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What is the basis for judging quantitative materiality? In the private sector, quantitative materiality normally is assessed in relation to the financial statements taken as a whole. Auditors tradition- ally have applied a much narrower focus when assessing quantitative materiality for state and local governments. In the case of the govern- ment-wide fmancial statements, the assessment of quantitative materiality is made separately for governmental activities and business-type ac- tivities. Likewise, in the fund financial state- ments, the focus is on individual major governmental funds and individual major enter- prise funds. Some governments desire that materiality also be assessed separately for individual funds that are not major governmental funds or major en- terprise funds. This approach, known as "full-scope" auditing, effectively lowers the mate- riality threshold even further. Both the Govern- ment Finance Officers Association (GFOA) and the GASB are formally on record encouraging governments to obtain full-scope audits. They be- lieve that the benefits of full-scope auditing typi- cally more than offset the additional costs. These additional costs, however, have deterred many governments from implementing this recommen- dation. 14 AN ELECTED OFFICIAL'S GUIDE What is the independent auditor's report on compliance and internal controls over financial reporting? In an audit performed in accordance with Gov- ernmentAuditing Standards (Yellow Book), au- ditors are required to report on internal controls tested as part of the financial statement audit. In doing so, auditors must list any reportable conditions that came to light as the result of tests of controls, distinguishing those that are material weaknesses from those that are not. Auditors are not required, however, to render an opinion on the overall design and operation of the government's framework of internal controls. Auditors also must report on compliance with applicable laws and regulations. Once again, au- ditors are not required to render an opinion on whether the government complied with applica- ble laws and regulations. They are required, however, to report significant instances of non- compliance discovered in the course of the finan- cial statement audit. As a practical matter, the report on compliance and internal controls over financial reporting of- ten refers readers to a separate set of findings for information on specific reportable conditions and specific instances ofnon-compliance re- vealed in the course of the financial statement audit. TO AUDITING 35