Explain how federal award programs are selected for audit under the risk-based approach.
What will be an ideal response?
The risk-based approach is applied as follows: First, the "larger" (per the sliding scale presented in Chapter 11) federal programs are identified as "Type A." All other programs are identified as "Type B" programs. Second, any low-risk Type A programs are identified. This involves auditor judgment after fully considering the factors discussed in Chapter 11. Third, high risk Type B programs are identified. However, the auditor is not expected to perform risk assessments on relatively small federal programs, as defined in Chapter 11. At a minimum, the auditor should audit as major programs all Type A programs not identified as low-risk. If a Type A program was not audited in the two most recent audit periods, it must be audited in the current period. In terms of Type B programs, the auditor is not required to identify more high-risk Type B programs than one fourth the number of low-risk Type A programs. As many major programs as necessary must be audited to ensure that at least 40% of total federal awards expended are audited. The exception is when an auditee is designated as low-risk. In that case, a low-risk auditee needs to have audited a sufficient number of major programs to encompass only 20 percent of total federal awards expended.
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Fill in the blank(s) with the appropriate word(s).