2024 AASHTO Audit Guide Updates – Back to Basics

2024 AASHTO Audit Guide Updates Back to Basics
April 11, 2024

Accounting standards and regulatory guidelines are constantly being tweaked, which makes staying abreast of changes paramount. Recently, revisions to the AASHTO Uniform Audit and Accounting Guide (Guide) have sparked conversations with several of my peers in public accounting and clients in the AE Industry. In my discussions with them, I’ve termed the changes “Back to Basics” because they highlight fundamental principles crucial for ensuring audit quality and compliance.

Let’s look at key aspects of these changes and their implications:

Emphasis on Effectively Planned FAR Audits

The cornerstone of the revised Guide lies in reinforcing the significance of a planned Federal Acquisition Regulation (FAR) audit. While effective planning has always been essential, the updated Guide places greater emphasis on assessing risks, aligning them with specific audit procedures, audit sampling and meticulously evaluating the results of audit procedures.

For my peers in public accounting, these land squarely in strict adherence to Generally Accepted Auditing Standards (GAAS), specifically SAS 145 (as it replaces AU-C 315 in its entirety) and AU-C’s 300, 320, and 330 and Generally Accepted Government Auditing Standards (GAGAS). Notably, these standards are prominently included in Chapters 9 and 10 of the Guide, underscoring their importance as part of audit integrity.

Importance of Labor Charging and Testing

Labor has always been a key component of a FAR audit. Unlike invoices from subconsultants, labor uses internally generated documents (timesheets) and is arguably the single most important component of a FAR overhead rate, as indirect labor is a significant piece of the numerator, and direct labor is the denominator.

Chapter 10 of the Guide continues to recommend conformance to the model time-charging practices established by the DCAA publication 7641.90. The most current version of the publication is dated November 14, 2023, and you’ll want to refer to Enclosure 3 vs. what the Guide notes as Chapter 2. In Chapter 10, the Guide eliminates the requirement to test 26 timesheets and instead encourages you to rely on your risk assessment. Plus, it requires evaluating time transfers and labor-related adjustments.

Adherence to GAAS and GAGAS

The Guide is very clear in its message about non-compliance. In fact, it notes on four different occasions in Chapters 9 and 10 that failure to follow GAAS and GAGAS “will result in audit failure and likely DOT audit rejection.”

Prescriptive Updates to Appendix A

Additionally, numerous prescriptive updates have been made to Appendix A, the CPA review program for CPA audits. These changes impact CPA firms more than consultants.

Exclusion of “Cash” or “Hybrid” Accounting Bases

In Chapter 11, the Committee working on the Guide decided to exclude “cash” or “hybrid” from allowable accounting bases, and instead only allow “accrual” or GAAP basis financials as the foundation for the FAR overhead schedule. This shift is also supported by FAR 31.201-2 (a) (3), which notes that in addition to a cost being reasonable and allocable, it must also be GAAP compliant.

Next Steps

In short, the Audit Guide revisions demonstrate a focus on getting back to the basics with the updates relating to foundational areas like audit quality, labor, and GAAP. As noted in the guide, failure to comply with these changes will result in audit failure and likely DOT audit rejection.

SN can help explain the impact of the above on your firm, please do not hesitate to contact us.

Tony Machi, MBA, CPA