	Scope and Methodology

As part of our audit of the fiscal years 2005 and 2004 CFS, we evaluated  Treasury’s financial reporting procedures and related internal control, and  we followed up on the status of Treasury and OMB corrective actions to  address open recommendations regarding the process for preparing the  CFS that were in our prior years’ reports. In our disclaimer of opinion on  the fiscal year 2005 CFS, which is included in the fiscal year 2005 Financial  Report of the United States Government, we discussed material  deficiencies relating to Treasury’s preparation of the CFS. In our prior report, we recommended that as Treasury continues to design  and further implement its new process for compiling the CFS, the Secretary  of the Treasury should direct the Fiscal Assistant Secretary, in coordination  with the Controller of OMB, to modify Treasury’s closing package to   (1) require federal agencies to directly link their audited financial  statement notes to the CFS notes and (2) provide the necessary  information to demonstrate that all of the five principal consolidated  financial statements are consistent with the underlying information in  federal agencies’ audited financial statements and other financial data. Progress was made during fiscal year 2005. Comparability of Financial Statements

The CFS includes 2 years of financial information. Audit Assurance over Certain Federal Agencies’ Closing Packages

Treasury and OMB did not require closing packages from 4 of the 35  verifying agencies to be audited. Status of Treasury’s and OMB’s Progress in Addressing GAO’s Prior Year Recommendations for Preparing the CFS

This appendix includes open recommendations from three of our prior  reports: Financial Audit: Process for Preparing the Consolidated  Financial Statements of the U.S. Government Needs Improvement, GAO- 04-45 (Washington, D.C.: Oct. 30, 2003); Financial Audit: Process for  Preparing the Consolidated Financial Statements of the U.S. Government  Needs Further Improvement, GAO-04-866 (Washington, D.C.: Sept. 10,  2004); and Financial Audit: Process for Preparing the Consolidated  Financial Statements of the U.S. Government Continues to Need  Improvement, GAO-05-407 (Washington, D.C.: May 4, 2005). Of the 154 recommendations regarding the process for preparing the CFS  that are listed in this appendix, 131 remained open as of December 2, 2005,  the end of GAO’s fieldwork for the audit of the fiscal year 2005 CFS. Of  these 131 recommendations, 76 relate to specific disclosures required  under U.S. generally accepted accounting principles (GAAP). Treasury has  submitted a proposal to the Federal Accounting Standards Advisory Board  (FASAB) seeking to amend previously issued standards and eliminate or  lessen the disclosure requirements for the consolidated financial  statements so that GAAP would no longer require certain of the  information Treasury has not been reporting. Comments on the exposure  draft of a proposed FASAB standard, based on the Treasury proposal, are  due March 1, 2006.
Why GAO Did This Study

For the past 9 years, since our first audit of the consolidated financial statements of the U.S. government (CFS), certain material weaknesses in internal control and in selected accounting and financial reporting practices have resulted in conditions that prevented GAO from expressing an opinion on the CFS. Specifically, GAO has reported that the U.S. government did not have adequate systems, controls, and procedures to properly prepare the CFS. Included with GAO's December 2005 disclaimer of opinion on the fiscal year 2005 CFS was its discussion of continuing weaknesses relating to the Department of the Treasury's (Treasury) preparation of the CFS. The purpose of this report is to (1) provide details of those additional weaknesses, (2) recommend improvements, and (3) describe the status of corrective actions on GAO's previous 154 recommendations.

What GAO Found

GAO identified weaknesses during its tests of Treasury's process for preparing the fiscal year 2005 CFS. Such weaknesses in the CFS preparation process impair the U.S. government's ability to ensure that the CFS is consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles. The weaknesses GAO identified during the fiscal year 2005 CFS audit involved the following areas: (1) directly linking audited federal agency financial statements to the CFS, (2) comparability of financial statements, (3) audit assurance over certain federal agencies' closing packages, (4) internal control monitoring, (5) consolidated reporting guidance to federal agencies, (6) reconciling of intragovernmental activity and balances, and (7) various other internal control weaknesses that were identified in previous years' audits but remained in fiscal year 2005. Of the 154 recommendations GAO reported in May 2005 regarding the process for preparing the CFS, 131 remained open as of December 2, 2005, when GAO completed its fieldwork for the audit of the fiscal year 2005 CFS. However, 76 of these 131 recommendations relate to specific disclosures required under U.S. generally accepted accounting principles. Treasury has submitted a proposal to the Federal Accounting Standards Advisory Board (FASAB) seeking to amend previously issued standards and eliminate or lessen the disclosure requirements for the consolidated financial statements so that U.S. generally accepted accounting principles would no longer require certain of the information Treasury has not been reporting. Comments on the exposure draft of a proposed FASAB standard, based on the Treasury proposal, were due March 1, 2006. GAO will continue to monitor the status of corrective actions to address open recommendations during its fiscal year 2006 audit of the CFS.