GAO Standards Brian M Leighton Virginia Department of

GAO Standards Brian M. Leighton Virginia Department of Motor Vehicles

United States General Accounting Office (GAO) Generally Accepted Government Auditing Standards (GAGAS)

Use and application of GAGAS

Use and application of GAGAS The purpose of GAGAS is to ensure auditors perform high quality work with: – Competence, – Integrity, – Objectivity, and – Independence in planning, conducting and reporting on government audits.

Use and application of GAGAS applies to the following auditors’ areas: – Professional qualifications and quality of their work, – The performance of field work, and the – Characteristics of meaningful reporting.

Use and application of GAGAS Audits are conducted because: – Accountability of public resources is key in our nation’s governing process. – Legislatures, other government officials, and the public want to know whether: • Laws and regulations are being enforced • Programs objectives are being met • They are getting the best ‘bang for their buck’

Use and application of GAGAS Relationship between GAGAS and other professional standards – Auditors may use GAGAS in conjunction with other professional standards. – If there is a conflict between standards that can’t be resolved, the conflict and its impact on the audit should disclosed in the audit report.

Use and application of GAGAS Relationship between GAGAS and other professional standards (cont’d) – Auditors must use professional judgement in determining how to follow GAGAS and other standards, and how to handle any inconsistencies between standards.

Use and application of GAGAS Types of Audits Conducted and Attestation Engagements – All engagements begin with objectives, and those objectives determine the type of work to be performed and the applicable standards to be followed.

Use and application of GAGAS Types of Audits Conducted and Attestation Engagements (cont’d) – The types of work, as defined by their objectives that are covered by GAGAS, are classified as: • Financial audits (will not be covered), • Attestations engagements, and • Performance audits

Use and application of GAGAS Types of Audits Conducted and Attestation Engagements (cont’d) – Attestation Engagements • The primary purpose is to report on a subject matter as compared with stated criteria. • Relates to IFTA/IRP - Verifying that summaries total up to the figures on the tax report or application.

Use and application of GAGAS Types of Audits Conducted and Attestation Engagements (cont’d) – Performance Audits • Provide conclusions relating to audit objectives for specific requirements. • Known by many different names, but are sometimes called Compliance Audits for IFTA/IRP.

Use and application of GAGAS Types of Audits Conducted and Attestation Engagements – Performance Audits (cont’d) • Audit objectives vary widely, including: – – Assessing program effectiveness and results, Internal controls, and Compliance with legal and procedural requirements. Relates to IFTA/IRP - Did source documents support summaries and reported figures on tax report / application.

II -Auditors Ethical Responsibility

Auditors Ethical Responsibility Because government auditing is essential to government accountability to the public, government auditors have ethical responsibilities to uphold and protect the public trust.

Auditors Ethical Responsibility The ethical concepts that guide the work of government auditors include: – The Public Interest • Auditors observe the principles of serving the public interest by maintaining the highest degree of integrity, objectivity, and independence.

Auditors Ethical Responsibility The ethical concepts that guide the work of government auditors include: – Professional Behavior • Comply with laws and regulations and acting in a manner consistent with the high expectations for their profession. • Conduct themselves in a manner that avoids their actions and work being misinterpreted or gives the appearance of being biased or misleading.

Auditors Ethical Responsibility The ethical concepts that guide the work of government auditors include: – Integrity • The auditor must be objective, fact-based, non-partisan, and non-ideological. • The inadvertent error and the honest difference of opinion can be tolerated, but deceit or subordination of the principles of fairness and objectivity for personal gains cannot.

Auditors Ethical Responsibility The ethical concepts that guide the work of government auditors include: – Objectivity • Auditors must be independent in fact and appearance, maintain an attitude of impartiality, have intellectual honesty, and be free of conflicts of interest.

Auditors Ethical Responsibility The ethical concepts that guide the work of government auditors include: – Proper use of Government Information, Resources and Position • Information, resources, or positions are to be used for official purposes only.

