Summary of 2003 Revisions to Government Auditing Standards

If you are performing engagements under Government Auditing Standards, you should be aware that the Government Accountability Office (GAO) issued a comprehensive revision to Government Auditing Standards on June 25, 2003. The 2003 Government Auditing Standards contains standards for financial audits, attestation engagements, and performance audits. It is effective for financial audits and attestation engagements of periods ending on or after January 1, 2004, and for performance audits beginning on or after January 1, 2004, with early application permissible. In comparison to the previous 1994 version, the 2003 revision reorganizes the order and presentation of the standards by function (such as planning, audit documentation, and report content) and makes various changes.

Among the more significant changes, the 2003 Government Auditing Standards:

·         Adds a new chapter on attestation engagements that includes additional fieldwork and reporting standards over and above what would be required under the AICPA's attestation standards.  The AICPA is currently working on various interpretations to certain of the AICPA Statements on Standards for Attestation Engagements (SSAEs) to provide illustrative attestation report illustrations prepared under both the requirements of the AICPA attestation standards and Government Auditing Standards. Watch this Web site for a notice of issuance.

·         Extends to both attestation engagements and performance audits the requirements that auditors document decisions related to internal control over data significantly dependent on computerized information systems and communicate specific information to specific parties during the planning stage of the engagement or audit.

·         Requires that audit and attestation staff collectively possess the technical knowledge, skills, and experience necessary to be competent for the type of work being performed before beginning the work on the assignment.

·         Clarifies that the 80 hours of continuing professional education (CPE) that is required every two years for each auditor performing work under Government Auditing Standards should directly enhance the auditor’s professional proficiency to perform audits or attestation engagements. The GAO is expected to review and update its existing 1991 Interpretation of Continuing Education and Training Requirements—Government Auditing Standards to address this clarification. In March 2004, however, the GAO posted a notice on its Web site to amend paragraph 46 of the 1991 Interpretation in advance of finalizing the more comprehensive update. That notice, which auditors should review for a full understanding of its provisions, explains and provides examples of how taxation courses should support the subject matter of the Government Auditing Standards engagement to count towards the 80 hour requirement. It also explains how CPE that satisfies Government Auditing Standards requirements may or may not satisfy the CPE requirements of state licensing bodies and professional organizations (and vice versa). The notice explains and provides examples of how this change in the CPE requirements is effective beginning in 2004.

·         Requires that documentation to support findings, conclusions, and recommendations be available before auditors issue their reports.

·         Expands the requirements for internal quality control systems and external peer review reports. It also requires audit organizations to include the letter of comment when they provide their peer review reports to potential clients, other auditors using their work, and to appropriate oversight bodies.

·         For financial audits, including Circular A–133 audits, adds a requirement for auditors to be alert to situations or transactions that could indicate abuse, and if indications of abuse exist that could materially affect the financial statement amounts or other financial data significant to the audit objectives, to apply procedures specifically directed to ascertain whether abuse has occurred and the effect on the financial statement amounts or other financial data. (Government Auditing Standards defines abuse as a situation that "involves behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances.") Auditors should report material abuse in the auditor's reports and communicate certain other abuse in the management letter.

You can obtain the 2003 Government Auditing Standards and a summary of the significant changes it makes to the 1994 version of the standards from the GAO Web site. That site includes other Yellow Book-related documents, including the CPE Interpretation and the Internet notice amending paragraph 46 of the Interpretation.  The AICPA Audit Guide Government Auditing Standards and Circular A–133 Audits incorporates the provisions of the 2003 Government Auditing Standards for financial audits as they relate to financial statement and Circular A–133 audits.