United States General Accounting Office 

By the Comptroller General 

of the United States 

1988 Revision Government 

Auditing 

Standards 
United States General Accounting Office 

By the Comptroller General 

of the United States 

1988 Revision Government 

Auditing 

Standards 

Standards for Audit of 

Governmental Organizations, 

Programs, Activities, and Functions 
Foreword 

The past three decades have seen a substantial 

increase in the number and dollar amounts of government programs and services, including large 

expenditures of public moneys to solve critical 

social and financial problems in the public, government and industry. This increase has brought with 

it a demand for full accountability by those 

entrusted with public funds and the responsibility 

for properly managing government programs and 

services. 

Auditing has become an integral element of government accountability. This reliance on auditors has 

enhanced the need for standards to guide auditors 

and allow others to rely on auditors’ work. Standards help ensure that audits are fair, objective, 

and reliable assessments of government 

performance. 

This revision of the standards supersedes the 1981 

revision, and becomes effective for audits starting 

January 1, 1989. Early application of the standards 

is permissible. 

I want to personally thank those who provided suggestions and comments for improving the standards, and to especially thank the members of the 

Auditing Standards Advisory Council and the project team for their advice and efforts in preparing 

this revision of the standards. 

Charles A. Bowsher 

Comptroller General 

of the United States 

July 1988 

Page i 
contents 

Foreword 

Chapter 1 

Introduction Purpose 1-l 

Applicability l-l 

Relationship to AICPA Standards 1-3 

Accountability 1-3 

Basic Premises 1-4 

Auditor Responsibility l-6 

Procurement of Audit Services 1-6 

Chapter 2 

Types of 

Government 

Audits 

Purpose 

Financial Audits 

Performance Audits 

Understanding the Audit Objectives and 

2-l 

2-l 

2-1 

2-3 

2-5 

Scope 

Other Activities of an Audit Organization 2-6 

Chapter 3 

General Standards Purpose 

Qualifications 

Independence 

Due Professional Care 

Quality Control 

Chapter 4 

Field Work 

Standards for 

Financial Audits 

Chapter 5 

Reporting 

Standards for 

Financial Audits 

Purpose 

Planning 

Evidence 

Internal Control 

Purpose 

Statement on Auditing Standards 

Report on Compliance 

Report on Internal Controls 

Reporting on Financial Related Audits 

Privileged and Confidential Information 

Report Distribution 

3-l 

3-l 

3-l 

3-4 

3-10 

3-17 

4-1 

4-l 

4-l 

4-6 

4-7 

5-l 

5-l 

5-l 

5-2 

5-6 

5-10 

5-10 

5-11 

Page ii 
Chapter 6 

Field Work 

Standards for 

Performance 

Audits 

Chapter 7 

Reporting 

Standards for 

Performance 

Audits 

Appendixes 

Purpose 

Planning 

Supervision 

Legal and Regulatory Requirements 

Internal Control 

Evidence 

Purpose 

Form 

Timeliness 

Report Contents 

Report Presentation 

Report Distribution 

Appendix A: Summary of Statement on 

Government Auditing Standards 

Appendix B: Overview of Standards 

Appendix C: Auditing Standards Advisory 

Council 

6-1 

6-l 

6-l 

6-8 

6-9 

6-13 

6-16 

7-l 

7-l 

7-l 

7-2 

7-2 

7-12 

7-15 

A-l 

B-l 

C-l 

Glossary 

Index 

G-l 

I-l 

Page iii 
Page iv 
Chapter 1 

h-ttroduction 

Purpose 1. This statement contains standards for audits of 

government organizations, programs, activities, and 

functions, and of government funds received by 

contractors, nonprofit organizations, and other 

nongovernment organizations. The standards are to 

be followed by auditors and audit organizations 

when required by law, regulation, agreement or 

contract, or policy. The standards pertain to the 

auditor’s professional qualifications, the quality of 

audit effort, and the characteristics of professional 

and meaningful audit reports. 

Applicability 2. Federal legislation requires that the federal inspectors general comply with audit standards established by the Comptroller General for audits of 

federal organizations, programs, activities, and 

functions. The legislation further states that the 

inspectors general are to ensure that audit work 

conducted by nonfederal auditors of federal organizations, programs, activities, and functions complies 

with these standards1 

a. Other federal auditors must also follow these stardards. The Office of Management and Budget (OMR) 

included these standards as basic audit criteria for 

federal executive departments and agencies in OMB 

Circular A-73.’ 

4. The Single Audit Act of 1984 requires that these 

standards be followed by auditors auditing state 

‘See the lnspertor General Act of 1978, as amended, 5 IJ.S.C. App. 

(1982). 

%ee section 6 of OMB Circular A-73, “Audit of Federal Operations and Programs ” 

Page 1-l 
Chapter 1 

Introduction 

and local governments which receive federal financial assistance.:3 

5. Implementation of other federal policies and regulations, such as OMB Circular A-110, requires that 

these standards be followed in audits of entities 

receiving federal assistance.4 

6. Auditors conducting government audits under 

agreements or contracts also may be required to 

comply with these audit standards under the terms 

of the agreement or contract. 

7. The audit standards set forth in this statement are 

generally applicable to and recommended for use by 

state and local government auditors and public 

accountants in audits of state and local government 

organizations, programs, activities, and functions. 

Several state and local audit organizations, as well 

as several nations have officially adopted these 

standards. 

s. The Institute of Internal Auditors and the American 

Evaluation Association (formerly the Evaluation 

Research Society) have issued related standards5 

“See the Single Audit Act of 1984 (31 U.S.C. 7501.7507); OMB Circular A-128, “Audits of State and Local Governments;” and 

American Instltutr of Crrtified Public Accountants (AICPA) Audit 

and Accounting Guide for Audits of State and Local Governmental Units. The act and circular establish audit requirements for 

state and local governments and Indian tribal governments that 

receive federal financial assistance. The act and arcular require 

that audits of these entities be made in accordance with the Standards in this statement. The a& also include? -ific audit 

requirements that wrwd the minimum audit .equirements set 

forth in the standards lo thw statement. 

‘See OMB Circular A- I IO “Grants and Agreements With Institutlons of Higher Edncatwn. Hospitals, and Other Nonprofit 

Organizations ” 

‘Standards for the Professional Practice of Internal Auditing, The 

Institute of Internal Auditors, Inc., copyright 1978; and New 

- Directions for Program Evalaation: Standards for EvaIuatmn 

Practice, no. 15. San Francisco: Jossey-Bass, September 1982. 

Page l-2 
Chapter 1 

Introduction 

Relationship s. 

to AICPA 

Standards 

10. 

II. 

Accountability 12. 

13. 

The AICPA has issued standards that are applicable 

to and generally accepted for audits conducted to 

express opinions on the fairness with which an 

organization’s financial statements present the 

financial position, results of operations, and cash 

flows or changes in financial position.” 

The AIWA standards for field work and reporting 

have been incorporated into this statement for 

financial audits. As additional statements on auditing standards are issued by the AICPA, they will be 

adopted and incorporated into these standards 

unless GAO exchldes them by formal announcement. 

GAO has established a formal system for issuing government auditing standards and related interpretations and guidance to the audit community. 

Our system of government today rests on an elaborate structure of interlocking relationships among 

all levels of government for managing public programs. Officials and employees who manage these 

programs must render a full account of their activities to the public. While not always specified by 

law, this accountability concept is inherent in the 

governing processes of this nation. 

The requirement for accountability has caused a 

demand for more information about government 

programs and services. Public officials, legislators, 

and private citizens want and need to know not 

only whether government funds are handled properly and in compliance with laws and regulations, 

“The standards aw mcluded in “Statements on Auditing Standards” (SAS) issued by the AICPA. The AICPA Statement on Standards for Attestatmn Engagements may apply to some financial 

audits. The AICPA also issues interpretations and audit guides to 

provide guidance 0” the application of standards. These interpretations and guides do nut have the authonty of a standard issud 

by thr AICPA: hwwver. auditors may haw to Justify departures 

from them if thv quabty of their work is questmned. 

Page 1-3 
Chapter 1 

xntroduction 

but also whether government organizations, programs, and services are achieving the purposes for 

which they were authorized and funded and 

whether they are doing so economically and 

efficiently. 

14. This statement provides auditing standards to help 

ensure full accountability and assist government 

officials and employees in carrying out their 

responsibilities. The audit standards are more than 

the codification of current practices. They include 

concepts and audit areas that are still evolving and 

are vital to the accountability objectives sought in 

auditing governments and their programs and 

services. 

Basic Premises 15. The following premises underlie these standards 

and were considered in their development. 

a. The term “audit” includes both financial and performance audits as described in this statement. 

b. Public officials have the responsibility to apply 

resources efficiently, economically, and effectively 

to achieve the purposes for which the resources 

were furnished. This responsibility applies to all 

resources, whether entrusted to public officials by 

their own constituency or by other levels of 

government. 

c. Public officials are accountable both to the public 

and to other levels and branches of government for 

the resources provided to carry out government 

programs and services. Consequently they should 

provide appropriate reports to those to whom they 

are accountable. 

d. Public officials are responsible for establishing 

and maintaining an effective internal control system to ensure that appropriate goals and objectives 

Page l-4 
Chapter 1 

introduction 

are met; resources are safeguarded; laws and regulations are followed; and reliable data are obtained, 

maintained, and fairly disclosed. 

e. Public officials are responsible for complying 

with applicable laws and regulations. That responsibility encompasses identifying the requirements 

with which the entity and the official must comply 

and implementing systems designed to achieve compliance with those requirements. 

f. Financial auditing is an important part of the 

accountability process since it provides an independent opinion on whether an entity’s financial statements present fairly the results of financial 

operations, and whether other financial information 

is presented in conformity with established or 

stated criteria. Performance auditing is also an 

important part of the accountability process 

because it provides an independent view on the 

extent to which government officials are faithfully, 

efficiently, and effectively carrying out their 

responsibilities. 

g. Unless legal restrictions or ethical considerations 

prevent it, auditees or audit organizations should 

make audit reports available to the public and to 

other levels of government that have supplied 

resources.’ 

h. Different levels of government share common 

interests in many programs. In many government 

financial assistance programs, the interests of individual governments often cannot be isolated 

because the resources applied have been commingled. Therefore, audits of financial assistance programs having common interests and shared funding 

should, to the extent practicable, be designed to satisfy the common accountability interests of each 

contributing government. 