Auditors Ethical Responsibility The ethical concepts that guide the work of government auditors include: – Proper use of Government Information, Resources and Position (cont’d) • Not to be misused for personal gain or in a manner that would be contrary to the law or detrimental to the legitimate interests of involved parties.

III - General, Field Work, and Reporting Standards for Attestation Engagements

General, Field Work, and Reporting Standards for Attestation Engagements GAGAS incorporated the AICPA’s general standards on criteria, and the field work and reporting standards and the related statements on standards for attestation engagements (SSAE), unless specifically excluded or modified by GAGAS.

General, Field Work, and Reporting Standards for Attestation Engagements GAGAS established additional standards for field work for attestation engagements than required by the AICPA SSAE. The additional standards are as follows:

General, Field Work, and Reporting Standards for Attestation Engagements Additional GAGAS standards – Auditor Communication • To reduce the risk that the needs or expectations of the parties involved may be misunderstood, the auditor should communicate specific information in writing during the planning stage.

General, Field Work, and Reporting Standards for Attestation Engagements Additional GAGAS standards (cont’d) – Previous audits and attestation engagements • During planning, auditors should determine whether the results of previous audits and attestation engagements have an impact on the current engagement, including whether related recommendations have been implemented.

General, Field Work, and Reporting Standards for Attestation Engagements Additional GAGAS standards (cont’d) – Internal Controls • Auditors should obtain an understanding of internal controls as it relates to the subject matter the auditor is attesting. Including: – Effectiveness of operations, including use of resources – Compliance with applicable laws and regulations

General, Field Work, and Reporting Standards for Attestation Engagements Additional GAGAS standards (cont’d) – Standards related to fraud, illegal acts, or abuse • Design the engagement to provide reasonable assurance of detecting fraud, illegal acts or abuse. • The auditor should be alert to situations of the same. • Limited testing done in certain circumstances may not provide detection.

General, Field Work, and Reporting Standards for Attestation Engagements Additional GAGAS standards (cont’d) – Developing elements of findings • When deficiencies are identified, auditors should plan audit procedures to develop the elements of findings necessary to achieve the objectives of the attestation engagement. • Attest findings should contain the elements of criteria, condition, cause, and effect.

General, Field Work, and Reporting Standards for Attestation Engagements Additional GAGAS standards (cont’d) – Attest Documentation • Documentation must be prepared in connection with each engagement in sufficient detail to provide a clear understanding of the work performed, the evidence obtained and its source, and the conclusion reached.

General, Field Work, and Reporting Standards for Attestation Engagements AICPA Reporting Standards for Attestation Engagements – The AICPA SSAE provides for different levels of reporting based on the type of assurance the auditor is providing.

General, Field Work, and Reporting Standards for Attestation Engagements The GAGAS has expanded the reporting standards in addition to the AICPA SSAE requirements. The additional standards relate to:

General, Field Work, and Reporting Standards for Attestation Engagements Additional reporting standards – Report compliance with GAGAS – Report deficiencies in • Internal control, • Potential fraud, • Illegal acts, or • Abuse.

General, Field Work, and Reporting Standards for Attestation Engagements Additional reporting standards (cont’d) – If confidential or privileged information is omitted, a disclosure statement should be made. – Reports should be submitted to those charged with governance, officials of the entity, or those requiring or arranging the engagement.

IV - Field Work Standards for Performance Audits

Field Work Standards for Performance Audits The field work standards for performance audits relate to: • Planning the audit, • Supervising staff, • Obtaining sufficient, appropriate evidence, and • Preparing audit documentation.

Field Work Standards for Performance Audits Planning the Audit – Auditor must adequately plan and document the planning of the work necessary to achieve the audit objectives.

Field Work Standards for Performance Audits Planning the Audit (cont’d) – This includes defining objectives, and the scope and methodology to achieve those objectives. • Objectives identify the audit subject matter and performance aspects to be included. • The scope defines the subject matter to be examined, the audit period of time, and the locations that will be included.

