Government Accountability Office (GAO)

Question 1

Who has to comply with the requirements of the “yellow book”

Answer 1

Those who work on audits of government entities and entities that receive government awards

Question 2

What does the yellow-book requirement?

Answer 2

Those who audit to GAGAS are expected to audit:

1) Independently
2) In accordance with key ethical principles (The public interest, integrity, and objectivity
3) Proper use of government information, resources, and positions are for the greater good not auditors personal gain
4) Professional behavior (avoiding conflict of interest)

Question 3

What are the four key parts to the “yellow book”

Answer 3

1) Conceptual framework for making independence decisions
2) Independence for audit organizations (AOs)
3) Independence for non audit services
4) Documentation of auditor independence

Question 4

What are threats to independence that the GAO recognizes?

Answer 4

Self Interest threats 
Self-Review Threat 
Bias Threat 
Familiarity influence 
Undue Influence Threat 
Management threat 
Structural Threat- Threat resulting from an AO placement within a government entity, in combination with structure of the entity being audited

Question 5

How do you reduce structural threats?

Answer 5

Constitutional or statutory safeguards may mitigate effects of structural threats.

Directly elected by voters of the jurisdiction being audited

Elected or appointed by a legislative body and accountable to it

Appointed by someone other than a legislative body, but confirmed by and accountable to a legislative body

Appointed by and accountable to a statutorily created governing body, the majority of whose members are independently elected

Prevent audited entity from abolishing the AO

Provide that if head of the AO is removed, the head of the agency reports this to the legislative body

Prevent audited entity from interfering with the initiation, scope, timing, and completion of any audit

Prevent audited entity from interfering with audit reporting, finding, conclusions or the manner, means, or timing of the AOs reports

Question 6

Do you need to document to establishing independence?

Answer 6

Yes, the yellow book stress threats to independence and safeguards applied. Document your consideration of management’s ability to oversee a NAS to be provided by an auditor.