The 2023 GAGAS exposure draft expands the audit organization’s requirements to conduct an annual internal assessment of the audit organization’s quality control system.
Wow… that’s a mouthful! This new exposure draft is layering those audit terms on thick! In simpler terms, the audit team must ensure its quality control system works every year.
Additionally, the GAO proposes expanding the audit team’s required tasks during the annual check. In the existing standards, the requirements for an annual internal assessment of quality closely mimic those for an external peer review conducted every three years. However, the exposure draft illustrates even more similarities increasing the intensity of the annual review.
Similar conclusions for peer reviews and annual internal assessments
2018 GAGAS Requirements
Per the existing standards, the GAO requests peer reviewers to conclude their reports in one of three ways:
Peer Review Report Ratings
5.72 The peer review team should use professional judgment in deciding on the type of peer review rating to issue; the ratings are as follows:
a. Peer review rating of pass: A conclusion that the audit organization’s system of quality control has been suitably designed and complied with to provide the audit organization with reasonable assurance of performing and reporting in conformity with professional standards and applicable legal and regulatory requirements in all material respects.
b. Peer review rating of pass with deficiencies: A conclusion that the audit organization’s system of quality control has been suitably designed and complied with to provide the audit organization with reasonable assurance of performing and reporting in conformity with professional standards and applicable legal and regulatory requirements in all material respects with the exception of a certain deficiency or deficiencies described in the report.
c. Peer review rating of fail: A conclusion, based on the significant deficiencies described in the report, that the audit organization’s system of quality control is not suitably designed to provide the audit organization with reasonable assurance of performing and reporting in conformity with professional standards and applicable legal and regulatory requirements in all material respects, or that the audit organization has not complied with its system of quality control to provide the audit organization with reasonable assurance of performing and reporting in conformity with professional standards and applicable legal and regulatory requirements in all material respects.
2023 GAGAS Exposure Draft
The proposed annual internal assessment performed by an audit team leader will result in similar conclusions as the above-referenced Peer Review:
Requirements: Evaluating the System of Quality Management
5.126 The senior-level official assigned responsibility and accountability for the audit organization’s system of quality management should evaluate the system of quality management at least annually.
5.127 Based on the evaluation in paragraph 5.126, the senior-level official assigned responsibility and accountability for the audit organization’s system of quality management should conclude one of the following:
- The system of quality management provides the audit organization with reasonable assurance that the objective of the system of quality management is being achieved.
- Except for matters related to identified deficiencies that have a severe but not pervasive effect on its design, implementation, and operation, the system of quality management provides the audit organization with reasonable assurance that the objective of the system of quality management is being achieved.
- The system of quality management does not provide the audit organization with reasonable assurance that the objective of the system of quality management is being achieved.
Thank goodness the GAO eliminated the words ‘failure’ and ‘deficiencies’ from the internal report. Those words are harsh and should not be used on people you work with every day.
Have something to say?
Want to comment on the 2023 GAGAS exposure draft? Respond by April 28, 2023 to YellowBookComments@gao.gov.
If you want to read the last two blogs regarding the exposure draft, please see:
Keep your eye out for future newsletters on the 2023 exposure draft!
Yellowbook-CPE.com is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: