DCAA has developed a new audit program that identifies detailed steps for performing a financial capability audit. The audit program contains risk assessment steps the auditor needs to perform to determine the need for a financial capability audit. The detailed financial risk assessment consists of performing:
1. An analysis of the contractor’s key financial ratios and trends along with a comparative analysis of these ratios with applicable average industry ratios.
2. An analysis of the contractor’s financial data using one of the three Z-Score bankruptcy prediction models and a comparative analysis of the company’s Z-Score with industry averages.
3. An evaluation of financial statement statistics for indicators of financial distress.
4. An evaluation of the adequacy of the contractor’s internal controls related to financial planning and monitoring.
5. A follow-up on any other indicators that raise questions about the financial capability of the contractor.
The modified financial condition risk assessments, which are performed in the years the detailed risk assessment is not performed includes:
1. Calculation and analysis of the trend of the contractor’s key financial ratios without comparison to average industry ratios
2. Analysis of any significant events that the auditor becomes aware of that might impact the contractor’s financial condition.
If indicators of financial distress are encountered during the modified risk assessment then it should be expanded to perform a detailed risk assessment.
Most of the new expanded audit guidance involves detailed guidance of the above steps.
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To discuss your needs, contact Bill Lennett, Principal, at 1-925-362-0712 or email him at
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