[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-detail-173836-en":3,"doc-seo-173836-105":30,"detail-sidebar-cat-1-en-105":92},{"code":4,"msg":5,"data":6},0,"success",{"doc_id":7,"user_id":8,"nickname":9,"user_avatar":10,"doc_module":11,"category_id":12,"category_name":13,"doc_title":14,"doc_description":15,"doc_content":16,"file_id":17,"file_url":18,"file_type":19,"file_size":20,"view_count":11,"is_deleted":4,"is_public":11,"is_downloadable":11,"audit_status":11,"page_count":21,"language":22,"language_code":23,"site_id":24,"html_lang":23,"table_of_contents":25,"faqs":26,"seo_title":27,"seo_description":15,"update_tm":28,"read_time":29},173836,549768072016,"WPS_1786070896","https://ap-avatar.wpscdn.com/davatar_155a257f0dc6eb9ab79c44ca47cae57d",1,21,"Paper Templates","Chapter 1 - Direct Laws - Compliance Supplement","Chapter 1 defines “direct and material compliance” in the context of auditing government financial statements, explaining how certain laws must be captured by a government’s information systems to determine reported amounts and required disclosures. The chapter clarifies distinctions between direct and indirect compliance effects, outlines how material noncompliance can drive adjusting amounts, revised disclosures, contingent liabilities, and GAGAS findings, and connects these requirements to relevant AU-C guidance, AICPA AAG sections, and GASB/Ohio legal budget basis considerations.","CHAPTER 1\nDIRECT LAWS\nAU-C 250 Consideration of Laws and Regulations in an Audit of Financial Statements clarifies the auditor’s responsibility regarding OCS tests:\n“.02 . . . The provisions of some laws or regulations have a direct effect on the financial statements in that they determine the reported amounts and [required] disclosures in an entity's financial statements. . .”\nConversely:\n“.A13  Many laws and regulations relating principally to the operating aspects of the entity do not directly affect the financial statements (their financial statement effect is indirect) and are not captured by the entity's information systems relevant to financial reporting. Their indirect effect may result from the need to disclose a contingent liability because of the allegation or determination of identified or suspected noncompliance.”\nBased on the above (and AU-C 250.A9 – .A11), “direct and material compliance” refers only to laws a government’s information system (which includes its accounting system) must “capture” to determine financial statement amounts and required disclosures.  Therefore, we have classified a law as direct in this OCS if noncompliance has the potential to materially misstate the financial statements. Chapter 1 of this compliance supplement includes “direct” laws.\nAs one example, GAAP requires governments to present budgetary comparisons as basic statements or as Required Supplementary Information (RSI).\nGAAP also requires these presentations to follow the government’s legal budget basis.\nIn Ohio, a “5705 government’s” information system must capture information using the accounting basis Ohio Rev. Code Chapter 5705 (via GASB Cod. 2400) prescribes to compile budget and actual amounts and budget variances GAAP requires.\nOhio Rev. Code Chapter 5705 generally prescribes a cash + encumbrance accounting basis, which a compiler must understand and follow to satisfy GAAP.\nImportant Note: This example discusses the GAAP requirements prior to the implementation of GASB 103. Upon implementation, GASB 103 requires governments to present budgetary comparison information as RSI which is a change to how many Ohio governments have presented budgetary comparison information in the past.  GASB 103 is effective for fiscal years beginning after June 15, 2025.  Earlier application is encouraged.\nIn addition to the discussion above from AU-C 250, the AICPA Audit and Accounting Guide State and Local Governments (AAG SLG), sections 4.11 through 4.24, discusses legal requirements which might directly and materially affect determining financial statement amounts for a governmental entity. Material noncompliance (having a direct or indirect effect) would often:\nRequire adjusting amounts or revising disclosures.\nAuditors should do the same regarding noncompliance indirectly affecting financial statement amounts or disclosures, if they become aware of it.\nFor example, AU-C 250.06 b.iii describes material penalties as an indirect effect, though they may require disclosure or even accrual as a contingent expense\nRequire reporting as a material GAGAS noncompliance finding.\nMay represent significant / material violations of “finance-related legal and contractual provisions”\nGASB Cod. 2300.106(h) requires “notes to the financial statements essential to fair presentation in the basic financial statements include significant violations of finance-related legal or contractual provisions and actions taken to address such violations”.\nSee the OCS Implementation Guide Introduction for the Finance Related Legal or Contractual Provisions.\nNOTE:  Red text throughout this Ohio Compliance Supplement is related to COVID-19 and the Infrastructure Investment and Jobs Act (IIJA).\nAAG SLG 4.14 lists categories of compliance requirements that may directly and materially affect the determination of financial statement amounts and disclosures.  When preparing this edition of the OCS we considered the examples in AAG SLG 4.14.  Each law in OCS Chapter 1 has potenti","cbCaicig8QUAmVz8","https://ap.wps.com/l/cbCaicig8QUAmVz8","docx",433733,116,"English","en",105,"# Direct Laws\n## Compliance Requirement: Budgetary - Ohio Rev. Code § 5705.38 Annual appropriation measures - classification.