

• Impoundment Control Act reports regarding rescissions and deferrals, if

any;

• the system of fund controls approved by OMB; and

• any other information relevant to the entity’s budget authority.

To evaluate budget controls and budget restrictions, and to design

compliance-related audit procedures during the internal control and

substantive phases, the auditor should understand the following:

• the Antideficiency Act (31 U.S.C. 1341, 1342, 1351, 1517);

• the Purpose Statute (31 U.S.C. 1301);

• the “Bona Fide Needs” (Time) Statute (31 U.S.C. 1502);

• the Impoundment Control Act (2 U.S.C. 681-688);

• title 7 of the GAO Policy and Procedures Manual for Guidance of Federal

Agencies;

• the Federal Credit Reform Act of 1990 (2 U.S.C. 661-661f.);

• GAO’s Principles of Federal Appropriations Law (Second edition); and

• budgetary accounting concepts and terminology, as found in Basic Topics

Relating to Appropriations and Reimbursables (GAO/AFMD-PPM-2.1).

The auditor also should review the lists of laws and regulations that OMB

and the entity have determined might be significant. OMB Bulletin No. 01-
Appendix IV: Audit Guidance

Page 17 GAO-02-126G Guide for Auditing the SBR

02, appendix C, provides a list of general laws the auditor should consider

and those specific provisions the auditor must test at a minimum.

Planning is an iterative process performed throughout the audit. For

example, findings from the internal control phase could affect planned

substantive procedures. Also, the results of control and substantive testing

can require changes in the planned audit approach. For additional

planning procedures, refer to section 200 of the GAO/PCIE Financial

Audit Manual. In particular, sections 250, 260, and 295G contain budgetrelated information.

The auditor should document relevant information obtained during the

planning phase in documents such as the Entity Profile, General Risk

Analysis (GRA), and Account Risk Analysis (ARA), described in detail in

section 290 of the GAO/PCIE Financial Audit Manual. With respect to the

SBR, the auditor should include in these documents the following types of

information.

• The Entity Profile or equivalent should include information about the

agency’s budgetary accounting system and structure. For example, the

auditor should include a description of the budgetary accounting system

and whether it is integrated with the proprietary accounting systems.

Regarding the agency’s budgetary structure, the auditor generally should

document (1) the type of budgetary resources (i.e., appropriations,

contract authority, etc.), (2) whether the agency has spending authority

from offsetting collections, and (3) any restrictions to the use of budgetary

resources.

• The GRA or equivalent should include relevant provisions of laws and

regulations and budgetary restrictions that should be considered when

testing compliance with provisions’ requirements.

• The ARA or equivalent should identify significant SBR line items,

accounts, accounting applications and the inherent, fraud, and control risk

factors. The ARA serves as the link between the results of the internal

control risk assessment and planned substantive testing. It should be

updated throughout the audit to include a final risk assessment based on

the results of control and substantive tests.

For additional information on documentation prepared during the

planning phase, refer to section 290 of the GAO/PCIE Financial Audit

Manual.

Documentation
Appendix IV: Audit Guidance

Page 18 GAO-02-126G Guide for Auditing the SBR

During the internal control phase,9 the auditor (1) assesses control risk,

(2) determines the nature, timing, and extent of control, compliance, and

substantive testing, and (3) determines control weaknesses and, if

appropriate, forms an opinion and/or reports on internal control over

financial reporting and compliance. The auditor should assess control risk

separately for each significant financial statement assertion in each

significant cycle/accounting application. The effectiveness of budget and

compliance controls is a factor in determining the nature, timing, and

extent of substantive testing of the SBR.

Internal control as it relates to the SBR is a process effected by the

agency’s management and other personnel that is designed to provide

reasonable assurance that transactions

• are properly recorded, processed, and summarized to permit the

preparation of the SBR in conformity with GAAP and

• are executed in accordance with (1) laws governing the use of budget

authority and other laws and regulations that could have a direct and

material effect on the SBR and (2) any other laws, regulations, and

governmentwide policies identified in OMB guidance.

Budget controls may be both financial reporting and compliance controls.

Budget controls that provide reasonable assurance that budgetary

transactions, such as obligations and outlays, are properly recorded,

processed, and summarized to permit the preparation of the SBR in

conformity with GAAP are financial reporting controls. Budget controls

that provide reasonable assurance that transactions are executed in

accordance with laws governing the use of budget authority are

compliance controls. See additional information in section 295G of the

GAO/PCIE Financial Audit Manual.

 9

For information on standards for internal control in the federal government, refer to our

Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1,

November 1999). These standards provide an overall framework for establishing and

maintaining internal control. In addition, OMB Circular No. A-123, Management

Accountability and Control, revised June 21, 1995, provides guidance to federal managers

on improving the accountability and effectiveness of federal programs and operations by

establishing, assessing, correcting, and reporting on management controls.

II. Internal Control

Phase
Appendix IV: Audit Guidance

Page 19 GAO-02-126G Guide for Auditing the SBR

During the internal control phase, the auditor should do the following:

• Understand the agency’s information systems for financial reporting,

specifically, the processes for (1) establishing, recording, and monitoring

appropriations, obligations, and outlays, (2) monitoring transactions in

expired accounts, and (3) preparing the SBR.

• Understand the relationship of budgetary to proprietary accounts and

what documentation constitutes evidence of transactions.10

• Understand how the agency reconciles information in the SBR to

information reported in the President’s Budget.

• Determine whether the agency has a system in place to review

unliquidated obligations to determine if remaining obligations are still

needed or should be deobligated.

• Understand the agency’s policies and procedures for recording recoveries

of prior year obligations and upward and downward adjustments.

• Understand the agency’s system for ensuring compliance with laws and

regulations, including, for example, how it (1) identifies and documents

significant provisions of laws and regulations related to budget execution

and (2) monitors changes in laws and regulations that affect the amount of

resources available for obligation.

• Identify agency control activities related to budget data that effectively

achieve its control objectives, including, for example, assessing whether

agencies have controls in place to

• ensure that transactions are recorded in the proper program/account,

• monitor expired budget authority and related accounts so that only

authorized transactions are recorded, and

• monitor closed accounts and budget restrictions.

