After completing this chapter, you should be able to do the following:

  • Apply auditing considerations related to risk assessment.
  • Recognize a governmental entity and the environment in which it operates.
  • Determine why the materiality calculation is unique for governments.
  • Determine how to calculate materiality based on opinion units.
  • Identify the audit concepts related to entities' ability to continue as a going concern.

Risk Assessment for a Government

AU-C section 220, Quality Control for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards (AICPA, Professional Standards) addresses guidance regarding evaluating acceptance and continuance of audit client relationships.

Auditors should also evaluate their continued independence in consideration of other nonaudit services provided and other factors.

AU-C section 300, Planning an Audit (AICPA, Professional Standards) addresses the auditor's responsibilities to plan an audit of the financial statements.

The auditor should establish an overall audit strategy that sets the

  • scope,
  • timing,
  • direction of the audit, and
  • audit plan.

It is important to understand the government's size and complexity.


The auditor should develop an audit plan that includes the following:

  1. Understanding the entity and its environment and assessing the risk of material misstatement.
  2. Performing audit procedures in response ...

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