PCIE STANDARDS COMMITTEE
                         POSITION STATEMENT NO. 1
                             FEBRUARY 4, 1987

                                  ISSUE

Section 7502(d)(6) of the Single Audit Act provides that a series
of audits of individual departments, agencies and establishments
for the came fiscal year may be considered to be an audit for the
purpose of this "chapter."  If an entity chooses this option and
has a series of department by department audits, is it acceptable
to include in the single audit reporting package for each
department, organization-wide financial statements and the auditors
report thereon, in lieu of departmental financial statements?

                                DISCUSSION

This question requires distinguishing between a government-wide
single audit and department by department single audits.  We make
this distinction as follows:

     Government-wide Single Audit - An audit is considered
     government-wide if one single audit reporting package is
     prepared and submitted which includes government-wide
     auditor's reports on the various elements required by the
     Single Audit Act (i.e., government-wide reports on the
     financial, compliance and internal control elements of a
     single audit).

     Department by Department Audits - An audit is considered to be
     on a department by department basis if individual departmental
     single audit reporting packages are prepared and submitted.

We recognize that the approach for performing the fieldwork may be
similar, however, our distinction is based on the reporting.

The above issue concerns a department by department audit. The
language in section 7502(d)(6) indicates that a series of audits of
individual departments, agencies or establishments may be
considered an audit.  Section 7502(d)(2) describes the requirements
for an audit as follows:

     "(2) Each such audit shall encompass the entirety of the
     financial operations of such government or of such department,
     agency, or establishment, whichever is applicable, and shall
     determine and report whether-

     (A) (i) the financial statements of the government,
     department, agency, or establishment present fairly its
     financial position and the results of its financial operations
     in accordance with generally accepted accounting principles;
     and 

     "(ii) the government, department, agency or establishment has
     complied with laws and regulations that may have a material
     effect upon the financial statements;

     (B) the government, department, agency or establishment has
     internal control systems to provide reasonable assurance that
     it is managing Federal financial assistance programs in
     compliance with applicable laws and regulations; and

     (C) the government, department, agency or establishment has
     complied with the laws and regulations that may have a
     material effect upon each major Federal assistance program."
     (Emphasis added)

By nature, an audit covers one entity.  When choosing the option to
have series of audits of individual departments, agencies and
establishments, the State or local government chooses to divide one
single audit reporting entity (i.e., the entire government with the
option for certain exclusions allowed by the Act) into a number of
separate single audit reporting entities.  The language contained
in section 7502(d)(2) indicates that whichever entity is the audit
entity (the entire government or individual department, agency or
establishment), the requirements of sections 7502(d)(2) A, B and C
must be met for that entity.  We don't believe it was the intent,
nor does it-make sense to allow reporting in such a way that two
elements of a single audit report cover one entity (a department)
and the third element of the report covers another entity (the
government as a whole).

Some may argue that even if the option in section 7502(d)(6) is
chosen, the single audit entity is still the government as a whole. 
They may further argue that with this perspective, a single audit
report for the government as a whole could consist of government-
wide financial statements and the auditors report thereon, and a
series of departmental reports on compliance and internal controls. 
We disagree with this concept.  The option in Section 7502(d)(6)
clearly states a series of audits.  Compliance and internal control
reviews or reports do not constitute an audit as described in the
Act.  Rather, they are elements of the audit.

                                 POSITION

No, such an approach is not acceptable.  If a government chooses
the option of having a series of audits of individual departments,
agencies and establishments, then each individual department's
single audit reporting package must contain the financial
statements of the department and the auditor's report thereon, in
addition to the other required reports and schedules.  Only if the
audit is a government-wide audit are government-wide financial
statements acceptable.