• Determine the nature, timing, and extent of control testing.

• Perform tests that do not involve sampling, such as walkthroughs and

observations (nonsampling control tests), to assess the effectiveness of

budget controls. (Sampling control tests, if necessary, are typically

performed in the testing phase.)

 10Understanding the relationship between proprietary and budgetary accounts is essential

to maximize efficiency when planning substantive testing. (For additional information,

refer to section IV of this appendix.) Examples of supporting documentation include

appropriations acts, list of budgetary restrictions, Treasury Warrants, Apportionment and

Reapportionment Schedule (Form SF 132), agency’s documentation for allocating funds

(allotments), agency’s policies and procedures related to budgetary information, list of

adjustments made to budgetary accounts, Reports on Budget Execution and Budgetary

Resources (Form SF 133), contracts, purchase orders, and travel orders. Supporting

documents may vary by agency.
Appendix IV: Audit Guidance

Page 20 GAO-02-126G Guide for Auditing the SBR

• Evaluate the results of the nonsampling control tests and assess the

effectiveness of budget controls on a preliminary basis.

In addition to the controls and compliance information provided above,

auditors should test whether the agency’s systems comply with the

requirements of FFMIA. To do this, auditors should assess and report

whether the agencies’ financial management systems substantially comply

with federal financial management systems requirements, applicable

federal accounting standards, and the SGL at the transaction level. These

requirements are detailed in the Financial Management Systems

Requirements series issued by the Joint Financial Management

Improvement Program (JFMIP), and in OMB Circular No. A-127, Financial

Management Systems, as revised by Transmittal Memorandum No. 2

dated June 10, 1999.

An example of systems requirements that relates to budget controls is the

requirement that each agency establish a system to ensure that it does not

obligate or disburse funds in excess of those appropriated and/or

authorized. This is called the “funds management function.” In establishing

the funds management function, an agency ensures that its core financial

system provides, among other things, (1) the ability to track changes to

budget authority and (2) appropriate warnings and controls to ensure that

budgetary limitations are not exceeded to avoid overobligating or

overspending. To assist auditors in reviews of financial management

systems under the requirements of FFMIA, a series of checklists have been

developed to ensure that the agency’s financial systems comply with

system requirements.11 Testing compliance with FFMIA provides auditors

with information on the effectiveness of budget controls that were

developed to ensure proper reporting of amounts and compliance with

laws and regulations, such as the Antideficiency Act.

The following are examples of overall budget control objectives in the

three areas of the SBR and examples of controls that the auditor should

 11One of the checklists is entitled Core Financial Systems Requirements: Checklist for

Reviewing Systems Under the Federal Financial Management Improvement Act

(GAO/AIMD-00-21.2.2, February 2000). Other system requirement checklists were prepared

for inventory, travel, guaranteed loans, direct loans, and human resources and payroll.
Appendix IV: Audit Guidance

Page 21 GAO-02-126G Guide for Auditing the SBR

consider for evaluation. The auditor may consider these control objectives

for the evaluation of both financial reporting and compliance controls.12

Budget Authority: Recorded budget authority is the same as that made

available in the appropriation or other legislation, including restrictions on

amount, purpose, and time (period of availability for obligations). The

auditor should evaluate management’s controls over the recording of

budget authority and related restrictions.

Obligations: Recorded obligations are valid, complete, and for the

purpose intended. The auditor should evaluate management’s controls

over initial recording of obligations as well as over monitoring obligated

balances to determine whether they remain legally valid as of the end of

the fiscal year. This evaluation of controls should consider the adequacy of

policies and procedures for determining (1) the initial validity and amount

of obligations recorded, (2) the removal of liquidated obligations,

(3) compliance with laws, such as the Antideficiency Act, (4) periodic

reviews of unliquidated obligations to ensure continuing validity, and

(5) the classification between undelivered orders and accounts payable at

year-end.

Outlays: Recorded outlays are properly authorized, supported by

evidence, and recorded against the appropriation and obligation

established to pay for the work performed or the item received. The

auditor should evaluate management’s controls over the disbursement

process to ensure that payments are for the correct amount, properly

authorized, and posted to the correct account/program. Evaluations of

controls related to outlays generally should be combined with cash

disbursements testing.

For additional internal control procedures, refer to section 300 of the

GAO/PCIE Financial Audit Manual. Specifically, sections 310, 320, 330,

370, 390, 395D, 395E, 395F, and 395F Sup contain budget-related

information.

 12The auditor should consider coordinating budgetary control tests with substantive audit

procedures and/or tests of compliance with laws and regulations (multipurpose tests) to

maximize audit efficiency. Also, budget control tests should be combined with related

control and substantive tests of proprietary accounts.
Appendix IV: Audit Guidance

Page 22 GAO-02-126G Guide for Auditing the SBR

During the internal control phase, in addition to preparing a control testing

audit program and updating the ARA or equivalent with the combined risk

assessment, the auditor should prepare other workpapers relevant to the

internal control phase, such as

• a cycle memo, which includes information on (1) cycle transactions,

(2) significant accounting applications, (3) applicable financial

management systems, (4) interfaces with other cycles, (5) significant

policies and procedures, (6) SGL accounts, and (7) other relevant

information;

• a flowchart,

13 which includes information on transaction flows such as

(1) input and report documents, (2) processing steps, (3) files used,

(4) units involved, and (5) interfaces with other cycles; and

• Specific Control Evaluation Worksheets or equivalent, which

includes information on (1) relevant assertions, (2) control objectives, and

(3) the assessment of the control activities tested.

For additional information on documentation prepared for the internal

control phase of the audit, refer to section 390 of the GAO/PCIE Financial

Audit Manual.

After the auditor has obtained an understanding of budgetary transactions

and has assessed the effectiveness of controls on a preliminary basis, he or

she should plan the nature, timing, and extent of procedures to be

performed. During the testing phase the auditor can perform substantive,

control,14 and compliance tests.