‘The Single Audit Act (31 U.S.C. 7502 (f)) requres that the report 

on single audits bv made available for public inspection 

Page l-5 
Chapter 1 

Introduction 

i. Cooperation by federal, state, and local govern 

ments in auditing programs of common interest will 

minimize duplication of audit effort and benefit all 

concerned, and is a practical approach in auditing 

intergovernmental operations. 

j. Auditors may rely on the work of others to the 

extent feasible oncr they satisfy themselves as to 

the other’s independence, capability, and performance by appropriate tests of the work or by other 

acceptable methods.” 

Auditor 16. The comprehensive nature of government auditing 

Responsibility places on the audit organization the responsibility 

for ensuring that the audit is conducted by personnel who collectively have the necessary skills, that 

independence is maintained, that applicable standards are followed in conducting government 

audits, and that the organization has an appropriate 

internal quality control system in place, and participates in an external quality control review program. 

Procurement 

of Audit 

Services 

17. While not an audit standard, it is important that a 

sound procurement practice be followed when contracting for audit services. Sound contract award 

and approval procedures, including the monitoring 

of contract performance, should be in place. The 

objectives and scope of the audit should be made 

clear. In addition to price, other factors to be considered include: the responsiveness of the bidder to 

the request for proposal; the past experience of the 

bidder; availability of bidder staff with professional 

qualifications and technical abilities; and whether 

the bidder organization participates in an external 

quality control review program.” 

‘See chapter 3, par~~r;rph 37, for guidance to follow in relying on 

the work of others 

“See How to Avoid a Substandard Audit. Suggestions for Procurmg an Audit, Natioml Intrrgovernmental Audit Forum, May 

lR8P. 

Page 1-6 
Chapter 1 

Introduction 

18. The remainder of this statement describes types of 

government audits and prescribes standards for 

conducting such audits. 

Page l-7 
Chapter 2 

Types of Government Audits 

Purpose 1. This chapter describes the types of audits that government and nongovernment audit organizations 

conduct, and that government organizations 

arrange to have conducted, of government organizations, programs, activities, functions, and funds. 

This description is not intended to limit or require 

the types of audits that may be conducted or 

arranged. In conducting these types of audits, auditors should follow the applicable standards 

included and incorporated in the chapters which 

follow. 

2. All audits begin with objectives and those objectives 

determine the type of audit to be conducted and the 

audit standards to be followed. The types of government audits, as defined by their objectives, are 

classified in this statement as financial audits or 

performance audits. 

finacid Audits 3. Financial audits include financial statement and 

financial related audits. 

a. Financial statement audits determine (1) whether 

the financial statements of an audited entity present fairly the financial position, results of operations, and cash flows or changes in financial 

position in accordance with generally accepted 

accounting principles,’ and (2) whether the entity 

has complied with laws and regulations for those 

transactions and events that may have a material 

effect on the financial statements. 

‘Three authoritative bodies for generally accepted accounting 

principles are: the Governmental Accounting Standards Board 

(GA’%), the Financial Accounting Standards Board (FASB), and 

the General Accounting Office (GAO). GASB establishes accounting principles and financial reporting standards for state and local 

government entities GAO establishes accounting principles and 

financial reporting standards for the federal government. FASB 

establishes accountmg principles for nongovernment entities. 

Some state and local governments and regulatory bodies also have 

established specific accountmg principles. 

Page 2-l 
Chapter 2 

Types of Government Audits 

b. Financial related audits include determining 

(1) whether financial reports and related items, 

such as elements, accounts, or funds are fairly presented, (2) whether financial information is presented in accordance with established or stated 

criteria, and (3) whether the entity has adhered to 

specific financial compliance requirements.’ 

4. Financial related audits may include audits of the 

following items:” 

a. Segments of financial statements. 

b. Financial information (e.g., statement of revenue 

and expenses, statement of cash receipts and disbursements, statement of fixed assets). 

c. Reports and schedules on financial matters, such 

as expenditures for specific programs or services, 

budget requests, and variances between estimated 

and actual financial performance. 

d. Contracts (e.g., bid proposals, contract pricing, 

amounts billed, amounts due on termination claims, 

compliance with contract terms). 

e. Grants. 

f. Internal control systems and structure over 

accounting, financial reporting, and transaction 

processing. 

g. Computer-based systems 

h. Financial systems (e.g., payroll systems) 

i. Fraud 

‘The AICPA Statement on Standards for Attestation Fnga@nents 

may apply to some financial related audits. 

Page 2-2 
Chapter 2 

Types of Government Audits 

5. The audit standards included and incorporated in 

chapters 3,4, and 5 of this statement apply to all 

aspects of financial statement and financial related 

audits, unless otherwise stated. 

Performance 6. 

Audits 

Performance audits include economy and efficiency 

and program audits. 1 

a. Economy and efficiency audits include determining (1) whether the entity is acquiring, protecting, 

and using its resources (such as personnel, property, and space) economically and efficiently, 

(2) the causes of inefficiencies or uneconomical 

practices, and (3) whether the entity has complied 

with laws and regulations concerning matters of 

economy and efficiency. 

b. Program audits include determining (1) the 

extent to which the desired results or benefits 

established by the legislature or other authorizing 

body are being achieved, (2) the effectiveness of 

organizations, programs, activities, or functions, 

and (3) whether the entity has complied with laws 

and regulations applicable to the program. 

7. Economy and efficiency audits may, for example, 

consider whether the entity: 

a. Is following sound procurement practices. 

b. Is acquiring the appropriate type, quality, and 

amount of resources when needed at the lowest 

cost. 

c. Is properly protecting and maintaining its 

resources. 

4Performance audits fncompass value-for-money audits which 

asess whether govcnunent entities are managed with regard for 

economy and efficiency, and for effectiveness measurement, and 

in compliance with applicable laws, regulations, and directives 

However, the ObJectives in performance audits are more comprchensive than those m valutb-for-money audits. 

Page 2-3 
Chapter 2 

Types of Government Audits 

d. Is avoiding duplication of effort by employees 

and work that serves little or no purpose. 

e. Is avoiding idleness and overstaffing. 

f. Is using efficient operating procedures. 

g. Is using the minimum amount of resources (staff, 

equipment, and facilities) in producing or delivering 

the appropriate quantity and quality of goods or 

services in a timely manner. 

h. Is complying with requirements of laws and regulations that could significantly affect the acquisition, protection, and use of the entity’s resources. 

i. Has an adequate system for measuring and 

reporting performance on economy and efficiency 

8. Program audits may, for example:” 

a. Assess whether the objectives of a proposed, 

new, or ongoing program are proper, suitable, or 

relevant. 

b. Determine the extent to which a program 

achieves a desired level of program results. 

c. Assess the effectiveness of the program and/or of 

individual program components. 

d. Identify factors inhibiting satisfact,ory 

performance. 

e. Determine whether management has considered 

alternatives for carrying out the program that 

might yield desired results more effectively or at a 

lower cost. 

“These audits may also apply to services, activities, and functions 

as well as programs. 

Page 2-4 
Chapter 2 

Types of Government Audits 

f. Determine whether the program complements, 

duplicates, overlaps, or conflicts with other related 

programs. 

g. Identify ways of making programs work better. 

h. Assess compliance with laws and regulations 

applicable to the program. 

i. Assess the adequacy of management’s system for 

measuring and reporting effectiveness. 

9. Generally, at the completion of a performance audit 

the auditor does not express an opinion on the overall level of performance. Therefore these standards 

do not contemplate that the auditor will be called 

upon to give such an opinion. Rather, the auditor 

would report findings and conclusions on the extent 

and adequacy of performance, and on specific 

processes, methods, and internal controls that can 

be made more efficient or effective. If potential for 

improvement is found, the auditor would recommend appropriate corrective actions. 

10. The audit standards included in chapters 3,6, and 7 

of this statement apply to all aspects of economy 

and efficiency and program audits unless otherwise 

stated. 

Understanding 11. The importance and comprehensive nature of govthe Audit ernment auditing places on government officials 

Objectives and 

scope 

who authorize or arrange government audits the 

responsibility for providing audit coverage that is 

broad enough to help fulfill the reasonable needs of 

potential users of the audit report. This omprehensive nature of auditing also highlights the importance of the auditor having a clear understanding of 

the audit objectives, the scope of the work to be 

conducted, and the reporting requirements. 

Page 2-6 
Chapter 2 

Types of Guvemment Audits 

12. 

Other Activities 13. 

of an Audit 

Organization 

14. 

15. 

- 

Audits may have a combination of financial and 

performance audit objectives, or may have objectives limited to only some aspects of one audit type. 

For example, auditors conduct audits of govern 

ment contracts and grants with private sector organizations, as well as government and nonprofit 

organizations, that often include both financial and 

performance objectives. These are commonly 

referred to as “contract audits” or “grant audits.” 

Other examples of such audits include specific 

audits of internal controls, compliance, and computer-based systems. Auditors should follow the 

appropriate standards in this statement that are 

applicable to the individual objectives of the audit. 

Auditors may perform services other than audits. 

For example, the auditor may gather information 

about a program, activity, or function without analysis, conclusions, and recommendations. The head 

of the audit organization should establish policy on 

which audit standards from this statement should 

be followed by the auditors in performing such services. However, as a minimum, auditors should collectively possess adequate professional proficiency 

and exercise due professional care for the service 

being performed. 

An audit organization may be authorized to perform 

investigative work. The head of the audit organization should establish policy on whether the audit 

standards in this statement, or some other appropriate standards, are to be followed by the employees 

performing this work. 

Employees of an audit organization may also perform, within the audit organization, nonaudit activities, such as legal, administrative, and computer 

processing functions. The head of the audit organization should establish policy on what standards in 

this statement are to be followed, or whether some 

other appropriate standards are to be followed, by 

the employees in performing this type of work. 

Page 2-6 
Chapter 3 

General Standards 

Purpose 1. This chapter prescribes general standards for conducting financial and performance audits. These 

general standards relate to the qualifications of the 

staff, the audit organization’s and the individual 

auditor’s independence, the exercise of due professional care in conducting the audit and in preparing 

related reports. and the presence of quality controls General standards are distinct from those 

standards that relate to conducting field work and 

preparing related reports. 

z. These general standards apply to all audit organizations, both government and nongovernment (e.g., 

public accounting firms and consulting firms), conducting government audits unless excluded in the 

general standards that follow. (The AICPA'S general 

standards are similar to these general standards but 

apply mainly to the members of the AICPA.) 

