GOVERNMENT AUDITING STANDARDS

Government Auditing Standards, often referred to as the Yellow Book, is the publication that presents generally accepted government auditing standards (GAGAS) promulgated under the leadership of the comptroller general of the United States, who heads the U.S. Government Accountability Office. (At the time of the 2003 revision of the standards, the name of this office was the U.S. General Accounting Office.)

THE AUTHORITY OF GOVERNMENT AUDITING STANDARDS

The Yellow Book includes standards to guide all audits of governmental units, irrespective of the level of the unit, as well as guidance for reviews and agreed-upon procedures. The comptroller general noted:

These standards are broad statements of auditors' responsibilities. They provide an overall framework for ensuring that auditors have the competence, integrity, … objectivity, and independence in planning, conducting, and reporting on their work. (Yellow Book, p. 1)

RELATIONSHIP BETWEEN GAGAS AND OTHER PROFESSIONAL STANDARDS

The Yellow Book recognizes the value of other professional standards. Incorporated in this volume are the fieldwork and reporting standards and related statements on auditing standards for financial audits as declared by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA), unless specifically excluded in the guidance in the Yellow Book. The AICPA general standard on criteria, and the fieldwork and reporting standards and related statements for attestation engagements, are also included, unless excluded specifically (p. 8).

LIMITATION OF THE YELLOW BOOK

The title, Government Auditing Standards, is somewhat misleading, because the guidance extends to engagements that are not audits. The June 2003 edition, considered a revision of the edition issued in June 1994, is, however, markedly different. In addition to audits, the 2003 edition includes guidance for engagements.

In the 2003 edition, even though nonaudit engagements are included, the same statement is required in reports of all engagements, which is "that the engagement was made in accordance with GAGAS." Yet, engagements that are reviews or agreed-upon procedures have different requirements, which do not include the rigorous standards of audits. The statement "in accordance with GAGAS" is not sufficiently specific since strategies and procedures differ markedly among audits (or examinations), reviews and agreed-upon procedures. The reader should be provided with more identifying information.

The Auditing Standards Board of the AICPA, on the other hand, provides guidance for reporting that requires reports to state explicitly the type of engagement completed and the guidance followed. A basic requirement for any report provided by a public accountant is that the report must not be any way be misleading or incomplete as to its nature, scope, and level of assurance.

THE GUIDANCE FOR AUDITS AND EXAMINATIONS

Financial audits, attestation examinations (considered an equivalent term to audits), and performance audits are guided by GAGAS.

Financial audits

These audits are completed primarily to provide reasonable assurance about whether financial statements are presented fairly in all material respects in conformity with generally accepted accounting principles (GAAP), or with a comprehensive basis of accounting, other than GAAP. Additionally, auditing compliance with regulations is included in this category.

Attestation examination

As noted in the guidance, "attestation engagements can cover a broad range of financial or nonfinancial subjects and can be a part of a financial audit or performance audit."

Performance audits

Such audits include systematic examination of relevant evidence to provide an independent assessment of the performance of a government organization, program, activity, or function.

Engagements that are combinations

A government audit may be a combination of the foregoing types. For example, external auditors conduct audits of government contracts and grants with private-sector organizations where financial, attestation, and performance objectives are audited. Furthermore, an audit engagement may be extended to include nonaudit activities for which the assurance is not equivalent to that provided as a result of an audit.

GENERAL STANDARDS FOR ALL ENGAGEMENTS

The introduction to Chapter 3 on general standards states: "These general standards concern the fundamental requirements for ensuring the credibility auditors' work…. These general standards provide the underlying framework that is critical in effectively applying the field work and reporting standards" (p. 27).

General standards require that the audit entity be organizationally independent and that the individual auditors assigned to an engagement maintain independence in attitude and in appearance and use professional judgment in both planning and performing audits. Staff assigned to perform an audit should collectively possess adequate professional competence for tasks assigned. Moreover, the audit organization must have an appropriate internal quality control system that is evaluated by external peer reviewers.

FIELD STANDARDS FOR FINANCIAL AUDITS

The field standards of GAGAS incorporate the three field standards as established by the AICPA's Auditing Standards Board, which relate to planning, understanding internal control, and obtaining sufficient evidential matter. Additional standards of GAGAS relate to the following: auditor communication, consideration of previous audits' results, detection of material misstatements, development of elements of a finding, and audit documentation.

