6 - I: Requirement of GAO and DOL Flashcards
What does GAO stands for?
Government accounting office.
Who must comply with the ethical and professional requirements of the GAO’s “Yellow Book”?
Those who conduct GAGAS (general accountability officer’s government auditing standards) audit of government entities, entities that receive government awards.
What does the Yellow Book require?
Independence, the public interest, integrity, objectivity, proper use of government info (not for personal gain), professional behavior (law abiding, avoid conflict of interest, sensitivity to appearance of impropriety, putting forth an honest effort).
What are the four key parts of Yellow Book’s provision on ethics and independence?
Conceptual framework.
Requirement/guidance on: independence for audit organizations (AOs) structurally located within the entities they audit, independence for performing NAS, documentation of the auditor’s independence,.
What does GAO mean by independence?
Independence of mind: Ability to act w/ integrity, objectivity, professional skepticism.
Independence in appearance.
What are 3 steps to GAO’s conceptual framework for answering independence questions?
- Identify threats to independence.
- Evaluate the significance of the threats, individually/aggregate.
- Apply safeguards to eliminate threats or reduce them to an acceptable level.
What are 7 threats?
Self-interest, self-review, bias threat, familiarity, undue influence, management participation, structural threat (internal auditor reporting to a boss who doesn’t like the result).
How is a structural threat reduced to an acceptable level?
Constitutional/statutory safe guards: AO (audit organization) placed at different level or branch of governmental entities.
If the head of an AO is elected, appointed, accountable to those who are independent from the audit entity.
Or
Statutes should do: require AO to report regularly to a legislative or independent governing body, give AO a solo authority over staff, guarantee access to records and documents, prevent audited entity from abolishing the AO, if the head is removed - the head of the agency reports this to the legislative body, prevent audited entity from interfering w/ audit, and reporting.
What are requirement for the head of AO (internal auditor) to be independent?
All must apply:
Accountable to head of the government entity or to those charged w/ governance.
Reports results both to the head of the government entity and to those charged w/ governance.
Located organizationally outside the staff or line management function of the areas being audited.
Has access to those charged w/ governance.
Is sufficiently removed from political pressure to conduct audits and report findings objectively without fear of political reprisal.
Provision of NAS?
No management functions.
Ensure entity’s ability to supervise, evaluate, take responsibility.
Is documenting important for GAGAS? What must be documented?
Yes, extremely.
- Threats to independence that require the application of safeguards, along with the safe guards applied.
- Safe guards required if an audit organization is structurally located within a government entity and is considered independent based on those safeguards.
- Consideration of audited entity management’s ability to effectively oversee a NAS.
- The auditor’s understanding w/ an audited entity for which the auditor will perform a NAS.
What are three types of independence impairment?
Personal, organizational, external.
Who regulates employee benefit plan, what’s the plan name?
Department of Labor (DOL).
Employee Benefits Security Administration (EBSA) pursuant to the Employee Income Retirement Security Act (ERISA).
What are things that impairs independence for DOL?
- Financial ties: Accountant or members (broader than AICPA: all partners, shareholders employees, all professional employees in the audit, located in the office of the firm in a significant portion of the audit even not in the same office) of the firm - direct or indirect material financial interest.
- Employment ties: Promoter, underwriter, investment advisor, voting trustee, director, officers, employee of the plan or plan sponsor.
- NAS: no self-review. No rules on other NAS.
- Transaction prohibited between a plan and a “party in interest” to prevent embezzlement, conflict of interest..