Qualifications 3. The first general standard for government auditing 

is: 

The staff assigned to conduct the audit should 

collectively possess adequate professional proflciency for the tasks required. 

4. This standard places responsibility on the audit 

organization to ensure that the audit is conducted 

by staff who collectively have the knowledge and 

skills necessary for the audit to be conducted. They 

should also have a thorough knowledge of the government environment and government auditing relative to the nature of the audit being conducted. 

5. The qualifications mentioned herein apply to the 

knowledge and skills of the audit organization as a 

whole and not necessarily to every individual auditor. If an organization employs personnel, or hires 

outside consultants, with acceptable knowledge and 

skills in such areas as accounting, statistics, law, 

Page 3-l 
Chapter 3 

General Standards 

engineering, audit design and methodology, automatic data processing, public administration, economics, social sciences, and actuarial science, each 

individual staff member need not possess all these 

skills and knowledge. 

Continuing 

Education 

Requirements 

6. To meet this standard, the audit organization 

should have a program to ensure that its staff maintain professional proficiency through continuing 

education and training. To satisfy this requirement, 

auditors responsible for planning, directing, conducting, or reporting on government audits should 

complete, every 2 years, at least 80 hours of continuing education and training which contributes to 

the auditor’s professional proficiency. At least 20 

hours should be completed in any one year of the 2- 

year period. Individuals responsible for planning, 

directing, conducting substantial portions of the 

field work, or reporting on the government audit 

should complete at least 24 of the 80 hours of continuing education and training in subjects directly 

related to the government environment and to government auditing.’ If the audited entity operates in 

a specific or unique environment, auditors should 

receive training that is related to that environment. 

7. The audit organization is responsible for establishing and implementing a program to ensure that 

auditors meet the continuing education and training 

requirements stated above. The organization should 

maintain documentation of the education and training completed. 

‘All continuing education and training requirements should be 

met within 2 years from the effective date of the standards. For 

entry-level employees with less than 2 years with the audit organization, on the effectwe date of thii requirement, a pro&a 

number of hours would be acceptable. 

Page 3-2 
Chapter 3 

General Standards 

8. The continuing education and training may include 

such topics as current developments in audit methodology, accounting, assessment of internal controls, principles of management and supervision, 

financial management, statistical sampling, evaluation design, and data analysis. It may also include 

subjects related to the auditor’s field of work, such 

as public administration, public policy and structure, industrial engineering, economics, social sciences, and computer science. 

9. External consultants and internal experts and specialists should be qualified and maintain their professional proficiency in their area of expertise and/ 

or specialization but are not required to meet the 

above continuing education and training requirements. Auditors performing nonaudit activities and 

services also are not required to meet the above 

continuing education and training requirements. 

Staff IO. Qualifications for staff members conducting governQualifications ment audits include: 

a. A knowledge of the methods and techniques 

applicable to government auditing and the education, skills, and experience to apply such knowledge 

to the audit being conducted. 

b. A knowledge of government organizations, programs, activities, and functions. 

c. The skills to communicate clearly and effectively, 

both orally and in writing. 

d. Skills appropriate for the audit work being conducted. For instance: 

(1) If the work requires use of statistical sampling, 

the staff or consultants to the staff should include 

persons with statistical sampling skills. 

Page 3-3 
Chapter 3 

General Standards 

(2) If the work requires extensive review of computerized systems, the staff or consultants to the staff 

should include persons with computer audit skills. 

(3) If the work involves review of complex engineering data, the staff or consultants to the staff should 

include persons with engineering skills. 

(4) If the work involves the use of nontraditional 

audit methodologies, the staff or consultants to the 

staff should include persons with the necessary 

skills. 

e. The following qualifications are needed for financial audits that lead t,o an expression of an opinion: 

(1) The auditor should be proficient in the appropriate accounting principles and standards and in government auditing. 

(2) The public accountants engaged to conduct 

audits should be: (a) licensed certified public 

accountants or persons working for a licensed certified public accounting firm or(b) public accountants licensed on or before December 31, 1970, or 

persons working for a public accounting firm 

licensed on or before December 3 1, 1970.’ 

Independence 11. The second general standard for government auditing is: 

In all matters relating to the audit work, the 

audit organization and the individual auditors, 

whether government or public, should be free 

‘Accountants and accounting firms meeting these licensing 

requirements should also comply with the applicable provisions 

of the public accountancy law and rules of the jurisdidion(s) 

where the audit is bang conducted and the jurisdiction(s) in 

which they are Iiwnsed 

Page 3-4 
Chapter 3 

General standards 

from personal and external impairments to independence, should be organizationally independent, and should maintain an independent 

attitude and appearance. 

1% This standard places responsibility on the auditor 

and the audit organization to maintain independence so that opinions, conclusions, judgments, and 

recommendations will be impartial and will be 

viewed as impartial by knowledgeable third parties. 

13. Auditors should consider not only whether they are 

independent and their attitudes and beliefs permit 

them to be independent, but also whether there is 

anything about their situation that might lead 

others to question their independence. All situations 

deserve consideration because it is essential not 

only that auditors are, in fact, independent and 

impartial, but also that knowledgeable third parties 

consider them so. 

14. Government auditors, including hired consultants 

and internal experts and specialists, need to consider three general classes of impairments to independence-personal, external, and organizational. 

If one or more of these impairments affect an auditor’s ability to do the work and report findings 

impartially, the auditor should either decline to perform the audit, or in those situations when the auditor cannot decline to perform the audit, the 

impairment(s) should be reported in the scope section of the audit report. In addition, in cases when 

the auditors are employees of the audited entity, 

that fact should be reflected in a prominent place in 

the audit report. 

15. Nongovernmental auditors also need to consider 

those personal and external impairments that might 

affect their ability to do their work and report their 

findings impartially. If their ability is adversely 

affected, they should decline to perform the audit, 

Public accountants should also follow the AICPA code 

Page 3-5 
Chapter 3 

General Standards 

of professional ethics, the code of professional conduct of the state board with jurisdiction over the 

practice of the public accountant and the audit 

organization, and the personal and external impairments included in this statement. 

Personal 

Impairments 

16. There are circumstances in which auditors may not 

be impartial, or may not be perceived to be impartial. The audit organization is responsible for having policies and procedures in place to help 

determine if auditors have any personal impairments. Managers and supervisors need to be alert 

for personal impairments of their staff members. 

Auditors are responsible for notifying the appropriate official within their audit organization if they 

have any personal impairments. These impairments 

apply to individual auditors, but they may also 

apply to the audit organization. Personal impairments may include, but are not limited to, the 

following. 

a. Official, professional, personal, or financial relationship9 that might cause the auditor to limit the 

extent of the inquiry, to limit disclosure, or to 

weaken or slant audit findings in any way. 

b. Preconceived ideas toward individuals, groups, 

organizations, or objectives of a particular program 

that could bias the audit. 

c. Previous responsibility for decision-making or 

managing an entity that would affect current operations of the entity or program being audited. 

d. Biases, including those induced by political or 

social convictions, that result from employment in, 

3Wben auditing state and local governments, the public accountant should be familiar with AICPA Professional Ethics Interpretation 101-10. This interpretation establishes specific rules on 

financial relationships that impair the public accountant’s 

independenw. 

Page 3-6 
Chapter 3 

General Standards 

or loyalty to, a particular group, organization, or 

level of government. 

e. Subsequent performance of an audit by the same 

individual who, for example, had previously 

approved invoices, payrolls, claims, and other proposed payments of the entity or program being 

audited. 

f. Concurrent or subsequent performance of an 

audit by the same individual who maintained the 

official accounting records.4 

g. Financial interest, direct or substantial indirect, 

in the audited entity or program. 

External 

Impairments 

17. Factors external to the audit organization may 

restrict the audit or interfere with an auditor’s ability to form independent and objective opinions and 

conclusions. For example, under the following conditions an audit may be adversely affected and the 

auditor may not have complete freedom to make an 

independent and objective judgment. 

a. Interference or influence external to the audit 

organization that improperly or imprudently knits 

or modifies the scope of an audit. 

b. Interference external to the audit organization 

with the selection or application of audit procedures or in the selection of transactions to be 

examined. 

*For example, an individual performs a substantial part of the 

accounting process or cycle, such as analyzing, jourmlizing, posting, preparing adjusting and closing entries, and preparing the 

fmancial statements, and later the same individual performs an 

audit. In instances in which the auditor acts as the main promsor 

for transactions initiated by the audited entity, but the audited 

entity acknowledges responsibility for the financial records and 

fmancial statements, the independence of the auditor is not necessarily impaired. 

Page 3-7 
chapter 3 

General Standards 

c. Unreasonable restrictions on the time allowed to 

competently complete an audit. 

d. Interference external to the audit organization in 

the assignment, appointment, and promotion of 

audit personnel. 

e. Restrictions on funds or other resources provided 

to the audit organization that would adversely 

affect the audit organization’s ability to carry out 

its responsibilities, 

f. Authority to overrule or to influence the auditor’s 

judgment as to the appropriate content of an audit 

report. 

g. Influences that jeopardize the auditor’s continued 

employment for reasons other than competency or 

the need for audit services. 

Organizational 

Independence 

18. 

Internal Auditors 19. 

20. 

Government auditors’ independence can be affected 

by their place within the structure of the govemment entity to which they are assigned and also by 

whether they are auditing internally or auditing 

other entities. 

A federal, state, or local government audit organization, or an audit organization within other govemment entities, such as a government college, 

university, or hospital, may be subject to administrative direction from persons involved in the government management process. To help achieve 

organizational independence, the audit organization 

should report the results of their audits and be 

accountable to the head or deputy head of the government entity and should be organizationally 

located outside the staff or line management function of the unit under audit. 

Auditors should also be sufficiently removed from 

political pressures to ensure that they can conduct 

Page 3-8 
chapter 3 

General Standards 

21 

22. 

!3xkrnal Auditors 23. 

24. 

25. 

their audits objectively and can report their findings, opinions, and conclusions objectively without 

fear of political repercussion. Whenever feasible, 

they should be under a personnel system in which 

compensation, training, job tenure, and advancement are based on merit. 

If the above conditions are met, and no personal or 

external impairments exist, the audit staff should 

be considered organizationally independent to audit 

internally and free to report objectively to top 

management. 

When organizationally independent internal auditors conduct audits external to the government 

entity to which they are directly assigned, they may 

be considered independent of the audited entity and 

free to report objectively to the head or deputy 

head of the government entity to which assigned. 

Government auditors employed by audit organizations whose heads are elected and legislative auditors auditing executive entities may be considered 

free of organizational impairments when auditing 

outside the government entity to which they are 

assigned. 

Government auditors may be presumed to be independent of the audited entity, assuming no personal 

or external impairments exist, if the entity is: 

a. A level of government other than the one to 

which they are assigned (federal, state, or local). 

b. A different branch of government within the 

level of government to which they are assigned (legislative, executive, or judicial). 

Government auditors may also be presumed to be 

independent, assuming no personal or external 

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Chapter 3 

General Standards 

impairments exist, if the audit organization’s head 

is: 

a. Elected by the citizens of their jurisdiction. 

b. Elected or appointed by a legislative body of the 

level of government to which they are assigned and 

report the results of their audits to and are accountable to the legislative body. 

c. Appointed by the chief executive but are confirmed by, report the results of their audits to, and 

are accountable to a legislative body of the level of 

government to which they are assigned. 

Due 

Professional 

Care 

26. The third general standard for government auditing 

is: 

Due professional care should be used in conducting the audit and in preparing related 

reports. 

27. This standard places responsibility on the auditor 

and the audit organization to follow all applicable 

standards in conducting government audits. Auditors should use sound professional judgment in 

determining the standards that are applicable to the 

work to be conducted, and therefore should be followed. Situations may occur where government 

auditors are not able to follow an applicable standard and are not able to withdraw from the audit. In 

these situations, the auditors should disclose in the 

scope section of their report, the fact that an applicable standard was not followed, the reasons therefor, and the known effect not following the 

standard had on the results of the audit. The auditors’ determination that certain standards do not 

apply to the audit should be documented in the 

working papers. 

28. Exercising due professional care means using sound 

judgment in establishing the scope, selecting the 

Page 3.10 
chapter 3 

General Standards 

methodology, and choosing tests and procedures for 

the audit. The same sound judgment should be 

applied in conducting the tests and procedures and 

in evaluating and reporting on the audit results. At 

a minimum, determining the scope of the audit to be 

conducted, the methodology to be used, and the 

extent of tests and procedures to be conducted 

requires consideration of: 

a. What is necessary to achieve the audit objectives. 

b. Materiality and/or significance of matters to 

which the tests, procedures, and methodology are 

applied. 

c. Effectiveness and/or efficiency of internal 

controls. 

d. Cost versus benefits of the audit and the extent 

of the work being done. (However, situations may 

occur in which an audit organization is required to 

conduct an audit even though the cost of the audit 

exceeds the benefits to be derived.) 

e. Reporting timeframes that must be met. 

29. The quality of audit work and related reports 

depends upon the degree to which: 

a. The audit scope, methodology, and the tests and 

procedures used in the audit are adequate to provide reasonable assurance that the audit objectives 

are accomplished. When appropriate, statistical 

sampling, standardized data collection, statistical 

inference, quantitative techniques, and other 

aspects of quantitative analysis should be used. 

b. Findings and conclusions are based on an objective evaluation of pertinent evidence. 

c. Findings and conclusions in reports are fully supported by sufficient, competent, and relevant evidence obtained or developed during the audit. 

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chapter 3 

General Standards 

d. The audit process conforms with the field work 

standards and the reporting standards set forth in 

this statement. 

e. A supervisory review is made of the work conducted, the judgments made in the audit, and the 

audit report. 

30. A body of technical knowledge on types of audits, 

tests, procedures, and methodology exists. Some are 

generalized and some are specific to certain industries, types of audits, or special circumstances. 

Auditors should have a sufficient awareness of this 

body of knowledge to apply it to the audit being 

undertaken. This awareness is necessary to ensure 

that the selected methodology, tests and procedures 

are appropriate. 

31. Due professional care also includes obtaining a 

mutual understanding of the audit objectives and 

scope with the audited entity as well as with those 

who authorized or requested the audit. It also 

includes obtaining a working understanding of the 

operations to be audited and when necessary, available performance measurement criteria (including 

laws and regulations). When the criteria are vague, 

the auditors should seek interpretation. If interpretation is not available, auditors should strive to 

agree on the appropriateness of these measures 

with the interested parties, or if applicable, indicate 

that they were unable to report upon performance 

because of the lack of definitive criteria. 

32. While this standard also places responsibility on the 

auditor and audit organization to exercise due professional care in the performance of a quality 

appropriate for the audit assignment undertaken, it 

does not imply unlimited responsibility; neither 

does it imply infallibility on the part of either the 

individual auditor or the audit organization. 

Page 3.12 
chapter 3 

General Standards 

Materiality and 

Significance 

33. The auditor should consider materiality and/or significance in planning the audit and in selecting the 

methodology and designing audit tests and procedures as well as in deciding whether a matter 

requires disclosure in an audit report. One of the 

criteria to be considered in determining materiality 

includes the monetary value of the item. However, 

materiality and significance often depend on qualitative as well as quantitative factors. Qualitative 

factors include, but are not limited to the cumulative effect and impact of immaterial items, the 

objectives of the work undertaken, and the use of 

the reported information by the user or groups of 

users of the information. Decisions on these criteria 

are baaed on the auditor’s professional judgment. In 

government audits the materiality level and/or 

threshold of acceptable risk may be lower than in 

similar-type audits in the private sector because of 

the public accountability of the entity, the various 

legal and regulatory requirements, and the visibility 

and sensitivity of government programs, activities, 

and functions. 

34. In determining materiality and/or significance and 

audit risk the auditor may consider the following. 

a. Amount of revenues and expenditures. 

b. Newness of the activity or changes in its 

conditions. 

c. Adequacy of internal controls 

d. Results of prior audits. 

e. Level and extent of review or other form of independent oversight. 

f. Adequacy of the internal controls for ensuring 

compliance with laws and regulations. 

g. Management’s adherence to applicable laws and 

regulations. 

Page 3.13 
Chapter 3 

General Standards 

h. Audit report users’ expectations. 

i. Public perceptions and political sensitivity of the 

areas under audit. 

j. Audit requirements. 

Relying on Work 35. One factor underlying government auditing is that 

of Others federal, state, and local governments cooperate in 

auditing programs of common interest so that auditors may use other’s work and avoid duplicate audit 

efforts. In conducting an audit, auditors may rely 

on the work of others to the extent feasible once 

they satisfy themselves of the quality of the others 

work by appropriate tests or by other acceptable 

methods. 

36. Relying on the work of others reduces the amount 

of work necessary for the auditor to accomplish the 

audit objective(s). 

37. In determining whether to rely upon the work of 

others, the auditor should consider the following 

guidance. 

a. When the other auditors are external auditors, 

tests should include making inquiries into the professional reputation, qualifications, and independence of the auditors. The auditors should consider 

whether to (1) conduct additional tests and procedures such as reviewing the audit procedures followed and results of the audit conducted by the 

other auditors; (2) review the audit programs of the 

other auditors; and/or (3) review the working 

papers, including their understanding and assessment of internal controls, tests of compliance, and 

the conclusions reached by the other auditors. The 

auditors may review the documentary evidence in 

the other auditors’ working papers or make supplemental tests of the work conducted. 

Page 3-14 
Chapter 3 

General Standards 

b. When the other auditors are internal auditors, 

tests should include (1) determining whether they 

are qualified, (2) determining whether they are 

properly located in the organization in order to provide them with sufficient independence to conduct 

the audit objectively, (3) determining whether their 

work is acceptable by examining, on a test basis, the 

documentary evidence of the work conducted, and 

(4) conducting tests of the work. These tests may 

either (i) examine some of the transactions, balances, or work the internal auditors examined or 

(ii) examine similar transactions, balances, or work, 

but not those actually examined by internal auditors. Based upon this review, the auditors would 

decide what additional work, if any, would have to 

be done in order to accept the work of the internal 

auditors. 

c. When relying upon the work of nonauditors (consultants, experts, specialists, etc., other than those 

hired to assist in the audit), the auditors should satisfy themselves as to the nonauditors professional 

reputation, qualifications, and independence from 

the organization, program, activity, or function 

under audit. The auditors should also consider 

whether to ( 1) conduct additional tests and procedures such as reviewing the procedures followed 

and the results of the work conducted, (2) review 

the work program, (3) review the working papers, 

(4) make supplemental tests of the work conducted, 

and (5) consider the methods or assumptions used. 

d. The auditors should determine whether the 

above audit organizations have an appropriate 

internal quality control system in place and 

whether the organization participates in an external 

quality control review program, 

as. Auditors need access to the working papers of other 

auditors and nonauditors to satisfy certain of the 

above requirements. For working papers containing 

restricted information, the appropriate policies 

should be followed. 

Page 3.15 
Chapter 3 

General Standards 

39. Arrangements need to be made to ensure that working papers will be made available upon request to 

other government audit staffs and individual auditors All contractual arrangements for government 

audits should provide for access to working papers. 

40. When auditors decide to rely on the work of others, 

but do not take full responsibility for that work, the 

auditors should indicate in the scope section of the 

audit report the division of responsibility between 

that portion of the work they conducted and that 

conducted by others, and the magnitude of the 

audit work completed by others5 

Audit 

Follow-l Jp 

41. Due professional care also includes follow-up on 

known findings and recommendations from previous audits that could have an effect on the current 

audit objectives to determine whether prompt and 

appropriate corrective actions have been taken by 

entity officials or other appropriate organizations. 

Management of the audited entity is primarily 

responsible for directing action and follow-up on 

recommendations. The auditor’s report should disclose the status of known but uncorrected significant or material findings and recommendations 

from prior audits that effect the current audit 

objective. Government auditors should have a process that enables them to track the status of management’s actions on significant or material findings 

and recommendations from their prior audits. 