Field Work Standards for Performance Audits Planning the Audit (cont’d) • The methodology describes the nature and extent of audit procedures for gathering and analyzing information to achieve the objectives and address the relevant risks.

Field Work Standards for Performance Audits Supervising Staff – Audit supervisors should provide sufficient guidance and supervision of staff to make sure the audit objectives are met and applicable standards are followed. – Audit supervisors should stay informed about significant problems encountered, review the work performed, and provide effective on-thejob training.

Field Work Standards for Performance Audits Supervising Staff (cont’d) – Supervision involves clearly communicating to staff members so they understand what work they are to do, why the work is being conducted, and what work is expected to accomplish.

Field Work Standards for Performance Audits Obtaining Sufficient, Appropriate Evidence – Sufficient, appropriate evidence is needed to provide a reasonable basis for findings, conclusions, and recommendations. – Professional judgement must be used in determining sufficiency and appropriateness of evidence.

Field Work Standards for Performance Audits Preparing Audit Documentation – The auditor must prepare audit documentation for each engagement to provide a clear understanding of: • The work • The audit evidence obtained and its source • The conclusions reached

Field Work Standards for Performance Audits Preparing Audit Documentation (cont’d) – Audit Documentation • Should provide support for the statement in the auditors’ report that the audit was performed in accordance with GAGAS and any other standards cited. • Provides support for the auditors conclusions.

Field Work Standards for Performance Audits Preparing Audit Documentation (cont’d) – Audit Documentation is an essential element of audit quality since the process of preparing sufficient and appropriate documentation contributes to the quality of an audit.

Field Work Standards for Performance Audits Preparing Audit Documentation (cont’d) – Proper audit documentation should allow an experienced auditor, having no previous connection with the audit, to understand: • The nature, timing, and auditing procedures performed to comply with audit standards • The results of the audit procedures performed and the audit evidence obtained • How the evidence supports the findings and conclusions • Conclusions reached on significant matters

Field Work Standards for Performance Audits Preparing Audit Documentation (cont’d) – In addition to the documentation requirements listed previously, auditors should also document the following for performance audits: • Planning, objectives, scope, and methodology of the audit, including sampling • The auditors’ risk assessment

Field Work Standards for Performance Audits Preparing Audit Documentation (cont’d) – Additional audit documentation: • The auditors’ determination that certain standards did not apply or were not followed, the reasons supporting their determination, and the known effect that not following the applicable standards had on the audit.

Field Work Standards for Performance Audits Preparing Audit Documentation (cont’d) – Additional audit documentation: • The work performed to support significant findings and recommendations, including descriptions of transactions and records examined. • Evidence of supervisory reviews of the work performed that supports findings, and recommendations in the report.

Field Work Standards for Performance Audits Preparing Audit Documentation (cont’d) – Additional audit documentation: • Decisions made during the overall assessment of evidence, including whether the information is sufficient and appropriate. • Communication with management and others. • Evidence of communication to officials of the audited entity about instances of fraud, illegal acts, and abuse.

Field Work Standards for Performance Audits Preparing Audit Documentation (cont’d) – Additional audit documentation: • Evidence of communications about deficiencies in internal control found during the audit. • If the audit does not result in a report, a memorandum for the record that summarized the results of the work and explains the reason the audit was terminated, and any communications regarding the termination.

V - Conclusion/Closing This has been an abbreviated overview of GAO audit standards. If you need additional information you can find the entire GAO standards online at: http: //www. gao. gov/govaud/ybk 01. htm

Reference

GAO Standards are from the 2006 ‘Yellow Book’ – Use and Application of GAGAS • (Sections 1. 01 through 1. 34) – Auditors Ethical Responsibility • (Sections 2. 01 through 2. 16) – General, Field Work, and Reporting Standards for Attestation Engagements • (Sections 6. 01 through 6. 45) – Field Work Standards for Performance Audits • (Sections 7. 08 through 7. 77)