Wiley Federal Government Auditing: Laws, Regulations, Standards, Practices, and Sarbanes-Oxley, 2nd Edition

CHAPTER 3

SELECTED ISSUES IN FEDERAL FINANCIAL AND INTERNAL CONTROL REPORTING

FEDERAL FINANCIAL STATEMENTS

Since the enactment of the Chief Financial Officers Act (CFO Act) and later laws, annual financial statements are now compiled department- and agency-wide and are independently audited. This section provides context for understanding Federal financial statements and discusses the implementation of this reporting requirement. It also discusses internal controls generally and specifically assessing internal control over financial reporting.

Since the Constitution was written, Congress has desired that sounder, more effective internal controls be designed, implemented, and used by Federal Agencies. Congress has held hearings, commissioned studies, and heard speeches and presentations before its committees about the importance of internal controls over financial reporting. Congress’s attempts to address the historically weak and deteriorated controls of the Federal Government are unmistakable and based on the trail of laws addressing the installation and strengthening of controls.

In the single decade of the 1990s, a number of laws were enacted with respect to Federal financial management systems. With few exceptions, parts of each law emphasized the need for strengthened controls. But until 2002 and the Sarbanes-Oxley Act (SOX), no law required that any entity, in either the private or the public sector, have a management assessment and public reporting of internal controls over ...