To maximize efficiency, the auditor generally should combine similar

tests. For tests that involve sampling, efficiencies can be realized by

performing numerous tests on a common sample (multipurpose testing).

 13Preparation of a flowchart in addition to the cycle memo is recommended but not

required. However, a flowchart is a very effective tool to help understand (1) the

departments involved in the budget process, (2) sources of budgetary information, (3) the

accounting system, and (4) how the SBR is compiled.

14Controls that leave documentary evidence of their existence and application may be

tested by inspecting this evidence. If sufficient evidence cannot be obtained through

walkthroughs in combination with other observation and inquiry tests, the auditor

generally should obtain more evidence by inspecting individual items selected using

sampling procedures.

Documentation

III. Testing Phase
Appendix IV: Audit Guidance

Page 23 GAO-02-126G Guide for Auditing the SBR

The auditor should try to minimize the number of separate sampling

applications performed on the same population in order to effectively

achieve as many objectives as possible using the items selected for testing.

For example, if a substantive test of obligations would require 135 sample

items and a test of controls would require 45 sample items, the auditor

should select 135 sample items but test controls for only 45. The 45 items

for control testing should be selected randomly or systematically (with a

random start) from the 135 sample items. For additional information on

designing substantive, compliance, and control tests refer to section 400 of

the GAO/PCIE Financial Audit Manual. In addition, section 800 of the

GAO Financial Audit Manual, Volume II, (under revision to be

incorporated into the GAO/PCIE manual) has summary information on

compliance and applicability of certain laws, such as the Antideficiency

Act and Prompt Payment Act. Information provided in section 800 should

help determine the applicability of the law and also suggest audit

procedures to test the provisions.

Auditors should use professional judgment in designing audit programs

and determining sampling methods to obtain samples after considering the

test materiality, expected misstatement, and inherent, fraud, and control

risks, and the auditor’s judgment of the most effective and efficient

method to achieve the specific audit objectives.

The following guidance provides the auditor with a framework for

designing audit procedures for budgetary accounts. This guidance follows

the three sections of the SBR (budgetary resources, status of budgetary

resources, and outlays) and their key line items, and is focused on the

format used in OMB Bulletin No. 97-01. We have also included information

related to the SBR form and content changes incorporated in OMB

Bulletin No. 01-09, which will be effective beginning in fiscal year 2002.

However, to the extent that agencies report detailed line items as included

in the new form and content bulletin (see appendix I), auditors will need

to develop additional audit procedures similar to the ones discussed in this

guide.

Sections in this appendix include a general description of the line items,

risks, and audit objectives and guidance and are focused on the existence

and completeness financial statement assertions. For budgetary accounts,
Appendix IV: Audit Guidance

Page 24 GAO-02-126G Guide for Auditing the SBR

the valuation assertion is typically performed concurrently with testing for

existence and completeness.15

This section of the SBR shows total budgetary resources available to the

reporting entity. Budgetary resources include new budget authority,

unobligated balances at the beginning of the period, spending authority

from offsetting collections, and adjustments to these resources, which

include recoveries of prior year obligations and/or amounts not available

for obligation, such as obligation limitations.16

Figures 3 and 4 show the Budgetary Resources section of the SBR

according to OMB guidance effective for fiscal year 2001 and revisions

made in the new guidance, which are effective beginning with fiscal year

2002.

Figure 3: Budgetary Resources Section of the SBR (Effective for Fiscal Year 2001)

Source: OMB Bulletin No. 97-01, Form and Content of Agency Financial Statements.

 15The rights and obligations assertion, specifically the obligation side, which deals with the

validity of the obligation, is also covered when testing the existence and completeness

assertions.

16Obligation limitations are restrictions on the amount of budgetary resources that can be

obligated for a specific purpose. While limitations are most often established through

appropriations acts, they can also be established through other legislation. Limitations may

be placed on the availability of funds for program levels, administrative expenses, direct

loan obligations, guaranteed loan commitments, or other purposes. Obligation limitations,

along with other resources not available for obligation, are included as a reduction on the

“Adjustments” line item (in OMB Bulletin No. 97-01) of this section.

Budgetary Resources

Budgetary Resources (Dollars in millions)

Budget authority $XXX

Unobligated balance – beginning of period XXX

Net transfers prior year balance, actual XXX

Spending authority from offsetting collections XXX

Adjustments XXX

Total budgetary resources $X,XXX
Appendix IV: Audit Guidance

Page 25 GAO-02-126G Guide for Auditing the SBR

Figure 4: Budgetary Resources Section of the SBR (Effective for Fiscal Year 2002)

Source: OMB Bulletin No. 01-09, Form and Content of Agency Financial Statements.

Note:(1) Section 30 of OMB Circular No. A-34 (2000) contains detailed explanations of the SBR and

SF 133 line item components.

This line item consists of the amount of new budget authority made

available during the year for obligation, such as appropriations, contract

authority, and borrowing authority.

Risks: New budget authority may be misstated or recorded in the wrong

accounts, resulting in obligations in excess of resources made available or

underobligation of resources that actually were available.

Budget Authority

Non-budgetary

credit program

 Budgetary financing accounts

Budgetary Resources

1. Budget authority:

1a. Appropriations received $XXX $XXX

1b. Borrowing authority XXX XXX

1c. Contract authority XXX XXX

1d. Net transfers (+/-) XXX XXX

 1e. Other XXX XXX

2. Unobligated balance:

2a. Beginning of period XXX XXX

2b. Net transfers, actual (+/-) XXX XXX

2c. Anticipated transfers balances XXX XXX

3. Spending authority from offsetting collections:

3a. Earned

 1. Collected XXX XXX

 2. Receivable from federal sources XXX XXX

 3b. Change in unfilled customer orders

 1. Advance received XXX XXX

 2. Without advance from federal sources XXX XXX

3c. Anticipated for rest of year, without advances XXX XXX

3d. Transfers from trust funds XXX XXX

3e. Subtotal XXX XXX

4. Recoveries of prior year obligations XXX XXX

5. Temporarily not available pursuant to Public Law XXX XXX

6. Permanently not available XXX XXX

7. Total budgetary resources $X,XXX $X,XXX
Appendix IV: Audit Guidance

Page 26 GAO-02-126G Guide for Auditing the SBR

Audit objectives and guidance:

Existence: Recorded new budget authority was made available for

obligation and was recorded in the proper accounts.

