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CPE for Government Auditors

Possible changes to the GAO’s Yellow Book

As of this writing, in February 2017, the Yellow Book is in flux.  First the GAO will issue an ‘exposure draft’ of their government audit standards (a.k.a. the Yellow Book) to allow for public comment.  After taking the public’s comments into consideration, they will issue a final version sometime in 2017.

For now, let me give you a short list of what the GAO intends to do.  This is based on a presentation given by the GAO at the Association of Government Accountants Professional Development Conference in July of 2016.  The GAO plans on:

Changing the format – The GAO is planning to revamp the format of the book to be similar to the AICPA’s clarified auditing standards format.  This should not change the content or the meaning of the standards, but it may shed light on areas that were a little muddied or obscured in previous versions of the standards.  In other words, I expect a lot of questions as users see the standards from a new perspective.

Tweaking ethics and independence – In the 2011 version, the ethics guidance in chapter 1 provided context for the independence requirements in chapter 3. In the 2017 version the two chapters will be merged.

Currently, the contents of the ethics chapter is soft.  By soft, I mean the content is philosophical and conceptual and does not contain any requirements that a peer reviewer can confirm or deny.  For example, the ethics chapter says “1.16 A distinguishing mark of an auditor is acceptance of responsibility to serve the public interest.” (Thankfully, this was not a requirement that auditors have to take literally – auditors do not have to got get a tattoo on their bicep that says “Public.”  Get it? Distinguishing mark, tattoo?)  But in chapter 3, the independence chapter, the GAO takes that soft guidance and puts teeth to it; in chapter 3 auditors are required to apply and document their application of a three step process called the ‘conceptual framework’ whenever they encounter a situation that will threaten their ability to serve the public interest.

Also, in this go round, the GAO is promising to toughen up independence requirements by asking that auditors confirm their compliance with independence standards, in writing, at least annually.  And while they are at it, they are going to add in some requirements (not soft concepts) regarding ethics.

Enhancing guidance regarding SKE – When an auditor decides to take on a non-audit service, he must first ensure that the client has someone on their side who has the skills, knowledge, and experience (SKE) to evaluate the quality of the results of the non-audit service.  The 2011 version of the Yellow Book introduced the concept of SKE, but didn’t spend a lot of space explaining how to document and prove a client’s SKE. The AICPA’s Government Audit Quality Center came up with a much more robust list of ways to prove SKE which, I am sure, the GAO is going to borrow from.

Defining how investigations fit into the standards – Yellow Book standards have never been a good fit for investigations.  In this version, the GAO will define investigations as a non-audit service.

Requiring prophylactic CPE – The 2011 standards allow auditors to work on a Yellow Book engagement without any knowledge of government auditing.  As a matter of fact, an auditor may perform government audits for a year without getting any CPE at all!  The GAO is now proposing that auditors receive four hours of government audit training before they are assigned to an audit project.

Tweaking peer review requirements – Peer review teams will now need to choose a team captain and write a letter regarding the scope of the review to the audit shop undergoing peer review. Peer reviewers will also have to consider prior peer review results and include terminated engagements in their sample population.

Adding to internal control responsibilities – The GAO is promising to give auditors more guidance regarding their responsibility to gain an understanding of internal controls in order to plan the audit.  Maybe they will reference the Green Book more specifically?  I’ll be watching this one closely.

Stay tuned to my newsletter at Yellowbook-CPE.com to stay current on the 2017 revision.

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