REPORTING STANDARDS

Reporting standards incorporate the four reporting statements of the Auditing Standards Board. Those statements require that:

1. Financial statements are presented in accordance with generally accepted accounting principles
2. Any change in consistency is reported, even if auditor approved of such change
3. Disclosures are informative and are reasonably adequate
4. There is an expression of opinion

Additionally, these standards also require reporting:

• Auditors' compliance with GAGAS
• Internal control and compliance with laws, regulations, and provisions of contracts or grant agreements
• Deficiencies in internal control, fraud, illegal acts, violations of provisions of contracts or grant agreements, and abuse
• Views of responsible officials
• Privileged and confidential information
• Issuance and distribution details

GENERAL, FIELD, AND REPORTING STANDARDS FOR ATTESTATION EXAMINATIONS

In addition to the general standards for all engagements, the Yellow Book 's attestation standards accept the AICPA's general standard for attestation examinations that relates to criteria which must be available for the completion of such an engagement. Additionally, there are the following:

Field standards

The AICPA's attestation field standards related to examinations that require planning and obtaining sufficient evidence are accepted as field standards for GAGAS. The subjects of GAGAS field standards are: auditor communication; consideration of results of previous audits and attestation engagements; internal control; detection of fraud, illegal acts, violations of contracts and grant agreements and abuse; development elements of findings; and documentation of planning, evidence, and conclusions.

Reporting standards

The AICPA's reporting standards for all levels of reporting under attestation engagements are accepted for GAGAS. These are:

1. Subject matter or assertion and the character of the engagement are to be identified
2. Conclusions in relation the criteria are presented
3. Reservations that are significant, if any, are stated
4. If use of the report is restricted (specific circumstances are provided in the guidance)

GAGAS also prescribes the following standards that report:

• Auditors' compliance with GAGAS
• Deficiencies in internal control, fraud, illegal acts, violations of provisions of contracts or grants, and abuse
• Views of responsible officials
• Privileged and confidential information
• Issuance and distribution details

FIELD AND REPORTING STANDARDS FOR PERFORMANCE AUDITS

Field and reporting standards for performance audits overlap to some extent with those for financial audits. Field standards are related to (1) planning; (2) supervision; (3) design of the audit when laws, regulations, and other compliance requirements are significant to the audit objective; (4) understanding of management controls when relevant to the audit; and (5) sufficient, competent, relevant evidence.

Reporting standards are related to (1) preparation of written reports that communicate results; (2) appropriate issuance; (3) reporting audit objectives as well as scope and methodology; (4) the need for a complete, accurate, objective, convincing, and clear and concise report; and (5) report distribution.

THE IMPACT OF THE PUBLIC COMPANY ACCOUNTABILITY OVERSIGHT BOARD

With the passage of the Sarbanes-Oxley Act of 2002 and the subsequent establishment of the Public Company Accountability Oversight Board (PCAOB), a process of evaluating current auditing guidance and developing new guidance began. The comptroller general of the United States noted: "As the PCAOB promulgates auditing standards for audits of these entities, GAO will continue to closely monitor the actions of both standard setting bodies [AICPA and PCAOB] and will issue clarifying guidance as necessary on the incorporation of future standards by either standard setting body" (Yellow Book, pp. 3, 4).

In mid-2005, for example, GAO provided guidance that allowed auditors to prepare GAGAS reports on internal control based on the definition of "material weakness" contained in PCAOB's Auditing Standard No. 2—Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements.

see also Government Accounting; United States Government Accountability Office

bibliography

U.S. Government Accounting Office. http://www.gao.gov

U.S. Government Accounting Office. Comptroller General of the United States. (2001, June). Federal Information Systems controls audit manual: Vol. 1. Financial statements audits AIMD-12.19.s. Retrieved November 14, 2005, from http://www.gao.gov/special.pubs/afm.html

U.S. Government Accounting Office. Comptroller General of the United States. (2004). GAO/PCIE [President's Council on Integrity and Efficiency] financial audit manual (including July 2004 updates). Retrieved November 14, 2005, from http://www.gao.gov/special.pubs/gaopcie

U.S. Government Accountability Office. Comptroller General of the United States. (2003, June). Government auditing standards (The yellow book). Washington, DC: GAO.

Bernard H. Newman

Mary Ellen Oliverio