The FIAR Directorate ensures that DoD-wide financial improvement efforts continue to mature and are integrated with transformation activities across the Department. Among its responsibilities, the FIAR Directorate develops and issues detailed financial improvement and audit preparation methodologies and guidance, also known as the FIAR Guidance.
The FIAR Guidance serves as a standard reference guide for existing and new users involved in all audit readiness initiatives across the Department. It provides instructions for implementing a consistent, Department-wide plan for achieving the Department’s financial improvement and audit readiness objectives. In addition to defining the Department’s goals, priorities, strategy, and methodology for becoming audit ready, the Guidance details the roles and responsibilities of reporting entities and service providers, as well as the processes they should follow to achieve audit readiness. The FIAR Directorate periodically updates the guidance to ensure it remains current with the Department’s priorities and aligns with all applicable Federal and Departmental financial management requirements.
The FIAR Strategy has been honed over the past few years and continues to provide a critical path for the Department. While initially seeking to balance the need to demonstrate short term accomplishments (Wave 1) against the long-term goal of achieving an unmodified opinion on the Department's financial statements (Wave 4), the FIAR Strategy has evolved to ensure consistency with OUSD(C)’s expanded priorities and focus improvement work on budgetary information, proprietary accounting data and information, mission critical asset information, and valuation.
The graphic below depicts the FIAR Strategy. For details on specific critical tasks and milestones each reporting entity must achieve, please refer to Appendix F (ODOs) and Appendix G (Services).
The FIAR Methodology (Methodology) provides a step-by-step approach to achieving improved financial information and audit readiness. Reporting entities should focus their audit readiness efforts on improving their processes, controls, and related documentation based on the results of the application of the Methodology.
The Methodology contains phases and key tasks for achieving improved financial information and audit readiness. The phases and key tasks, which can be applied uniformly regardless of the size, materiality, or scope of an assessable unit, are as follows:
- Discovery: Reporting entity documents its business processes and financial environment, defines and prioritizes its processes into assessable units, clearly defines the scope of its assertion and strategy for achieving audit readiness, identifies risks and financial reporting objectives and control activities. Reporting entity performs tests of control activities, evaluates supporting documentation, and identifies and classifies weaknesses and deficiencies. Reporting entity submits required work products to the FIAR Directorate for review in accordance with its Financial Improvement Plan (FIP) and milestone dates in Appendix F (ODOs) or Appendix G (Services). FIAR Directorate reviews work products to ensure that all audit readiness dealbreakers have been addressed and provides feedback to the reporting entity on an ongoing basis.
- Correction Action: Reporting entity defines and designs its audit ready environment, develops corrective action plans to resolve deficiencies identified during the Discovery phase, develops budget estimates of required resources to execute corrective actions, executes corrective actions and performs procedures to verify that corrective actions have successfully remediated the deficiencies. Reporting entity asserts to the FIAR Directorate that it is ready for an audit or examination.
- Assertion/Evaluation: FIAR Directorate evaluates reporting entity’s documentation and provides feedback to the reporting entity on its audit readiness status. For audit ready reporting entities, FIAR Directorate engages an auditor to perform an examination of the reporting entity’s audit readiness assertion or reporting entity undergoes an alternative form of validation, based on the reporting entity’s category in Appendix F. Deficiencies are identified, if any. The reporting entity, after evaluating the nature and extent of deficiencies, implements corrective actions to remediate those deficiencies. The reporting entity then performs procedures to verify that corrective actions successfully remediated auditor-identified deficiencies.
- Validation: Reporting entity submits examination report, results of internal review, or other documentation demonstrating remediation of auditor-identified deficiencies to the FIAR Directorate and DoD OIG. FIAR Directorate reviews examination report, results of internal review, or other documentation supporting remediation of deficiencies and makes a final determination of reporting entity's audit readiness state.
- Audit: Reporting entity engages an auditor and supports the Schedule of Budgetary Activity (SBA) audit or full scope financial statement audit. The auditor issues the audit opinion.
Embedded within each phase of the Methodology are the reporting entity's considerations of its service providers and how their activities affect its financial processes and related audit readiness initiatives. For a detailed description of the roles, responsibilities and tasks, activities, and resulting work products that must be completed by both reporting entities and service providers, please click the boxes below:
As they execute the Methodology, reporting entities are responsible for meeting interim milestones, which are described in Appendix F (ODOs) and Appendix G (Services). The FIAR Directorate will provide on-going feedback to the reporting entities to ensure the Department stays on track towards meeting its audit readiness objectives. Independent auditors will be engaged to perform financial statement audits or audit readiness examinations in conjunction with the Appendix F and Appendix G timelines.
Financial Reporting Risks, Outcomes, Key Supporting Documents, and Suggested Test Procedures
The April 2015 FIAR Guidance, Section 5, identifies “Financial Reporting Risks,” “Outcomes Demonstrating Audit Readiness,” “Key Supporting Documents,” and “Suggested Test Procedures” for individual financial statement line items. Section 5 focuses on beginning balances in the Statement of Budgetary Resources (SBR), as well as the proprietary statements: Balance Sheet, Statement of Net Cost, and Statement of Changes in Net Position. The tables below provide links to each of these areas in the FIAR Guidance.