Update on the Developments in Government Auditing Standards

Transcription

1 Update on the Developments in Government Auditing Standards Yellow Book Update Presentation to the AGA PDT July 22, 2018 Session Objective Provide an update on revisions to the 2018 Yellow Book 2 1

2 GAGAS Revision Process Exposure draft was issued for public comment on April 5, 2017 Public comments were due to GAO no later than July 6, 2017 GAO received over 1,700 individual comments on the exposure draft. Comment letters can be viewed at Issuance in July Summary of Key Changes from 2011 Revision New format and organization of GAGAS Independence threats related to preparing financial statements Guidance for CPE requirements GAGAS Qualification CPE requirement Peer review requirements 4 2

3 Summary of Key Changes from 2011 Revision Internal control: financial audits and examination engagements Internal control: performance audits New requirements for addressing waste Standards for reviews of financial statements Management assertions 5 New Format and Organization of GAGAS Chapters are presented in a revised format that differentiates requirements from application guidance Chapters are reorganized and realigned Supplemental guidance from the appendix of the 2011 revision is either removed or incorporated into individual chapters 6 3

4 New Format and Organization of GAGAS 7 Independence Threats related to Preparing Financial Statements Nonaudit services performed by auditors related to financial statements either create significant threats to independence or impair independence Financial statement preparation is always a significant threat (except typing, formatting, printing, and binding services) Auditors should: Document the threats and safeguards applied to eliminate and reduce threats to an acceptable level OR Decline to perform the service 8 4

5 Independence Considerations for Preparing Accounting Records and Financial Statements 9 Additional Independence Updates Added application guidance to define Skill Knowledge and Experience (SKE) An indicator is management s ability to recognize a material error Updated application guidance to clarify that certain services provided by government audit organizations would generally not create threats to independence Allowability of certain IG functions such as investigations 10 5

6 Guidance for CPE Requirements 11 GAGAS Qualification CPE Requirement Update GAGAS Qualification Requirement = 4 hours CPE in GAGAS Topics Supervisors and partners or directors: requirement should be met before completing work on their first GAGAS engagement Entry-level staff: requirement should be met by the end of their first full 2-year CPE period After initial GAGAS qualification requirement is met, auditors should complete at least 4 hours of CPE in GAGAS topics each time the Comptroller General issues a revision of GAGAS 12 6

7 CPE Requirements and Guidance Removed the 4-hour GAGAS Qualification CPE requirement from the exposure draft Added application guidance related to obtaining GAGAS specific CPE each time a new Yellow Book revision is issued 13 Specialists Engagement team should determine whether specialists are qualified and competent in their areas of specialization Specialists are not subject to Yellow Book CPE requirements IT Auditors are not specialists and are thus are subject to the CPE requirements 14 7

8 Peer Review Requirements Peer review section differentiates requirements for those audit organizations affiliated with a recognized organization Audit organization affiliated with a recognized organization? Yes No 15 Peer Review Requirements: Affiliated Audit organizations affiliated with a recognized organization Compliance with the respective organization s peer review requirements Additional GAGAS peer review requirements in areas such as: selection of GAGAS engagements, peer review report ratings, and availability of peer review report to the public 16 8

9 Peer Review Requirements: Not Affiliated Audit organizations not affiliated with a recognized organization Compliance with GAGAS peer review requirements in areas such as: Peer review scope Peer review intervals Written agreement for peer review Peer review team Follow-up on prior peer review Assessment of peer review risk Report content Peer review report ratings Audit organization s response to the peer review report Availability of the peer review report to the public 17 Peer Review Report Ratings Pass Pass with deficiencies Fail Communicate deficiencies in the peer review report Communicate deficiencies and significant deficiencies in the peer review report 18 9

10 Internal Control: Financial Audits and Examination Engagements Considering a comprehensive internal control framework such as Standards for Internal Control in the Federal Government or Internal Control Integrated Framework can help auditors identify the cause of findings and develop recommendations 19 Elements of a Finding Condition - the situation that exists Criteria - standards for what should be Cause - the explanation of why the condition deviates (if it does) from the criteria Effect - the actual or potential consequences of allowing the condition to persist 20 10

11 Internal Control: Financial Audits and Examination Engagements No significant changes in these requirements However, there is added emphasis to consider whether findings are indicative of internal control issues. 21 Internal Control: Performance Audits Auditors should document the significance of internal control to performance audit objectives Internal control significant to audit objectives? Yes No Document and Proceed (See next slide) Document Reassess, as applicable, for new or refined objectives 22 11

12 Internal Control: Performance Audits Internal control significant to audit objectives = Yes Obtain an understanding of internal control that is significant to the audit objectives Assess and document the assessment of internal control to the extent necessary to address the audit objectives Evaluate and document the significance of identified internal control deficiencies within the context of the audit objectives Consider internal control deficiencies when developing the cause element of findings Identify in the audit report which internal control components and principles are significant 23 Governmental Auditor Attention Areas FRAUD WASTE ABUSE 24 12

13 New Considerations for Addressing Waste Waste is the act of using or expending resources carelessly, extravagantly, or to no purpose Waste can include activities that do not include fraud and abuse and does not necessarily involve a violation of law Waste relates primarily to mismanagement, inappropriate actions, and inadequate oversight 25 Waste and Abuse Auditor responsibilities related to waste and abuse Waste responsibilities are intended to be consistent with abuse responsibilities Auditors are not required to perform procedures to detect or to report abuse or waste Evaluating internal control in a government environment may include consideration of internal control deficiencies that result in waste or abuse 26 13

14 Standards for Reviews of Financial Statements SSARS Reference Incorporate the Statements on Standards for Accounting and Review Services (SSARS) specific to financial statement reviews SSARS Benefit This will enhance flexibility on reviews 27 Standards for Reviews of Financial Statements For auditors conducting reviews of financial statements in accordance with GAGAS, GAGAS incorporates AR-C, Section 90, Review of Financial Statements 2011 GAGAS only incorporated reviews performed under the Statements on Standards for Attestation Engagements (SSAE) SSAE includes reviews of interim financial information in connection with audited financial statements SSARS is more general in nature and is not connected with audited financial statements 28 14

15 Management Assertions and Performance Audits Yellow Book has an explicit statement that assertions are not required for Performance Audits Assertions for Examinations under AICPA Attestation Standards are a "hot topic" 29 Effective Date 2018 Revision is effective for - Financial audits and attestation engagements for periods ending on or after June 30, Performance audits beginning after July 1, 2019 Early implementation is not permitted 30 15

16 Where to Find the Yellow Book The Yellow Book is available on GAO s website at: For technical assistance, contact us at: yellowbook@gao.gov or call (202) Thank You Questions? 32 16