• Compare recorded new budget authority to supporting documentation,

such as appropriations acts and Treasury Warrants to determine whether

budget authority recorded in the appropriations’ accounts was valid.

Completeness: All new budget authority that was made available for

obligation was recorded in the proper accounts.

• Determine if all new budget authority from the appropriations acts or

other budgetary documentation was reported in the financial statement

and was posted to the proper accounts.

This line item is comprised of amounts available for obligation during the

current fiscal year brought forward from prior fiscal years. Prior year

unobligated balances may be available to enter into new obligations during

the current year and for upward adjustments of obligations that were

properly incurred against the account during the unexpired period.17

Risks: Unobligated balances brought forward are not available for

obligation because balances have been rescinded or are otherwise

restricted. Not all balances available are brought forward.

Audit objectives and guidance:

Existence: Recorded unobligated balances from prior periods remain

available for obligation.

• Trace the balance to prior year ending unobligated balances to determine

if amounts agree.

• Determine that prior year ending unobligated balances have not been

canceled or rescinded. For example, determine the “aging” of the

 17According to OMB guidance, the SBR balances include budgetary resources for accounts

during the 5 years that they are in an expired status. Unobligated balances of expired

budget authority remain available for 5 years after the account expires to make legitimate

adjustments, that is, to record previously unrecorded obligations and to make upward

adjustments in previously recorded obligations. At the end of the fifth year, the expired

account is closed.

Unobligated Balance,

Beginning of Period
Appendix IV: Audit Guidance

Page 27 GAO-02-126G Guide for Auditing the SBR

unobligated balances to determine whether canceled amounts were

mistakenly carried forward.

Completeness: All unobligated available balances from prior periods are

recorded.

• Generally, when prior year audited balances agree with the current year

beginning balances (tested under existence), audit risk for completeness is

minimal.

This line item is comprised of budget authority that is financed by

collections authorized by law to be credited to an appropriation or fund

account. Offsetting collections may consist of advances, reimbursements,

and other income.

Risks: Collections are misstated or recorded in the wrong account.

Collections are not authorized by law to be credited to the appropriation

or fund account.

Audit objectives and guidance:

Existence: Recorded offsetting collections are available for obligation

during the year and were recorded in the proper accounts.

• Determine whether recorded offsetting collections are available for

obligation by reference to authorizing legislation.

• Trace spending authority from offsetting collections to supporting

documentation such as evidence of collections from other federal agencies

and others for goods and services provided or prepaid orders to determine

whether the transaction/event occurred.

• Determine whether offsetting collections were recorded in the proper

accounts.

Completeness: All available and authorized spending authority is

recorded.

• Confirm revenue/collections with other federal entities.

• Reconcile spending authority from offsetting collections with reported

revenue from third parties.

• Determine whether offsetting collections were recorded in the proper

accounts.

Spending Authority From

Offsetting Collections
Appendix IV: Audit Guidance

Page 28 GAO-02-126G Guide for Auditing the SBR

This line item18 is comprised of cancellations or downward adjustments of

obligations incurred in prior fiscal years that were not subsequently

disbursed (outlayed) and remain available in the current year. For no-year

and unexpired multi-year accounts, apportioned recoveries of prior year

obligations are available for new obligations. For expired accounts,

recoveries are available for unrecorded legitimate obligations and upward

adjustments of previously recorded obligations incurred during the

unexpired period.

Risks: Recorded recoveries of prior year obligations are incorrect or no

longer available.

Audit objectives and guidance:

Existence: Recorded recoveries represent cancellations or downward

adjustments of prior obligations, remain available, and are recorded in the

proper account.

• Compare recorded amounts to supporting documentation, such as closed

or canceled contracts or purchase orders, to determine whether they

represent cancellations or downward adjustments of prior obligations.

• Determine if recoveries remain available for obligation.

• Determine whether recoveries of prior obligations are recorded in the

proper accounts.

Completeness: All recoveries of prior years that are available for

obligation were included in the SBR.

• Select canceled contracts, purchase orders, travel orders, etc.; determine if

the amount obligated was in excess of amount paid; and determine if the

excess amount was available for obligation and, if so, if it was reported as

available.

 18This line item is included in the “Adjustments” line item in OMB Bulletin No. 97-01.

Recoveries of Prior Year

Obligations
Appendix IV: Audit Guidance

Page 29 GAO-02-126G Guide for Auditing the SBR

This line item19 is comprised of budgetary resources that are temporarily

or permanently not available for obligation20 pursuant to a specific

provision of law. For example, amounts temporarily not available may

include a limitation on obligations, and amounts permanently not available

may include cancellations of expired and no-year authority and amounts

rescinded by law.

Risk: Adjustments that reduce budgetary resources are not properly

reported.

Audit objectives and guidance:

Existence: Reported amounts not available represent valid restrictions on

the availability of budget authority or cancellations.

• Compare amounts recorded as not available to supporting documentation,

such as authorization acts or other supporting documentation, to

determine if resources are not available or have been canceled.

Completeness: All amounts that are canceled, restricted, or limited are

included as reductions of resources in the SBR.

• Review appropriations acts or other laws to determine if restrictions on

the use of resources exist but were not included in the financial

statements.

• Review appropriations acts or other laws to determine if amounts have

been canceled and were not included in the SBR.

• Review aging of expired accounts to determine if resources such as

unobligated balances were canceled after the 5-year period.

 19This line item is included in the “Adjustments” line item in OMB Bulletin No. 97-01.

20When a provision of law, such as benefit formula or limitation on obligations, precludes

amounts in special or trust funds from being obligated, amounts not available are included

as negative amounts in this line item.

Temporarily or Permanently

Not Available for Obligation
Appendix IV: Audit Guidance

Page 30 GAO-02-126G Guide for Auditing the SBR

This section displays the disposition of the budgetary resources that were

made available for obligation. It consists of obligations incurred during the

year, unobligated balances at the end of the year that remain available, and

unobligated balances at the end of the year that are unavailable. Totals for

this section and for the Budgetary Resources sections should agree.

Figures 5 and 6 show the Status of Budgetary Resources section of the

SBR according to OMB guidance effective for fiscal year 2001 and

revisions made in the new guidance, which are effective beginning with

fiscal year 2002.

Figure 5: Status of Budgetary Resources Section of the SBR (Effective for Fiscal Year 2001)

Source: OMB Bulletin No. 97-01, Form and Content of Agency Financial Statements.

Figure 6: Status of Budgetary Resources Section of the SBR (Effective for Fiscal Year 2002)

Source: OMB Bulletin No. 01-09, Form and Content of Agency Financial Statements.

This line item includes the amounts of orders placed, contracts awarded,

services received, and similar transactions during a given period that will

require future payments. Obligations incurred also reflect obligations for

outlays for which obligations were not previously recorded and reflect

adjustments for differences between obligations previously recorded and

the amount of outlays required to liquidate those obligations.

Status of Budgetary

Resources

Obligations Incurred

Status of Budgetary Resources (Dollars in millions)

Obligations incurred $XXX

Unobligated balances - available XXX

Unobligated balances - unavailable XXX

Total status of budgetary resources $X,XXX

Non-budgetary

credit program

 Budgetary financing accounts

Status of Budgetary Resources

8. Obligations incurred:

 8a. Direct $XXX $XXX

 8b. Reimbursable XXX XXX

 8c. Subtotal XXX XXX

9. Unobligated balance:

 9a. Apportioned XXX XXX

 9b. Exempt from apportionment XXX XXX

 9c. Other available XXX XXX

10. Unobligated balance not available XXX XXX

11. Total status of budgetary resources $X,XXX $X,XXX
Appendix IV: Audit Guidance

Page 31 GAO-02-126G Guide for Auditing the SBR

Risks: Obligations incurred may be invalid, incorrectly recorded, or not

recorded.

Audit objectives and guidance:

Existence: Recorded obligations represent valid orders, contracts, or

other events that will require future payment.

• Trace recorded obligations to supporting documentation such as purchase

orders, grants, binding contracts, and travel authorizations to determine if

• obligations are properly recorded and supported by obligating

documents,

• obligations are classified in the proper accounts,

• obligations were incurred within the period that the appropriation was

available for new obligations, and

• the purposes of the obligations are those for which the appropriations

are available.

• If the transaction is a modification or an adjustment to an obligation,

determine if

• the amount was properly authorized in accordance with agency and

OMB policies,

• the adjustment did not cause the entity to exceed the original

appropriated amount,

• it was recorded during the period when the account is available for

adjustments (5 years), and

• the adjustment amount equals the difference between the amount

invoiced and the amount previously obligated.

Completeness: All valid and new obligations were recorded in the proper

accounts.

• Examine new contracts, purchase orders, travel vouchers, and

documentation of other events that require obligations to be recorded and

determine whether obligations were recorded for these items.

• Determine whether amounts were recorded in the proper accounts and in

the proper fiscal years.
Appendix IV: Audit Guidance

Page 32 GAO-02-126G Guide for Auditing the SBR

This line item includes the cumulative portion of obligation authority that

has not yet been obligated. The unobligated balance at each year-end is the

difference between total budgetary resources and obligations incurred.

Risks: Unobligated balances may be misstated and expired balances or

errors may be carried forward into next year’s balances.21

Audit objectives and guidance:

Since total unobligated balances is the difference between total budgetary

resources available less obligations incurred, perform an overall

reasonableness test by performing the calculation. In addition:

• Compare amounts recorded as unobligated balances available and not

available to amounts recorded in the agency’s final SF 133 to determine

whether differences exist.

• Determine whether unobligated balances are expired, canceled, or

rescinded and if balances were correctly reported in the SBR as available

or unavailable.

• Review the appropriations act or other laws to determine whether all

unavailable balances pursuant to the law were included in the financial

statements.

This section in the SBR (new title in fiscal year 2002 is Relationship of

Obligations to Outlays) shows the relationship between obligations

incurred and outlays. It reconciles outlays with obligations incurred and

the change in obligated balances during the year. Obligations are usually

liquidated by means of cash payments (outlays), such as currency, checks,

or electronic fund transfers. Several line items in this section, such as

obligations incurred, spending authority from offsetting collections, and

adjustments, are also reported in SBR sections previously discussed.

Figures 7 and 8 show the Outlays section of the SBR according to OMB

guidance effective for fiscal year 2001 and revisions made in the new

guidance, which are effective beginning in fiscal year 2002.

 21The risk that errors may be carried forward into next year’s balances may also be a risk

for other accounts such as Obligations Incurred and Obligated Balance, Net End of Period.

However, it is specifically included here because it is a prevalent risk.

Unobligated Balances

Outlays
Appendix IV: Audit Guidance

Page 33 GAO-02-126G Guide for Auditing the SBR

Figure 7: Outlays Section of the SBR (Effective for Fiscal Year 2001)

Source: OMB Bulletin No. 97-01, Form and Content of Agency Financial Statements.

Figure 8: Revised Outlays Section of the SBR (Effective for Fiscal Year 2002)

Source: OMB Bulletin No. 01-09, Form and Content of Agency Financial Statements.

This line item is comprised of the amount of obligations already incurred

for which payment has not yet been made. The SBR shows net beginning,

transferred, and ending obligated balances for the year. For a fixed

appropriation account, this balance can be carried forward and retains its

fiscal year identity for 5 fiscal years after the period of availability ends. At

the end of the fifth fiscal year, the account is closed and any remaining

balance is canceled. Obligated balances of an appropriation account

available for an indefinite period may be closed if (1) they are specifically

rescinded by law, (2) the purpose for which the appropriation was made

has been carried out, and (3) no disbursements have been made for 2

consecutive years.