Audit Scope 

Impairments 

42. For all audits, auditors should consider whether 

audit scope impairments will adversely affect their 

ability to conduct the audit in accordance with the 

Page 3-16 
chapter 3 

General Standards 

standards in this statement. Audit scope impairments are factors external to the audit organization 

which can restrict the auditors’ ability to render 

objective opinions and conclusions. The auditors 

should attempt to remove the impairment. Failing 

that, the auditors should disclose the impairment in 

the scope section of their report and the known 

effect it had on the results of the audit. Two examples of audit scope impairments are the denial of 

access to sources of information by the audited 

entity, such as books, records, and supporting documents, and denial by the audited entity of the 

opportunity to meet with officials and employees of 

the organization, program, or activity under audit. 

Quality 

Control 

43. The fourth general standard for government auditing is: 

Audit organizations conducting government 

audits should have an appropriate internal quality control system in place and participate in an 

external quality control review program. 

44. This standard places responsibility on government 

and nongovernment audit organizations conducting 

government audits to have an appropriate internal 

quality control system in place and to participate in 

an external quality control review program. 

45. The internal quality control system established by 

the organization should provide reasonable assurance that it.: ( 1) has established, and is following, 

adequate audit policies and procedures and (2) has 

adopted, and is following, applicable auditing standards. The nature and extent of an organization’s 

internal quality control system depends on a 

number of factors. such as its size, the degree of 

operating autonomy allowed its personnel and its 

audit offices, the nature of its work, its organizational struct.ure, and appropriate cost-benefit considerations. Thus. the systems established by 

Page 3-17 
Chapter 3 

General Standards 

individual organizations will vary, as well as the 

extent of their documentation. 

46. Organizations conducting government audits should 

have an external quality control review at least 

once every 3 years by an organization not affiliated 

with the organization being reviewed.” The external 

quality control review program should determine 

that: (1) the organization’s internal quality control 

system is in place and operating effectively and (2) 

established policies and procedures and applicable 

auditing standards are being followed in its audit 

work, including its government audits. However, 

external quality control review procedures should 

be tailored to the size and nature of an organization’s audit work. For example, an organization that 

performs only a few government audits may be 

more effectively reviewed by placing the primary 

emphasis on a review of the quality of specific government audits rather than on the organization’s 

internal quality control policies and procedures. 

47. Audit organizations should make the report on 

external quality control reviews available to auditors using their work and to appropriate oversight 

bodies. It is recommended that the report be made 

available to the public. 

48. External quality control review programs, such as 

those conducted through or by the AICPA, National 

State Auditors Association, Intergovernmental 

Audit Forums, GAO, and the Institute of Internal 

Auditors, would be acceptable. Public accountants 

should participate in the AICIR practice-monitoring 

program or an equivalent program. 

“Organizations conductmg government audits should have am 

external quality control review within 3 years from the effective 

date of the standards. 

Page 3-18 
Chapter 4 

Field Work Standards for Financial Audits 

Purpose 1. This chapter prescribes standards of field work for 

government financial audits. It incorporates the 

AICPA standards of field work for financial audits, 

and does not rcst,ate them’ but rather prescribes 

supplemental standards of field work needed to satisfy the unique needs of government financial 

audits. 

2. The field work standards of the .41r13 and the supplemental standards in this chapter apply to both 

financial statement audits and financial related 

audits. 

3. In conducting audits in accordance with the standards in this statement, the auditors choose and 

conduct auditing tests and procedures that, in their 

professional ,judgment, are appropriate in the circumstances to achieve the audit objectives. Such 

tests and proccdurcs are designed to obtain sufficient, competent and relevant evidence that will 

provide a reasonable basis for their opinions, judgments, and conc.lusions regarding the audit 

objectives. 

Planning 

Audit 

Requirements 

for All 

Government 

Levels 

4. The first supplemental planning field work standard for government financial audits is: 

Planning should include consideration of the 

audit requirements of all levels of government. 

5. In many instances. audits of the same organizations, 

programs, activities, or functions may be required 

by federal, state, and local laws, regulat,ions, and 

‘Future stiltvmrrlts will t)P adopted and incotprated unless GAO 

excludes them by formal announcrment. 

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Chapter 4 

Field Work Standards for 

Financial Audits 

ordinances.? When this situation exists, the auditor 

should ascertain what governments are to be served 

by the audit, and, to the maximum extent practicable, plan the audit so that it will help fulfill the legal 

and regulatory needs of identified potential users. 

Legal and 

Regulatory 

Requirements 

6. The second supplemental planning field work standard for government financial audits is: 

A test should be made of compliance with applicable laws and regulations. 

7. In government auditing, compliance with laws and 

regulations is important because government organizations, programs, activities, and functions are 

usually created by law and are subject to more specific rules and regulations than the private sector. 

8. An entity’s management is responsible for establishing an internal control structure to assure compliance with laws and regulations. The lack of 

administrative continuity in government units 

because of continuing changes in elected legislative 

bodies and in administrative organizations increases 

the need for an effective internal control system. 

9. In determining the nature, timing, and extent of the 

audit steps and procedures to test for compliance, 

the auditor should assess the risk of noncompliance 

with laws and regulations occurring and having a 

direct and material effect on the financial statements or the results of financial related audits. The 

‘When auditing state and local govcmments that receive federal 

financial assistance. the auditor should be fkrmbar with thr Single 

Audit Act of 1984 (31 11 SC 7501-7507), OML1 Circular A-128, 

“Audits of State and Irwal Governments,” “OMR Compliance Supplement,” and AK’I’A audit and accormtmg guide, Audits of State 

and Local Gwemm~~ntal 1 ‘n&s. The act and circular include specific audit requirements that exceed thr minimum audit requirements set forth in thv standards in chapters 4 and 5 of this 

statrmtw. mainly m the arcis of mtrmal control and wmphance 

with laws and rcgrllatwns 

Page 4-2 
Chapter 4 

Field Work Standards for 

Financial Audits 

auditor should assess the risk that the entity did 

not comply with those laws and regulations and the 

risk that the entity’s control structure to ensure 

compliance with laws and regulations might not 

prevent or detect that noncompliance;2 

10. In planning and conducting the tests of compliance 

the auditor should: 

a. Identify the pertinent laws and regulations and 

determine which of those laws and regulations 

could, if not observed, have a direct and material 

effect on the financial statements or the results of a 

financial related audit. 

b. Assess, for each material requirement, the risks 

that material noncompliance could occur. This 

includes consideration and assessment of the internal controls in place to assure compliance with laws 

and regulations. 

c. Baaed on that assessment, design steps and procedures to test compliance with laws and regulations 

to provide reasonable assurance of detecting both 

unintentional instances of noncompliance and intentional instances of noncompliance that could have a 

material effect on the financial statements or the 

results of a financial related audit. 

I 1. Auditors can obtain information about the applicable laws and regulations from the audited entity. 

When funding from another level of government is 

involved and the source of funding is known, the 

auditor can obtain or corroborate information about 

the applicable laws and regulations from that 

source. 

“The Single Audit Act (31 USC. 7502 (d) (2) (ES)) also requires 

the auditor to detenne and report whether the entity has internal controls that provide reasonable assurance that it is managing 

federal financial aslstance programs in compliance with applicable laws and regulations. 

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Chapter 4 

Field Work Standards for 

Financial Audits 

12. The laws and regulations of primary concern in 

financial audits are those that have a direct and 

material effect on the determination of financial 

amounts4 Other laws and regulations that pertain 

more to the operations aspects of an entity often 

will relate only indirectly to the financial amounts 

that effect the financial statements or the results of 

financial related audits. 

Errors, Irregularities 

and Illegal Acts 

13. In determining compliance with laws and 

regulations: 

The auditor should design audit steps and procedures to provide reasonable assurance of 

detecting errors, irregularities, and illegal acts 

that could have a direct and material effect on 

the financial statement amounts or the results 

of financial related audits. 

The auditor should also be aware of the possibility of illegal acts that could have an indirect and 

material effect on the financial statements or 

results of financial related audits. 

14. In fulfilling the above requirements relating to 

errors, irregularities, and illegal acts, the auditor 

should follow the guidance contained in the AICPA 

standards entitled-The Auditor’s Responsibility to 

Detect and Report Errors and Irregularities and Illegal Acts By Clients. 

Due Care 

Concerning 

Illegal Acts 

1s. Auditors should exercise due professional care and 

caution in extending audit steps and procedures relative to illegal acts so as not to interfere with potential future investigations and/or legal proceedings. 

‘The Single Audlr Ac,t (:I1 I1.S.C. 7W2 (d) (2) (C)) expands upon 

these wquiremrnts and also rcqrrires the auditor to determine and 

report on whether thr entRy has complied wth laws and regutations that may havr R material effect upon each major federal 

&ssistance program :IS defined in the wt. Other similar requirements may cx~t m ht;tte arId Ioc;rl govtnunent junsdrtions. 

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Field Work Standards for 

Financial Audits 

16. 

Due care would include consulting appropriate legal 

counsel and/or the applicable law enforcement 

organizations, where appropriate, to determine the 

audit steps and procedures to be followed. 

Circumstances may exist where laws, regulations, 

or policies require the auditor to promptly report 

indications of certain types of illegal acts to law 

enforcement or investigatory authorities before 

extending audit steps and procedures. The auditor 

may also be required to withdraw from or defer 

further work on the audit or a portion of the audit 

in order not to interfere with an investigation. However, the auditor should consider whether the above 

circumstances would restrict the completion of the 

remaining portion of the audit or interfere with the 

auditor’s ability to form objective opinions and conclusions If it restricts or interferes, the auditor 

should consider discontinuing further action until 

completion of the investigation, or terminate the 

audit, 

17. Most auditors are not trained to conduct investigations of certain types of illegal acts which are the 

responsibility of the investigator or law enforcement authorities. However, auditors are responsible 

for being aware of the characteristics and types of 

illegal expenditures and acts associated with the 

area being audited to be able to identify indications 

that these acts may have occurred. 

18. An audit made in accordance with the standards in 

this statement will not guarantee the discovery of 

all illegal acts or contingent liabilities resulting from 

noncompliance. Nor does the subsequent discovery 

of illegal acts committed during the audit period 

necessarily mean that the auditor’s performance 

was inadequate provided the audit was made in 

accordance with these standards. 

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Chapter 4 

Field Work Standards for 

Financial Audits 

Evidence 

Working 

Papers 

1s. The AKTA field work standards and this statement 

require that: 

A record of the auditors’ work be retained in the 

form of working papers. 

20. Working papers are the link between field work and 

the auditors’ report. They serve as a record of the 

results of the audit and the basis of the auditors’ 

opinions. 

