Establishing Government Auditing Standards

Published by the Government Accountability Office on 1990-08-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)


           Auditing has become an int(~gral ele-
           ment of government accountability.
           This reliance on auditors ha.'j inereased
           the need for standards to guide audi·
           tors and allow others to rely on the
           auditors' work. Standards help ensure
           that audits are fair, objective, and reli-
           able assessments of government

           In preparing the 1988 revision of the
           Government Auditing Standards, I
           worked directly with an Auditing
           Standards Advisory Council that pro-
           vided valuable suggestion.<; a..'1d com-
           ments for improving the standards. A
           task force study which I recently
           requested conduded that such an
           AdvisOry Council should be estab·
           lished on a pennanent ba."is to help
           keep the standards current through
           the issuance of revisions, interpreta-
           tions, and guidance.

           I proposed such an Advisory Council
           in an exposure draft issw:,'(} in
           November 1989. The proposal
           included many of the suggestions of
           the advisory ta..,k force. The audit
           community was invited to comment on
           the draft and the plan received strong
           support. I therefore intend to proceed
           with seeking nominations and estab-
           lishing the Council.

           This document discusses the establish-
           ment of an Auditing Standards Advi-
           sory Council and the standard-setting
           process to be followed in the future.
           My experience with the previous


Advisory Council has led me to believe
that a permanent CounciL working in
<:oryunetion with General Accounting
Office support st~lff, will be an excel-
lent means of keeping the standards
up to dat,e.

Charles A, Bowsher
C{lmptroller General
of the Unitt."<l States

August 1990

                             GAO'AFMD      GAO·AFMO
Auditing Standards Advisory Coilllcil                                          Auditing Standanls
                                                                               Ad'lis{)ry L.,uncil

Introduction   Standards for government auditing                               Higher Education, and Other Non-
               were first issued by the Comptroller                            profit Institutions"), requires that
               General of the United States in 1972.                           these standards be followed in audits
               These standards were the result of a                            of entities receiving federal assistance.
               series of meetings that began in I H69
               and involved the Comptroller General,                           Auditors conducting government
               state auditors, and federal officials.                          audits under agreements or contracts
               Major revisions were made to the stan-                          may also be required to comply with
               dards in 1981 and 1988.                                         these audit standards.

               Federal legislation requires that fed-                          The government audit standards are
               eral inspectors general comply with                             generally applicable to and recom-
               audit standards established by the                              mended for use by state and local gov-
               Comptroller General for audits of fed-                          ernment auditors and public
               eral organizations, programs, activi-                           accountants in audits of state and
               ties. and functions. The legislation                            local government organizations, pro-
               further states that the inspectors gen-                         grams, activities, and functions. Sev-
               eral are to ensure that audit work con-                         eral state and local audit
               ducted by nonfederal auditors of                                organizations, as well as several
               federal organizations, programs, activ-                         nations, have officially adopted these
               ities, and functions complies with                              standards.
               these standards.

               Other federal auditors must also               Government       The Comptroller General has deter-
               follow these standards. The Office of                           mined that a permanent AdviSOry
               Management and Budget (OMB)
                                                                               Council should be established, not only
               included these standards as basic              Standards        for future revisions of Government
               audit cliteria for federal executive           Advisory         Auditing Standards, but also to pro-
               departments and agencies in OMB Cir-           Council          vide advice and guidance on the stan-
               cular A-n.                                                      dards between revisions.

               The Single Audit Act of 1984 requires
               that auditors follow these standards           Composition      The Council will be composed of 15
               when auditing state and local govern-                           members with complementary skills
               ment'> which receive federal financial                          that ensure a strong knowledge base in
               assistance.                                                     such areas as

               Implementation of other federal poli-                          federal, state, and local govenunent;
               des and regulations, such a.s OMB Cir-                       • hospitals, colleges and universities,
               cular A-13:3 ("Audits of Institutions of                       and other nonprofit entities that

                                              I;AO,','\FMll                                                   GAO/AFMll
                   Auditing Standards                                            Auditing Standards
                   Ad,'!sory Conncil                                             Aflvl80ry Golln('ll

                  receive government financial                                  The pt~ople seleeted will be considered
                  assistance;                                                   individual Council members rather
                  financial, compliance, and perfonn-                           than representatives of any group.
                  anee auditing;
                • program evaluation methods and
                                                             Tenure             Each Council member will have a 3-
                                                                                year term of office, Initially, however,
                • data processing; and
                                                                                appointments will be for terms of 2, 3,
                • management internal controls.
                                                                                and '" years in order to stagger the
                                                                                turnover over the long run.
Selection and      To identify candidates with such
Appointment        expertise, nominations will be sought
                   from organizations that are represen-     Frequency of       The Council will meet as necessary,
                                                             Meetings           generally on a quarterly basis. Mem-
                   tative of the audit community,
                   including the following:                                     bers of the Council will be expected to
                                                                                devote time to ({lUndl activities
                                                                                between meeting dates, but such
                   the American Accounting Assoeiation,
                                                                                demands are not expected to be exces-
                • the American Institute of Certified
                                                                                sive due, in part, to the support that
                   Public Accountants,
                                                                                will be prOVided by General
                • the Association of Government
                                                                                Accounting Office (GAO) staff. Travel
                                                                                and per diem expenses that members
                • the Government Finance Offieers
                                                                                incur to attend the meetings will be
                                                                                reimbursed by GAO.
                • the Institute of Internal Auditors,
                • the l\ational Association of Loeal Gov-
                  ernment Auditors,                                             The Council will advise the Comp-
                                                             Council Duties
                • the National State Auditors Associa-                          troller General on auditing standards
                  tion, and                                  and
                                                             Responsibilities   issues throughout the standard-setting
                • the President's Council on Integrity                          process. It will be involved in the iden-
                  and Efficiency.                                               tification, development, and issuance
                                                                                of revisions to Government Auditing
                  Multiple nominees will be requested                           Standards as well as interpretations of
                  from each organization. They will be                          and guidance on the st<Uldards.
                  asked to identify individuals who pos-
                  sess the knowledge and skills sought
                  for the Council. The Comptroller Gen-
                  eral will select the members.

                                                                                Pag~   7                       GAO/Af'MD
                       Auditing Standards
                       ,\dvisory Council

Auditing               There is a continuing need to keep
                       Government Auditil}g§~andards eur-
Standard-              rent through the issuance of revision..,.,
Setting Proces.q       interpnltatiolt.'l, and guidance, The fol-
                       lowing are the broad phases of the
                       standard-setting proces-"I:

                   • issue identification;
                   • issue evaluation, selection, and
                   • issue drafting;
                   • issue exposure;
                   • evaluation of comments;
                   • incorporation of necessary changes;
                   •   issuance of final document.

                       The Advisory Council will generally be
                       involved in all of these phast'S and will
                       advise the Comptroller General of its
                       views, Throughout the process, GAO
                       staff will work with the Council and
                       provide necessary staff support.

                       After considering the Council's advice,
                       the C-Omptroller General will prescribe
                       the final pronouncement, and GAO
                       staff will prepare it for issuance.