Obligated Balances

Outlays (Dollars in millions)

Obligations incurred $XXX

Less: Spending authority from offsetting collections

 and adjustments

(XXX)

Subtotal XXX

Obligated balance, net beginning of period XXX

Obligated balance, transferred net XXX

Less: Obligated balance, net end of period (XXX)

Total outlays $X,XXX

Non-budgetary

credit program

 Budgetary financing accounts

Relationship of Obligations to Outlays

12. Obligated balance, net beginning of period $ XXX $ XXX

13. Obligated balance, transferred net XXX XXX

14. Obligated balance, net end of period

 14a. Accounts receivable XXX XXX

 14b. Unfilled customer orders from Federal sources XXX XXX

 14c. Undelivered orders XXX XXX

 14d. Accounts payable XXX XXX

15. Outlays

 15a. Disbursements XXX XXX

 15b. Collections XXX XXX

 15c. Subtotal XXX XXX

16. Less: Offsetting receipts XXX XXX

17. Net outlays $X,XXX $X,XXX
Appendix IV: Audit Guidance

Page 34 GAO-02-126G Guide for Auditing the SBR

Risks: Not all obligations are eliminated when an outlay or other

liquidating event occurs or not all obligations have been included.

Unliquidated obligations that are no longer valid tie up resources that if

deobligated, may be available for new obligations.

Audit objectives and guidance:

Existence: Obligated balances represent amounts for orders placed,

contracts awarded, and similar obligating transactions for which goods

and services have not been paid.

• For undelivered orders, trace a sample of obligated balances to supporting

documentation, such as purchase orders, contracts, or other supporting

documents, and determine whether goods and services remained

undelivered at the end of the fiscal year. If part of an order was received as

of year-end but not paid for, determine whether the portion delivered was

classified as Expended Authority - Unpaid.

• For Expended Authority - Unpaid, trace the amount to supporting

documentation, such as invoices or other evidence of receipt of goods and

services.

• Determine whether the amounts were recorded in the proper accounts

and in the correct fiscal year.

• Determine whether the obligation is still valid or needed. For example,

review inactive obligations, inquire about continuing need, and examine

support as appropriate to determine whether the obligations are still

needed.

Completeness: All undelivered orders, such as contracts, purchase or

travel orders, and other obligations, are recorded in the proper accounts

and for the correct fiscal year. In addition, all received but unpaid goods

and services are included.

• Select disbursements after year-end to determine whether an obligation

should have been recorded for those items at year-end (combine this

testing with cutoff testing).

• Select outstanding undelivered orders, such as purchase orders and

contracts at year-end, and determine whether an obligation was recorded

for those items.

• Determine whether the amounts were recorded in the proper account and

in the correct fiscal year.
Appendix IV: Audit Guidance

Page 35 GAO-02-126G Guide for Auditing the SBR

This line item consists of payments made to liquidate federal obligations.22

Risks: Payments are made for invalid or unauthorized transactions.

Outlays are not recorded in the proper accounts or the correct fiscal year.

Audit objectives and guidance:

Existence: Recorded outlays are supported by disbursement evidence.

• Determine whether outlays are evidenced by supporting documentation.

For example, trace recorded payment to invoices or other forms of billing.

• Determine if outlays or payments were properly authorized. For example,

trace disbursements to payment voucher and determine if they were

properly authorized.

• Determine if outlays are recorded in the appropriate accounts and fiscal

years.

• Determine whether the outlays were recorded against valid obligations.

• Compare this line item to net outlays reported to Treasury on the SF 224,

Statement of Transactions, and determine if differences exist and the

reasons for the differences.

Completeness: All payments made are recorded in the proper accounts

and for the correct year.

• Perform cutoff tests. Select disbursements after the end of the fiscal year

and determine whether the payment belongs in the fiscal year under audit.

This line item (effective beginning with fiscal year 2002 reporting) is

comprised of collections such as fees or payments that are credited to the

general fund, special fund, or trust fund receipt accounts. Offsetting

receipts can be distributed (receipts offset outlays at the agency level) or

undistributed (receipts offset outlays at the governmentwide level). For

this line item, agencies should include all distributed offsetting receipts for

the agency. OMB guidance states that the amount of distributed offsetting

 22Outlays also occur when interest on the public issues of Treasury debt accrues and when

the government issues bonds, notes, debentures, monetary credits, or other cash-equivalent

instruments in order to liquidate obligations. Also, the credit subsidy cost is recorded as an

outlay when a direct or guaranteed loan is disbursed.

Outlays

Offsetting Receipts
Appendix IV: Audit Guidance

Page 36 GAO-02-126G Guide for Auditing the SBR

receipts reported in this line should be the aggregate of cash collected in

the receipt accounts and reported to Treasury23 each month.

Risks: Offsetting receipts are misstated or incorrectly reported.

Audit objectives and guidance:

Existence: Recorded receipts are valid and were recorded in the proper

accounts.

• Trace amounts to supporting documentation, such as evidence of

collections from other federal agencies, to determine whether the

transfer/event occurred.

• Determine whether offsetting receipts were recorded in the appropriate

accounts and fiscal year.

(Testing of offsetting receipts can be combined with revenue/collections

testing to maximize efficiency. While testing revenue/collections, auditors

should test whether amounts recorded in the proprietary accounts are also

being recorded in the applicable budgetary accounts.)

Completeness: All current year offsetting receipts are recorded.

• Confirm revenue/collections with other federal entities.

• Reconcile collections with reported revenue from third parties.

• Determine whether offsetting receipts were recorded in the proper

accounts and fiscal year.

Credit program financing accounts (effective beginning with fiscal year

2002 reporting) are non-budgetary accounts (transactions are excluded

from budget totals) that record cash flows resulting from post-1991 direct

loans or loan guarantees. Financing accounts reflect disbursements of

loans, collections of repayments and fees, claim payments, borrowings

from Treasury, interest earned or paid, and subsidy cost payment from the

credit program account. There is at least one financing account associated

with each credit program account. Separate financing accounts are

 23Agencies report these collections to Treasury in the SF 224, Statement of Transactions;

SF 1219, Statement of Accountability; and SF 1220, Statement of Transactions.