21. Audit organizations should establish policies and 

procedures to ensure the safe custody and retention 

of working papers for a time sufficient to satisfy 

legal and administrative requirements. 

22. Supplemental working paper requirements for 

financial audits arc that working papers should: 

a. Contain a written audit program cross-referenced 

to the working papers. 

b. Contain the objective, scope, methodology, and 

results of the audit. 

c. Contain sufficient information so that, supplementary oral explanations are not required. 

d. Be legible with adequate indexing and crossreferencing, and include summaries and lead schedules, as appropriate. 

e. Restrict information included to matters that are 

materially important and relevant to the objectives 

of the audit. 

f. Contain evidence of supervisory reviews of the 

work conducted. 

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Chapter 4 

Field Work Standards for 

Financial Audits 

Internal 

Control 

23. The AICPA field work standards and this statement 

require that: 

A sufficient understanding of the internal control structure is to be obtained to plan the audit 

and to determine the nature, timing, and extent 

of tests to be performed. 

24. Establishing and maintaining an internal control 

structure is an important management responsibility. Good internal controls are essential to achieving 

the proper conduct of government business with 

full accountability for the resources made available. 

They also facilitate the achievement of management 

objectives by serving as checks and balances 

against undesired actions. An entity’s internal control structure consists of the policies and procedures established to provide reasonable assurance 

that specific entity objectives will be achieved. The 

internal control structure may include a wide variety of objectives and related policies and procedures, only some of which may be relevant to an 

audit of the entity’s financial statements. 

25. For financial audits. the auditor is primarily concerned with policies and procedures that pertain to 

the entity’s ability to record, process, summarize, 

and report financial data consistent with the assertions embodied in the financial statements, financial 

related items and information as discussed previously, to ensure compliance with laws and regulations. Other policies and procedures, however, may 

be relevant if they pertain to data the auditor uses 

in applying auditing procedures. This may include, 

for example, policies and procedures that, pertain to 

nonfinancial data that the auditor uses in analytical 

procedures. 

2s. An entity generally has internal control structure 

policies and procedures that are not relevant to a 

particular audit and therefore need not be considered. For example, policies and procedures concening the effectiveness. economy, and efficiency of 

Page 4-7 
Chapter 4 

Field Work Standards for 

Financial Audits 

certain management decision-making processes, 

while important to the entity, do not ordinarily 

relate to a financial audit. 

27. In fulfilling the audit requirement relating to an 

understanding of the internal control structure and 

assessing the level of control risk, the auditor 

should follow, at a minimum, the guidance contained in the Ala?4 standard, entitled Consideration 

of the Internal Control Structure in a Financial 

Statement Audit. 

Page 4-8 
Chapter 5 

Reporting Standards for Financial Audits 

Purpose I. This chapter prescribes standards of reporting for 

government financial audits. It incorporates the 

AICPA standards of reporting for financial audits, 

and does not restate them’ but rather prescribes 

supplemental standards of reporting needed to satisfy the unique needs of government financial 

audits. 

2. The reporting standards of the AICPA and the supplemental standards in this chapter apply to both 

financial statement audits and financial related 

audits. 

Statement on 

Auditing 

Standards 

s. The first supplemental reporting standard for government financial audits is: 

A statement should be included in the auditor’s 

report that the audit was made ln accordance 

with generally accepted government auditing 

standardsf (AICPA standards require that public 

accountants state that the audit was made in 

accordance with generally accepted auditing 

standards. In conducting government audits, 

public accountants should also state that their 

audit was conducted ln accordance with the 

standards set forth in chapters 3,4, and 5.) 

4. The above statement refers to all the applicable 

standards that the auditors should have followed 

during their audit. The statement need not be qualified when standards that were not applicable were 

not followed. IIowever, the statement should be 

qualified in situations where the auditors did not 

‘Future AICI’A statements will be adopted and incorporated 

unless GAO rxclndes them by formal announcement. 

2Generally acwpt~~i government auditing standards (GAGAS) 

include the audit standards set forth in this publication, Govemment Auditmg Standards Standards for Audit of Governmental 

Organizations, Programs, Activities, and Functions. subsequent 

revisions and mtwpretations, and guidance concenung these 

standards 

Page 5-l 
Chapter 5 

Reporting Standards for 

Financial Audits 

follow an applicable standard. In these situations, 

the auditors should modify the statement to disclose in the scope section of their report the applicable standard that was not followed, the reasons 

therefor, and the known effect not following the 

standard had on the results of the audit. 

Report on 

Compliance 

5. The second supplemental reporting standard for 

government financial audits is: 

The auditors should prepare a written report on 

their tests of compliance with applicable laws 

and regulations. This report, which may be 

included in either the report on the financial 

audit or a separate report, should contain a 

statement of positive assurance on those items 

which were tested for compliance and negative 

assurance on those items not tested.” It should 

include all material instances of noncompliance,“ and all instances or indications of illegal 

acts which could result in criminal prosecution. 

Positive and 

Negative 

Assurances 

6. Positive assurance consists of a statement by the 

auditors that the tested items were in compliance 

with applicable laws and regulations. Negative 

assurance is a statement that nothing came to the 

auditors’ attention as a result of specified procedures that caused them to believe the untested 

items were not in compliance with applicable laws 

,‘If a statistically valid and proJectable sample of items was tested. 

an opmion on the rrlrvant ~mnww’s compliance may be 

warranted. 

‘The Single Audit Art (31 1l.S.C. 7502 (d) (3)) also requires the 

auditor to repot-i all mstances of noncrrmpliance wth laws and 

regulations found dllnng the audit 

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Reporting standards for 

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and regulations.” When the financial audit did not 

require tests of compliance with laws and regulations, the report should contain a statement that the 

auditor did not test for compliance with laws and 

regulations. 

Noncompliance 7. All material instances of noncompliance related to 

the entity’s financial statements or the program, 

award, claim, fund, or group of accounts being 

audited should be reported. Further, several 

instances of noncompliance that separately may not 

be material, but that cumulatively could have a 

material effect on the financial statements or 

results of the financial related audit, should be 

reported. All instances of illegal acts that could 

result in the audited entity, or an officer or 

employee of the audited entity, being subject to 

criminal prosecution should also be reported. 

8. Other nonmaterial instances of noncompliance need 

not be disclosed in the compliance report but should 

be reported in a separate communication to the 

audited entity. preferably in writing.l’ Such 

instances of noncompliance when communicated in 

a management letter to top management should be 

referred to in the report on compliance All communications should be documented in the working 

papers. 

a. In reporting material noncompliance, the auditors 

should place their findings in proper perspective. 

The extent of noncompliance should be related to 

the number of cases examined to give the reader a 

basis for judging the prevalence of noncompliance. 

“The Single Audit Act (31 I1.S.C 7RW (d) (2) (C)) contains additional requirements for thr auditor to determine and report on 

whether the entity has complied with laws and regulations that 

may have an effect upan each major fcdrral assistance program 

as defined in the act. Other similar requirements may exist in 

state and local ~ovcn~nwnl jnnsdlctlons. 

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If a valid statistical and projectable sample was 

tested, an opinion on compliance may be warranted. 

In presenting the findings, the auditor should follow 

the report contents standards, as appropriate, for 

objectives, scope and methodology, audit results, 

and views of responsible officials, and the report 

presentation standards, discussed in chapter 7.’ 

Illegal Acts 10. 

11. 

If, during or in connection with an audit of a government entity, external government auditors 

become aware of illegal acts or indications of such 

acts affecting the government entity, they should 

promptly report to the top official of that entity. 

The auditor should also consider reporting to the 

appropriate oversight body. If the top official is 

believed to be a party to such acts or ot,herwise 

implicated, the auditor should in all cases report to 

the appropriate oversight body. If the acts involve 

funds received from other government entities, 

auditors should also promptly report to the proper 

officials, including the audit officials, of those 

entities. 

Internal government auditors auditing a government entity that is external to the government 

entity to which they are assigned should promptly 

report to officials and authorities in accordance 

with the preceding paragraph. 

‘Audit findings have often been regarded as containing the clement!+ of cntcna, wnditmn, and effect, plus cause when problems 

arc found. lIowever, thr elements ntvded for a complete finding 

depend enrrely on the objectives of the audit. Thus, a finding or 

set of findqs IS complete to the extent that thr audit objertnw 

CUT satisfied and the report clearly relates those objertivcs to the 

Rnding’s elements. It IS recogmzed that material inter& control 

weaknesses and noncomplianrc found by the auditor may not 

always have all of these elementz fully developed, giwn the scope 

and ObJectives of thr specific financu,l audit IhIt at IeM the audltar should identify the condition. criteria and possible asertpd 

effect to provide sufficient informatmn to fcdcral, state, and local 

offirlals to pent them 10 deternunr the effect and cause m order 

to tak<, timely and prapw corrrctivv act~n 

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12. Internal government auditors auditing within the 

government entity to which they are assigned 

should report to the top officials of the entity under 

audit (unless the official is believed to be a party to 

such acts) and/or appropriate entity investigative 

personnel. 

13. Public accountants conducting audits of government entities will discharge their responsibilities for 

reporting illegal acts or indications of such acts 

found during or in connection with an audit by 

promptly reporting to the top official of the entity 

arranging for the audit (including audit committees 

or others with equivalent authority). The auditor 

should also consider reporting to the appropriate 

oversight body. If the audited entity and the top 

official is believed to be a party to such acts or 

otherwise implicated, the auditor should in all cases 

report to the appropriate oversight body. Also, 

when the illegal acts involve funds received from 

other government entities, the audited entity should 

report to the proper officials, including those at the 

audit organization, of those entities. If the audited 

entity does not do so within a reasonable time or 

was unable to because the top official was involved, 

the auditor should report to the officials of those 

other government entities. 

14. It is the responsibility of an entity receiving the 

information from the various auditors, both the 

audited entity and external funding entity, to report 

to appropriate law enforcement authorities and 

other government entities whose funds are 

involved. 

15. In the case of an audit of government funds 

received by a nongovernment entity, the auditors 

should promptly report to the appropriate government entity requiring or arranging for the audit and 

such other officials designated by law or regulation 

to receive the audit reports. 

