Yellow Book Update

1
Yellow Book Update

• Government Auditing Standards
• 2003 Revision

2
Introduction

• The revised Government Auditing Standards (Yellow
  Book) provide a framework to ensure that
  government auditors have
• competency, integrity, objectivity and
  independence
• to plan, conduct and report their work.

3
Introduction

• This supersedes the 1994 revision and makes
  changes that
• Redefine the types of audits and services covered
  by the standards
• Provide consistency in field work and reporting
  requirements
• Strengthen the standards and clarify language

4
Introduction

• This revision incorporates
• AICPA field work and reporting standards
• Priority issues identified by the
• Advisory Council on Government Auditing
  Standards

5
Introduction

• The Yellow Book is divided into eight chapters.
• It includes a new chapter on attestation
  engagements.
• This presentation
• summarizes those chapters,
• discusses the major changes

6
Summary by Chapter

• Chapter 1 Introduction
• The application of generally accepted government
  auditing standards (GAGAS)
• The concept of accountability for public
  resources
• The responsibilities of government program
  managers, auditors, and audit organizations in
  the audit process.

7
Summary by Chapter

• Chapter 2 Types of Engagements
• Financial audits
• Attestation engagements
• Performance audits
• Nonaudit services (not covered by GAGAS)

8
Summary by Chapter

• Chapter 3 General Standards
• Independence, including personal, external, and
  organizational impairments
• Professional judgment
• Competence of audit staff
• Quality control systems and external peer reviews

9
Summary by Chapter

• Chapter 4 Field Work Standards for Financial
  Audits
• Auditor communication
• Considering the results of previous audits and
  attestation engagements
• Detecting material misstatements and
• Audit documentation

10
Summary by Chapter

• Chapter 5 Reporting Standards for Financial
  Audits
• Reporting on
• Auditors compliance with GAGAS
• Internal control and compliance
• Deficiencies in internal control
• Views of responsible officials
• Privileged and confidential information, and
• Issuance and distribution

11
Summary by Chapter

• Chapter 6 Attestation Engagements
• General Field Work Standards
• Auditor communication
• Considering the results of previous audits
• Internal Control
• Detecting Fraud
• Developing the elements of a finding, and
• Documentation

12
Summary by Chapter

• Chapter 6 Attestation Engagements (cont)
• Reporting Standards
• Auditors compliance with GAGAS
• Internal control and compliance
• Deficiencies in internal control
• Views of responsible officials
• Privileged and confidential information, and
• Report issuance and distribution

13
Summary by Chapter

• Chapter 7 Performance Audit Field Work
  Standards
• Guidance for conducting performance audits,
  including
• Planning the audit
• Supervising staff
• Obtaining sufficient, competent and relevant
  evidence
• Preparing audit documentation

14
Summary by Chapter

• Chapter 8 Performance Audit Reporting
  Standards
• Report form
• Report contents
• Report quality
• Report issuance and distribution

15
Major Changes to the Yellow Book

• Types of audits and services and the applicable
  standards
• Financial audits
• Engagements performed under AICPA SASs
• Includes financial statement audits
• All mention of financial-related audits removed

16
Major Changes to the Yellow Book

• Types of audits and services and the applicable
  standards
• Attestation engagements
• Performed under AICPA SSAEs
• Can cover a broad range of financial or
  nonfinancial objectives

17
Major Changes to the Yellow Book

• Types of audits and services and the applicable
  standards
• Types of attestation engagements / levels of
  assurance
• Examinationsexpress opinion
• Reviewsexpress conclusion
• Agreed-upon proceduresissue a report

18
Major Changes to the Yellow Book

• Attestation engagements
• Examples available on GAO website (www.gao.gov)
• Agreed upon procedures report
• Highway Trust Fund Excise Taxes
• GAO-03-360R
• Jan 23, 2003
• Review report
• Senate Public Records Fund
• Feb 20, 2001
• GAO-01-390R

19
Major Changes to the Yellow Book

• Types of audits and services and the applicable
  standards
• Performance audits--definition expanded
• Objective, systematic examination to provide an
  independent assessment against objective criteria
• No underlying AICPA standards
• Broad applicability
• Includes prospective analyses

20
Major Changes to the Yellow Book

• Types of audits and services and the applicable
  standards
• Possible overlap between audit and attestation
  objectives
• Auditors may decide which standards to follow
• Should consider user needs and auditor skills and
  experience

21
Major Changes to the Yellow Book

• Applies GAGAS consistently to financial audits,
  attestation engagements, and performance audits
• Document decisions related to internal control
  over electronic data
• Communicate scope of work on compliance with laws
  and regulations and internal control

22
Major Changes to the Yellow Book

• Consistent application of GAGAS in financial
  audits, attestation engagements, and performance
  audits
• Must report findings on internal control and
  compliance
• Must report on internal control and compliance
  when disclaim on financial statements

23
Major Changes to the Yellow Book

• The revised Yellow Book has changed requirements
  in
• General standards
• Field Work standards
• Reporting standards

24
Major Changes to the Yellow Book

• Changes to the general standards
• Professional judgment
• Replaces due professional care
• Requires auditors to exercise professional
  skepticism and perform work with integrity

25
Major Changes to the Yellow Book

• Changes to the general standards
• Competency
• Auditors must have knowledge of GAGAS
• Requires proficiency in SSAEs when performing
  attest engagements
• CPE should directly enhance audit/attestation
  proficiency
• Audit organizations should have process for
  recruitment, hiring, continuous development, and
  evaluation of staff

26
Major Changes to the Yellow Book

• Changes to the general standards
• Quality control and assurance
• Requires documentation of compliance with quality
  control policies and procedures, including a
  monitoring system
• GAO will not recognize extensions of time frames
  for external peer reviews granted by other groups
• Should provide peer review reports and letters of
  comment to oversight bodies and auditors relying
  on work

27
Major Changes to the Yellow Book

• Changes to the field work standards
• Audit documentation
• Formerly work papers
• Required when applicable standards arent
  followed
• Should be complete for significant findings and
  conclusions before auditors issue report

28
Major Changes to the Yellow Book

• Changes to the field work standards
• Abuse
• Behavior that is deficient or improper
• Auditor should consider whether possible abuse
  affects the financial statements
• Auditor should report relevant information about
  abuse

29
Major Changes to the Yellow Book

• Changes to the reporting standards
• Privileged and Confidential Information
• Auditor may exclude some sensitive information
  from publicly available reports

30
Major Changes to the Yellow Book

• Changes to the reporting standards
• Form
• No longer requires written reports, but reports
  must be retrievable
• Permits oral agency comments

31
Major Changes to the Yellow Book

• Changes to the reporting standards
• Content Should develop the elements of a
  finding to support conclusions and
  recommendations
• Criteria
• Condition
• Cause
• Effect

32
When Do Changes Become Effective?

• For financial audits and attestation engagements
  of periods ending on or after January 1, 2004
• For performance audits beginning on or after
  January 1, 2004
• Early application is permissible

33
Major Changes to the Yellow Book

• Looking ahead
• Update CPE Interpretation
• Auditor Reporting on internal control
• Performance measurement
• Data reliability

34
Where to Find the Yellow Book

• The Yellow Book is available on GAOs website
  at
• www.gao.gov/govaud/ybk01.htm
• For technical assistance, contact us at
• yellowbook_at_gao.gov