Non-Budgetary Credit

Program Financing

Accounts
Appendix IV: Audit Guidance

Page 37 GAO-02-126G Guide for Auditing the SBR

required for direct loan cash flows and for loan guarantee cash flows if the

program account provides subsidy costs for both forms of credit.

To test financing accounts, auditors need to understand the relationship

between these accounts and related accounts reported in the financial

statements. Because financing accounts record the cash flows of loan

guarantees and direct loans, auditors can combine testing of financing

accounts with testing of cash receipts and disbursements. Auditors should

also test transaction coding or Treasury account symbols to determine

whether amounts are properly classified and reported.

For all substantive tests performed to audit the significant balances in the

SBR, the auditor should note any differences between recorded amounts

and supporting evidence and summarize and conclude on the results of

testing, including an explanation for any differences identified. If

misstatements occurred, the auditor should assess the effect of the

misstatements on the budget amounts (project the misstatements to the

population) and consider whether their evaluation of budget controls is

affected. In addition, if beginning balances, such as unobligated balances

and/or obligations, have not been audited, additional procedures need to

be performed to obtain audit assurance about these amounts.

Proper documentation of the procedures performed during the testing

phase of the audit is essential to provide evidence that audit coverage is

appropriate and that adequate tests were performed. Documentation in

this phase should include:

• An audit program in which the auditor explains the objectives of the

audit procedures and includes a clear description of the testing

procedures applied. (Note: Cross-referencing the steps in the audit

program describing the audit procedures performed to the workpapers

where the tests were actually documented is one way to help determine

that all planned tests were completed.)

• For tests involving sampling, a sampling plan, which includes

information about the sampling method used and key factors regarding the

selection method, sample size, confidence level, etc. (For an example of a

sampling plan, refer to section 495E of the GAO/PCIE Financial Audit

Manual.)

• The results of tests, including evaluations of sample results (projection

of results to the population), and conclusions.

Documentation
Appendix IV: Audit Guidance

Page 38 GAO-02-126G Guide for Auditing the SBR

For substantive analytical procedures performed, the auditor should

document the following:

• the auditor’s expectations for the balance;

• the model used to develop expectations and the basis for the model;

• the data used, data sources, and an assessment of the reliability of the

data used;

• the amount of the limit and the criteria for establishing the limit;

• explanation for fluctuations or other differences from expectations that

exceed the limit or are otherwise considered significant, sources of

these explanations, and corroborating evidence obtained; and

• conclusions regarding findings, including proper treatment of any

misstatements detected and assessment of any other effects of these

misstatements.

For additional information on documentation prepared during the testing

phase of the audit, refer to section 490 of the GAO/PCIE Financial Audit

Manual.

To maximize effectiveness and efficiency, the auditor generally should

combine tests of budgetary and proprietary accounts when

interrelationships exist. For example,

• procedures to test outlays for the SBR may be combined with cash

disbursement tests used to test controls and/or substantive balances,24

• procedures to test obligations for the SBR may be combined with accounts

payable25 tests that also require the examination of purchase orders and

similar documents, and

 24When using tests of proprietary accounts to obtain assurance on budgetary accounts, the

auditor must understand the relationships between the accounts. For example, not every

disbursement is an outlay (because not every disbursement liquidates an obligation). Three

major disbursement examples that are not recorded as outlays are (1) repayment of debt

principal, (2) disbursements to the public by federal credit programs for direct loan

obligations and loan guarantee commitments made in or after fiscal year 1992, and

(3) refunds of receipts that result from overpayments. Also, not all recorded outlays are

cash disbursements. For example, the accrual of interest on Treasury debt is an outlay, but

not a cash disbursement. Understanding these differences allows the auditor to adjust

testing and address each situation to obtain proper audit coverage.

25For example, at year-end, auditors may test accounts payable accruals in conjunction

with obligations (undelivered orders testing) to determine whether goods and services

received but not billed are accounted for in accounts payable and reduced from

obligations. This will help prevent understatement of accounts payable and overstatements

of unliquidated obligations.

IV. Integration of

Budgetary and

Proprietary

Accounting Testing
Appendix IV: Audit Guidance

Page 39 GAO-02-126G Guide for Auditing the SBR

• procedures to test spending authority from offsetting collections or

offsetting receipts may be combined with revenue testing.

However, when the auditor relies on his or her work on proprietary

account audit procedures to gain assurance about SBR balances, the

auditor should document the relationship between the proprietary and the

budgetary accounts and how such reliance is provided. For example, if

cash disbursement tests are being used to conclude on the reliability of the

outlays line item of the SBR, the auditor should determine if the

accounting and budgetary systems are integrated and if disbursements

were recorded in both the proprietary and budgetary accounts. The

auditor should document this relationship and explain how the cash

disbursement test results provide audit assurance about the outlays line

item.

The presentation of financial statements in conformity with GAAP

includes adequate disclosure of material matters. These matters relate to

the form, arrangement, and content of the financial statements and their

note disclosures, including, for example, the terminology used, the amount

of detail given, the classification of items in the statements, and the bases

of amounts set forth.26

For the SBR, the auditor should assess the adequacy of the presentation

and disclosure of budgetary information in the SBR to determine whether

the

• SBR presentation and disclosures are in accordance with SFFAS No. 7 and

OMB guidelines on form and content of agency financial statements;

• disclosure amounts agree with information presented in the financial

statements; and

• disclosure amounts are fairly stated in conformity with GAAP.

 26If management omits from the financial statements, including the accompanying notes,

material information that is required by GAAP, the auditor should consider the need to

express a qualified or an adverse opinion and should provide the information in his or her

report, if practicable, unless its omission from the auditor’s report is recognized as

appropriate by a specific Statement on Auditing Standards.

