What is considered an exception on the Annual Financial Statement (AFS) report?

Any discrepancy in amounts between the transaction recorded and the supporting source documentation is considered an exception. All exceptions, regardless of a dollar amount, must be reported and discussed.  There is no materiality threshold. The CPA must inquire of management and provide explanations where exceptions or discrepancies are noted.

If the CPA is unable to perform a procedure or any part thereof, this is also considered an exception and should be noted in the results section of the schedule. If the CPA must deviate from the procedure as specified, they should explain in the results section why the procedure could not be followed as specified, what they performed instead, and what the findings were.

The CPA should also follow any standards set by the American Institute of Certified Public Accountants (AICPA) for reporting exceptions for attest services.