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16. Illegal acts or indications of such acts that auditors 

become aware of need not be included in the 

required audit reports, but may be covered in a separate written report and submitted in accordance 

with the preceding paragraphs, thus permitting the 

required report or reports to be released. However, 

auditors generally should not release information or 

reports containing information on such acts or 

reports with references that such acts were omitted 

from reports, without consulting with appropriate 

legal counsel, since this release could interfere with 

legal processes, subject the implicated individuals to 

undue publicity, or subject the auditor to potential 

legal action. 

Report on 

Internal 

Controls 

17. The third supplemental reporting standard for government financial audits is: 

The auditors should prepare a written report on 

their understanding of the entity’s internal control structure and the assessment of control risk 

made as part of a financial statement audit,K or 

a financial related audit. This report may be 

included in either the auditor’s report on the 

financial audit or a separate report. The auditor’s report should include as a minimum: (1) the 

scope of the auditor’s work in obtaining an 

understanding of the internal control structure 

and in assessing the control risk, (2) the entity’s 

significant internal controls or control structure 

including the controls established to ensure 

compliance with laws and regulations that have 

a material impact on the financial statements 

and results of the financial related audit, and 

‘This standard dws not rcqrure any additmnal audit work other 

than that requnx~d its part of a financial audit descnbrd m this 

statement. However. the Single Audit Act (31 1l.S C. %I)2 (d) (2) 

(B)) expands upon tius requirement and also rcqu~cs that I hc 

auditor determine and rqxrt whether the entity has intrrnal controls that provide rwxmable assurance that it IS managing fcdrrdl financial i~sh~hti~nce programs in rompliarrw with applwable 

laws and w@M wns 

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(3) the reportable conditions, including the identification of material weaknesses, identified as a 

result of the auditor’s work in understanding 

and assessing the control risk. 

18. In identifying the scope of the auditor’s work, the 

report should include a description of the work conducted. Generally accepted government auditing 

standards require the auditor to understand and 

assess the audited entity’s internal control structure, which consists of the control environment, 

accounting systems, and specific internal control 

procedures, to plan the financial audit. The extent 

of the auditor’s assessment can vary from one audit 

t,o another and within different elements of an 

entity’s internal control structure, based on both the 

auditor’s understanding of that internal control 

structure and the auditor’s judgment about alternative forms of audit evidence. That understanding 

and assessment by itself is not sufficient for expressing an opinion about the design and operation of 

the entity’s internal control structure as a whole or 

of its specific elements. 

19. The auditor may limit the consideration of internal 

control structure for a number of reasons. These 

include: 

a. An adequate internal control structure does not 

exist for reliance thereon because of the small size 

of the entity. 

b. The auditor may conclude that it would be inefficient to evaluate the effectiveness of internal control structure policies and procedures and that the 

audit can be conducted more efficiently by 

expanding substantive audit tests, thus placing 

very little reliance on the internal control structure. 

c. The existing internal control structure may contain so many weaknesses that the auditor has no 

choice but to rely on substantive testing, thus virtually ignoring the internal control structure. 

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20. 

21. 

22. 

d. The objectives of a financial related audit did not 

require an understanding or assessment of the 

internal control structure. 

The above circumstances should be documented in 

the working papers and included in the report on 

internal control. 

In identifying the significant internal controls, the 

report should list those controls identified by the 

auditor. 

The following are examples of different ways in 

which the internal control structure might be classified. Auditors may modify these examples or use 

other classifications as appropriate for the particular circumstances on which they are reporting. 

Cycles of the entity’s activity 

Treasury or flnanclng 

Revenue/receipts 

Purchases/disbursements 

External financial reporting 

Financial statement captions 

Cash and cash equivalents 

Receivables 

Inventory 

Property and equipment 

Payables and accrued llabllltles 

Debt 

Fund balance 

(continued) 

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Reporting Standards for 

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Accounting applications 

Billings 

Receivables 

Cash receipts 

Purchasing and rece~wng 

Accounts payable 

Cash disbursements 

Payroll 

Inventory control 

Property and equipment 

General ledger 

Controls used in administering compliance with laws 

and regulations 

General controls 

Specific controls 

23. In reporting reportable conditions, the auditors 

should identify those that are material weaknesses. 

The auditors should also follow report content standards, as appropriate, for objectives, scope and 

methodology, audit results, and views of responsible officials, and the report presentation standards, 

discussed in chapter 7.” 

24. The AICPA’S statements on auditing standards, and 

interpretations thereof, give guidance on reporting 

conditions that relate to an entity’s internal control 

structure observed during an audit. The supplemental requirements for reporting on internal controls 

stated in the above standard should also be 

included in the report. 

‘see footnote 7 on ,xigr 5-4 

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25. Nonreportable conditions in an audited entity’s 

internal control structure not included in the 

required reports, should be separately communicated to the audited entity, preferably in writing. 

Such control structure conditions when communicated in a management letter to top management 

should be referred to in the report on internal controls. All communications should be documented in 

the working papers. 

Reporting on 26. The fourth supplemental reporting standard for 

Fhmcial government financial audits is: 

Related Audits Written audit reports are to be prepared giving 

the results of each financial related audit. 

27. The .41wrl reporting standards, to the extent that 

they are relevant, also apply to financial related 

audits. However, if the AICFA reporting standards 

are not relevant, the reporting standards in chapter 

7 should be followed by the auditor in reporting on 

financial related audits to the extent appropriate. 

Privileged and 28. The fifth supplemental reporting standard for govConfidential ernment financial audits is: 

Information If certain information is prohibited from general 

disclosure, the report should state the nature of 

the information omitted and the requirement 

that makes the omission necessary. 

29. Certain information may be prohibited from general 

disclosure by federal, state, or local laws or regulations. Such information may be provided on a needto-know basis only to persons authorized by law or 

regulation to receive it. 

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30. If the auditors are prohibited by such requirements 

from including pertinent data in the report, they 

should state the nature of the information omitted 

and the requirement that makes the omission necessary. The auditors should obtain assurance that a 

valid requirement for the omission exists and, 

where appropriate, consult with legal counsel. 

31. Auditors should consult with appropriate legal 

counsel before releasing reports which refer to the 

fact that illegal acts or indications of such acts were 

omitted from reports.“’ 

Report 

Distribution 

32. The sixth supplemental reporting standard for government financial audits is: 

Written audit reports are to be submitted by the 

audit organization to the appropriate officials of 

the organization audited and to the appropriate 

officials of the organizations requiring or 

arranging for the audits, including external 

funding organizations, unless legal restrictions, 

ethical considerations, or other arrangements 

prevent it. Copies of the reports should also be 

sent to other officials who have legal oversight 

authority or who may be responsible for taking 

action and to others authorized to receive such 

reports. Unless restricted by law or regulation, 

copies should be made available for public 

inspection.” 

33. Audit reports should be distributed in a timely manner to as many interested officials as is practicable. 

In some cases, the subject of the audit may involve 

material that is classified for security purposes or 

cannot be released t,o particular parties or to the 

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public for other valid reasons. Generally, however, 

the report should be distributed to officials interested in the results. Such officials include those designated by law or regulation to receive such reports, 

those responsible for taking action, legislators, and 

those of other levels of government t,hat have provided funds to the audited entity. 

34. When public accountants are engaged, the engaging 

organization must ensure that appropriate distribution is made. If the public accountants are to make 

the distribution. the engagement agreement should 

indicate what officials or organizations should 

receive the report. 

35. Internal audit,ors should follow their entity’s own 

arrangements and statutory requirements for distribution. Usually. they report to their entity’s top 

management and the entity’s management is 

responsible for distribution of the report. 

36. The auditor’s report on the financial audit, the 

report on compliance, and the report on internal 

control, if separate reports, should normally be 

bound toget.hcr so that the t,hrec reports are issued 

together in one bound document. If the three 

reports are not issued together in one bound document, it is recommended that the auditor’s report on 

the financial audit include a statement that reports 

on compliance and internal control were also issued. 

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Chapter 6 

Field Work Standards for 

Pwformance Audits 

Purpose 1. This chapter prescribes standards of field work for 

government performance audits. 

Planning 2. The first field work standard for government performance audits is: 

Work is to be adequately planned. 

3. This standard places responsibility on the auditor 

or audit organization to thoroughly plan an audit. 

This includes defining the audit objectives and planning how they can be attained while establishing a 

balance between audit scope, time frames, and 

staff-days to be spent to ensure optimum use of 

audit resources. The details of the plan for the audit 

should be included in the audit program. 

4. Planning is important, to ensure that the audit 

results will satisfy the objectives of the audit. Adequate planning is especially important in performance audits because the methodology and 

implementing steps and procedures employed in 

such audits are varied and complex. 

5. Planning is also important in intergovernmental 

auditing because, in many instances, the audit work 

conducted at one level of government should be 

coordinated with other audit work conducted at the 

same level or different levels. 

Considerations 

in Planning 

6. The information needed by the auditor to plan an 

audit varies with the audit objectives and the entity 

to be audited. In many instances, an audit survey of 

the entit,y may be made before preparing a plan for 

conducting the field work. The survey is an effective method to help identify specific audit areas and 

to obtain information for use in planning. It is a process for quickly gathering information, without 

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Field Work Standards for 

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detailed verification, on the entity’s organization, 

programs, activities, and functions.’ 

7. A survey will provide information about the key 

systems and procedures used for managing finances 

and operations and for evaluating and reporting 

performance. It will also provide information about 

the size and scope of the entity’s activities as well 

as areas in which there may be internal control 

weaknesses, uneconomical or inefficient operations, 

lack of effective goal achievement, or lack of compliance with laws and regulations. However, tests to 

determine the significance of such matters are generally conducted in the detailed audit work as specified in the audit programs. 

8. Adequate planning should include consideration of: 

a. Audit objectives. scope, and methodology. 

b. Criteria for assessing performance (where 

applicable). 

c. Coordination with other government auditors, 

when appropriate, including work already conducted and other work that may be intended. 

d. Skill and knowledge of the personnel to staff the 

assignment and the use of consultants, experts, and 

specialists. 

e. Comp1ianc.c with laws and regulations and potential abuse and illegal acts. (See paragraph 30 

below.) 

f. Assessment of internal controls. (See paragraph 

49 below .) 

‘The concepts and procrdures of the audit survey are discussed in 

GAO publicauorr entitled, The Audit Survey A Key Step in Auditing Govcwmmt I’rograms. 

--- 

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g. Materiality and/or significance and audit risk. 