V. Presentation and

Disclosure
Appendix IV: Audit Guidance

Page 40 GAO-02-126G Guide for Auditing the SBR

According to OMB Bulletin No. 97-01, agencies should disclose the

following:27

• the net amount of budgetary resources obligated for undelivered orders at

the end of the period;

• available borrowing and/or contract authority at the end of the period;

• repayment requirements, financing sources for repayment, and other

terms of borrowing authority used;

• adjustments during the reporting period to budgetary resources available

at the beginning of the year and an explanation thereof;

• the existence, purpose, and availability of permanent indefinite

appropriations;

• information about legal arrangements affecting the use of unobligated

balances of budget authority;

• the amount of any contributed capital received during the reporting

period; and

• explanations of differences between the information required by SFFAS

No. 7 and the amounts described as “actual” in the President’s Budget.

For fiscal year 2002 and thereafter, OMB Bulletin No. 01-09 requires

agencies to disclose the following:

• apportionment categories of obligations incurred;

• available borrowing and/or contract authority at the end of the period;

• repayment requirements, financing sources for repayment, and other

terms of borrowing authority used;

• adjustments during the reporting period to budgetary resources available

at the beginning of the year and an explanation thereof;

• existence, purpose, and availability of permanent indefinite

appropriations; and

• information about legal arrangements affecting the use of unobligated

balances of budget authority.

(Note: For additional information and a complete list of SBR-related note

disclosures, refer to the above OMB guidance.)

 27OMB guidance on form and content of federal financial statements includes a complete

list of required disclosures for the SBR.
Appendix IV: Audit Guidance

Page 41 GAO-02-126G Guide for Auditing the SBR

In addition, agencies should disclose explanations of differences between

comparable amounts in the SBR, SF 133s and the “actual” amounts

reported in the President’s Budget.28

As mentioned earlier, this disclosure is important because it (1) provides a

tool to help readers assess the reliability of amounts reported in the

President’s Budget, and (2) helps readers understand differences that may

exist between amounts in the SBR and the President’s Budget due to

timing or reporting requirements. Reporting differences may exist because

the OMB circular used to report budget execution information in the SF

133s and the SBR differs from the guidance used to report amounts in the

President’s Budget. For example, expired budget authority available for

upward adjustments of obligations, which is excluded from the P&F

Schedule “actual” column per OMB Circular No. A-11, is included in the SF

133s and the SBR per guidance in OMB Circular No. A-34.

In addition, timing differences may exist because agencies may issue their

audited financial statements after the budget is released and adjustments

included in the SBR may not be reflected in the President’s Budget.

However, if the President’s Budget is not available when the agency issues

its audited financial statements, the agencies may disclose in financial

statement notes the fact (1) that the President’s Budget is not yet available

for comparison to the SBR, and (2) whether amounts reported in the SBR

differ from the data submitted or planned to be submitted to OMB for

preparing the President’s Budget.

OMB has not provided guidance describing how differences between the

SBR, SF 133s and the “actuals” in the President’s Budget should be

disclosed. However, agencies can aggregate balances obtained from the SF

133s and from the President’s Budget submissions to obtain summarized

balances that could then be compared to the SBR. If agencies are unable

to summarize this data, OMB may be able to provide assistance. However,

because the source of information for the SBR financial statement is the

general ledger, and the source of information for the SF 133s and the

actuals in the President’s Budget is information submitted to OMB and

Treasury via FACTS II, the auditor needs to determine whether the agency

performed this comparison to determine if differences existed and if the

 28Section 30.15 of OMB Circular No. A-34 (2000), explains differences that may occur

between the SBR and other budgetary reports.
Appendix IV: Audit Guidance

Page 42 GAO-02-126G Guide for Auditing the SBR

agency has controls in place to ensure the accuracy of budget execution

information included in the SBR and amounts submitted via FACTS II.

As the audit nears completion, the auditor should perform overall

analytical procedures on the financial statements, including the SBR. The

purposes of overall analytical procedures are to (1) determine if an

adequate understanding of all fluctuations and relationships in the

financial statements, including the SBR, has been obtained from other

audit procedures, (2) determine if other audit evidence is consistent with

explanations for fluctuations documented during the overall analytical

process, and (3) assist the auditor in forming an opinion on the SBR

consistent with the conclusions reached during the substantive testing.

Examples of analytical procedures that may be performed on the SBR

include

• scanning the SBR for unusual items or fluctuations when compared to

expectations or the prior year SBR,

• comparing the totals in the Total Budget Resources section to the Total

Status of Budget Resources to determine if the amounts are equal, and

• comparing budgetary balances in the SBR to amounts included in the

Statement of Financing to determine if amounts for similar line items are

being consistently reported in both financial statements.

For additional information on overall analytical procedures, refer to

section 520 of the GAO/PCIE Financial Audit Manual.

Budget execution data is monitored at the individual account level. For

this reason, OMB form and content guidance requires that budgetary

information aggregated for the SBR be disaggregated for each of the

reporting entity’s major budget accounts and presented as required

supplementary information (RSI). For small budget accounts, information

may be aggregated. The major budget accounts and the aggregate of small

budget accounts should, in total, agree with amounts reported on the face

of the SBR. OMB audit guidance requires that auditors perform the

procedures described in AU Section 558, Required Supplementary

VI. Overall Analytical

Procedures

VII. Required

Supplementary

Information
Appendix IV: Audit Guidance

Page 43 GAO-02-126G Guide for Auditing the SBR

Information, for this information.29 According to AU 558, the auditor

should do the following:

• Inquire of management about the methods of preparing the information,

including (1) whether it is measured and presented within prescribed

guidelines, (2) whether methods of measurement or presentation have

been changed from those used in the prior period and the reasons for any

such changes, and (3) any significant assumptions or interpretations

underlying the measurement or presentation.

• Compare the information for consistency with (1) audited financial

statements, (2) management’s responses to the foregoing inquiries, and

(3) other knowledge obtained during the examination of financial

statements.

• Consider whether representations on required supplementary information

should be included in specific written representations obtained from

management.

• Apply additional procedures, if any, that other guides or interpretations

may require for specific types of required supplementary information.

• Make additional inquiries if the application of the foregoing procedures

causes the auditor to believe that the information may not be presented

within the applicable guidelines.

For additional information on the auditor’s responsibilities regarding RSI,

refer to AU 588.

 29AU refers to a section in the Codification of Statements on Auditing Standards, published

by the American Institute of Certified Public Accountants.

(190005)