\n## Compliance Requirements: Budgetary - Ohio Rev. Code §§ 5705.41 (D) and 5705.42 - Restriction upon appropriation and expenditure of money – certificate of fiscal officer.\n## Compliance Requirement: Budgetary - Ohio Rev. Code § 5705.40 - Amending or supplementing appropriation, ordinance – transfer – unencumbered balance – appropriation for contingencies.\n## Compliance Requirement: Budgetary - Ohio Rev. Code §§ 5705.09 and 5705.12 - Establishing funds and Permission to establish special funds.","[{\"question\":\"What does “direct and material compliance” mean for an OCS?\",\"answer\":\"It refers to laws that a government’s information system must capture to determine financial statement amounts and required disclosures. Noncompliance must have the potential to materially misstate the financial statements.\"},{\"question\":\"How do direct and indirect legal effects differ in audits?\",\"answer\":\"Direct effects determine reported amounts and required disclosures and are captured by relevant systems. Indirect effects may still require disclosure, such as when noncompliance leads to contingent liabilities or disclosure of penalties.\"},{\"question\":\"What changes did GASB 103 introduce for budgetary comparison information?\",\"answer\":\"GASB 103 requires governments to present budgetary comparison information as Required Supplementary Information (RSI). It is effective for fiscal years beginning after June 15, 2025, with earlier application encouraged.\"}]","Chapter 1 - Direct Laws - Compliance Supplement | DOCX",1788307841,41,{"code":4,"msg":31,"data":32},"ok",{"site_id":24,"language":23,"slug":33,"title":14,"keywords":34,"description":15,"schema_data":35,"social_meta":87,"head_meta":89,"extra_data":91,"updated_unix":28},"chapter-1-direct-laws-compliance-supplement","",{"@graph":36,"@context":86},[37,54,69],{"@type":38,"itemListElement":39},"BreadcrumbList",[40,44,48,51],{"item":41,"name":42,"@type":43,"position":11},"https://docshare.wps.com","Home","ListItem",{"item":45,"name":46,"@type":43,"position":47},"https://docshare.wps.com/template/","Template",2,{"item":49,"name":13,"@type":43,"position":50},"https://docshare.wps.com/template/paper-templates/",3,{"item":52,"name":14,"@type":43,"position":53},"https://docshare.wps.com/template/chapter-1-direct-laws-compliance-supplement/173836/",4,{"url":52,"name":14,"@type":55,"author":56,"headline":14,"publisher":58,"fileFormat":61,"inLanguage":23,"description":15,"dateModified":62,"datePublished":63,"encodingFormat":61,"isAccessibleForFree":64,"interactionStatistic":65},"DigitalDocument",{"name":9,"@type":57},"Person",{"url":41,"name":59,"@type":60},"DocShare","Organization","application/vnd.openxmlformats-officedocument.wordprocessingml.document","2026-09-06","2026-09-02",true,{"@type":66,"interactionType":67,"userInteractionCount":11},"InteractionCounter",{"@type":68},"ViewAction",{"@type":70,"mainEntity":71},"FAQPage",[72,78,82],{"name":73,"@type":74,"acceptedAnswer":75},"What does “direct and material compliance” mean for an OCS?","Question",{"text":76,"@type":77},"It refers to laws that a government’s information system must capture to determine financial statement amounts and required disclosures. Noncompliance must have the potential to materially misstate the financial statements.","Answer",{"name":79,"@type":74,"acceptedAnswer":80},"How do direct and indirect legal effects differ in audits?",{"text":81,"@type":77},"Direct effects determine reported amounts and required disclosures and are captured by relevant systems. Indirect effects may still require disclosure, such as when noncompliance leads to contingent liabilities or disclosure of penalties.",{"name":83,"@type":74,"acceptedAnswer":84},"What changes did GASB 103 introduce for budgetary comparison information?",{"text":85,"@type":77},"GASB 103 requires governments to present budgetary comparison information as Required Supplementary Information (RSI). It is effective for fiscal years beginning after June 15, 2025, with earlier application encouraged.","https://schema.org",{"og:url":52,"og:type":88,"og:title":14,"og:site_name":59,"og:description":15},"article",{"robots":90,"canonical":52},"index,follow",{"doc_id":7,"site_id":24},{"code":4,"msg":5,"data":93},[94,99,104,109,114,119,124,129,132],{"id":95,"doc_module":11,"doc_module_name":46,"category_name":96,"show_sort_weight":97,"slug":98},11,"Presentations",90,"presentations",{"id":100,"doc_module":11,"doc_module_name":46,"category_name":101,"show_sort_weight":102,"slug":103},12,"Resumes",80,"resumes",{"id":105,"doc_module":11,"doc_module_name":46,"category_name":106,"show_sort_weight":107,"slug":108},14,"Invoices",70,"invoices",{"id":110,"doc_module":11,"doc_module_name":46,"category_name":111,"show_sort_weight":112,"slug":113},15,"Posters",60,"posters",{"id":115,"doc_module":11,"doc_module_name":46,"category_name":116,"show_sort_weight":117,"slug":118},16,"Social Media",50,"social-media",{"id":120,"doc_module":11,"doc_module_name":46,"category_name":121,"show_sort_weight":122,"slug":123},17,"Forms",40,"forms",{"id":125,"doc_module":11,"doc_module_name":46,"category_name":126,"show_sort_weight":127,"slug":128},18,"Letters",30,"letters",{"id":12,"doc_module":11,"doc_module_name":46,"category_name":13,"show_sort_weight":130,"slug":131},5,"papers-templates",{"id":133,"doc_module":11,"doc_module_name":46,"category_name":134,"show_sort_weight":4,"slug":135},158,"General","general-158"]