(See chapter 3, paragraph 33.) 

Audit Objectives, 9. Determining and explaining the rationale for selectScope, and ing an audits objectives, scope, and methodology 

Methodology require logical and systematic thinking. 

10. The first step in planning a performance audit is to 

define carefully the audit objectives. The statement 

of audit objectives should clearly articulate what 

the audit is to accomplish. This means phrasing the 

objectives to identify the audit subject and the performance aspect to be included. Because it is rare 

for one audit to cover all aspects of performance, it 

is important to know, in planning, what aspect or 

aspects are going to be included. This is critical in 

establishing the audit boundaries. 

11. Audit findings have often been regarded as containing the elements of criteria, condition, and effect, 

plus cause when problems are found. Recommendations and conclusions are added, as appropriate, in 

reporting. However, the elements needed for a complete finding and report depend on the objectives of 

the audit. Thus, the objectives should be phrased to 

identify those finding and reporting elements that 

are to be developed. For example, the auditor may 

have as an objective to ascertain the level of performance being achieved; or to go a step farther and 

determine if that level of performance is satisfactory. If not satisfactory, the auditor may or may not 

have as an objective, identifying the cause and making recommendations. Knowing what finding and 

reporting elements are to be developed is critical in 

planning so as to gather the evidence necessary to 

support the finding elements that may be required. 

12. The objectives of an audit extend throughout every 

phase of the audit, from the selection of scope, 

methodology, and staff, to the conduct of the audit, 

and the timing and nature of reports. Time invested 

in determining an audit’s ob,jectives is usually time 

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Field Work Standards for 

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well spent because an audit with clear objectives is 

unlikely to result in wasted resources, delays, and 

poor quality reports. In analyzing possible audit 

objectives, auditors need to consider all that they 

know about the significance of an issue, the contribution they can make, and the availability of data 

and resources. 

13. Decisions about the scope of audit work necessary 

to achieve the audit objectives are based on such 

factors as, the availability and recency of data, and 

the ease and appropriateness with which particular 

analytic techniques could be applied. Questions to 

be considered include: What period should be considered? Will the results be projected? What level of 

validity is needed in documenting the existence of a 

problem and its cause? What comparisons will be 

made? 

14. “Methodology” refers to the process used to gather 

and analyze data and to reach conclusions and recommendations The methodology selected needs to 

provide evidence that will achieve the objectives of 

the audit. 

Criteria 15. When criteria are needed to evaluate matters subject to audit, the audit plan should, where possible, 

state the criteria to be used. Criteria are standards 

against which the adequacy of performance can be 

assessed. In selecting criteria, auditors have a 

responsibility to use only criteria that are suitable. 

Suitable criteria are those that are relevant to the 

matters being audited and are reasonable and 

attainable. 

Coordination 16. In government auditing, a central audit agency, 

such as a federal or state audit organization, may be 

responsible for audits involving work by its field 

office staff at several different locations. The central agency should carefully plan these audits to 

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Field Work Standards for 

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ensure that they will be conducted effectively and 

efficiently. 

17. Planning for audits should be tailored to the specific 

audit objectives. Ordinarily the central audit agency 

should specify the compliance requirements to be 

considered by the auditor, the aspects of economy 

and efficiency to be included in the audit, and the 

program goals and objectives, and measurement criteria to be used. IJnless such planning is carefully 

done and communicated to the participating staffs, 

the audit results may not meet the needs and expectations of the central audit agency. Unplanned audit 

effort will make it difficult to compare and consolidate the results from various locations. 

1s. An audit, or certain aspects of an audit to be conducted at several locations by different staff can be 

planned more efficiently and economically by a designated audit organization, For example, researching the program laws and regulations and 

establishing clear and concise audit objectives are 

time-consuming. To have each participating staff do 

this would be duplicative and more costly than necessary. Some audits require even closer coordination because a given event may be audited at more 

than one location by different staffs. The preparation of audit programs for such audits is an integral 

part of the standard for planning. 

19. In many instances, audits of the same organizations, 

programs, activities, or functions may be required 

by federal, state, and local laws, regulations, and 

ordinances. When this situation exists, to avoid 

duplicate efforts, auditors in planning their work 

should coordinate with other government auditors 

to determine whether they have any audit work 

planned, in process, or completed that may be used 

to satisfy some or all of their planned work. 

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Personnel 20. Staff planning should include: 

a. Assigning staff with the appropriate skills and 

knowledge for the job. 

b. Assigning an adequate number of experienced 

staff and supervisors to the audit. Consultants 

should be used when necessary. 

c. Providing for on-the-job training of staff 

- 

Audit Program 21. 

22. 

23. 

Written audit programs should be prepared for 

each audit and are essential to conducting audits 

efficiently and effectively. Audit programs provide: 

a. A description of the methodology and suggested 

audit steps and procedures to be conducted to 

accomplish the audit objectives. 

b. A systematic basis for assigning work to supervisors and staff. 

c. The basis for a summary record of work. 

Written audit programs should not be used merely 

as a checklist of steps to be conducted. Effective 

work on performance audits requires that the staff 

understand the objectives of the audit and use their 

own initiative in determining the appropriateness of 

steps in the audit program and in assessing the 

results of the work. 

Audit programs should generally include the following information: 

a. Introduction and background: Information should 

be provided about the legal authority for the 

audited organization, program, activity, or function; 

its history and current objectives; its principal locations; and similar information needed by the auditor 

to understand and carry out the audit program. 

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b. Objectives of the audit: The objectives should be 

clearly stated. 

c. Scope of the audit: The scope should be clearly 

described. 

d. Audit methods: The methodology should be 

clearly described, and for most audits, it is desirable 

to include suggested steps and procedures, and sampling plans for the auditors to follow. For coordinated audits, the audit organization planning the 

work should ordinarily suggest the audit methods 

to be followed in the audit to be sure that the data 

obtained from participating locations will be comparable. However, this should be done in a manner 

that does not restrict the auditor’s professional 

judgment. 

e. Definition of terms: Any known unique terms 

used by the audited entity should be defined or 

explained. 

f. Special instructions: The auditors should clearly 

understand and reach early agreement on the 

responsibilities in each audit. This agreement is 

especially important when the work is to be 

directed by a central audit organization with work 

to be conducted at several different locations. This 

section of the program may be used to list the 

responsibilities of each audit organization, such as 

preparing audit programs, conducting audit work, 

supervising audit work, drafting reports, handling 

auditee comments, and processing the final report. 

g. Report: The audit program should set forth the 

general format (if not included in organization audit 

policy and procedures) to be followed in the audit 

report and cite, to the extent possible, the types of 

information to be in it. 

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Supervision 24. The second field work standard for government 

performance audits is: 

Staff are to be properly supervised. 

25. This standard places responsibility on the auditor 

and audit organization for seeing that staff who are 

involved in accomplishing the objectives of the 

audit receive appropriate guidance and supervision 

to ensure that the audit work is properly conducted, 

the audit objectives are accomplished, and staff are 

provided effective on-the-job training. External consultants and specialists also should be given appropriate guidance. 

26. The most effective way to ensure the quality and 

expedite the progress of an assignment is by exercising proper supervision from the start of the planning to the completion of audit work and reporting. 

Supervision adds seasoned judgment to the work 

performed by less experienced staff and provides 

necessary training for them. 

27. Assigning and using staff is important to satisfactory achievement of objectives. Since skills and 

knowledge vary among auditors, work assignments 

must be commensurate with abilities. 

28. Supervisors should satisfy themselves that staff 

members clearly understand their assigned tasks 

before starting the work. Staff should be informed 

of not only what work they are to do and how they 

are to proceed but also why the work is to be conducted and what it is expected to accomplish. With 

experienced staff, the supervisors’ role may be 

more general. They may outline the scope of the 

work and leave details to assistants. With a less 

experienced staff, the supervisor may have to perform many details and specify to the staff how to 

conduct specific. data gathering and analysis 

techniques. 

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2% Supervisory reviews of audit work and the report 

should be timely and determine whether (1) conformance with audit standards is obtained, (2) the 

audit programs are followed, unless deviation is justified and authorized, (3) the audit work has been 

conducted with due professional care, (4) the working papers adequately support findings and conclusions and provide sufficient data to prepare a 

meaningful report, and (5) the audit objectives are 

met. Supervisory reviews of the work conducted 

should be documented in the working papers. 

Legal and 

Regulatory 

Re&irem&ts 

30. The third field work standard for government performance audits is: 

An assessment is to be made of compliance with 

applicable requirements of laws and regulations 

when necessary to satisfy the audit objectives. 

31. In government auditing, compliance with laws and 

regulations is important because government organizations, programs, services, activities, and functions are usually created by law and are subject to 

more specific rules and regulations than the private 

sector. For example, what is to be done, who is to 

do it, the goals and objectives to be achieved, the 

population to be served, and how much can be 

spent on what are usually set forth in laws and 

regulations. 

32. The need to assess compliance with requirements of 

laws and regulations, and the nature of that assessment, varies with the objectives of the audit. Where 

assessment of compliance is called for, this standard places responsibility on the auditor to design 

steps and procedures that will provide reasonable 

assurance that the audited entity has adhered to 

the requirements of laws and regulations applicable 

to the audit which, if not followed, could significantly affect the audit results. 

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33. Management is responsible for establishing an 

effective system of internal control to ensure compliance with laws and regulations. In designing 

steps and procedures to assess compliance, auditors 

should consider the entity’s internal controls. 

34. The nature of requirements of laws and regulations 

that the auditor might assess are illustrated below. 

a. Economy and efficiency: Compliance with laws 

and regulations that could significantly affect the 

acquisition, protection, and use of the entity’s 

resources, and the quantity, quality, timeliness, and 

cost of the products and services it produces and 

delivers. 

b. Program: Compliance with laws and regulations 

pertaining to the objectives of the entity’s programs, activities, and functions; the manner in 

which programs and services are to be delivered; 

the population a program or service is to serve; and 

whether the programs, activities, and functions are 

being carried out in conformity with these laws and 

regulations. 

35. Auditors are responsible for determining which 

requirements of laws and regulations are to be considered in the audit. This responsibility requires 

that those planning the audit be knowledgeable of 

the compliance requirements that apply to the subject under audit. Because the laws and regulations 

that may apply to a specific audit are often numerous, the auditors need to exercise professional judgment in determining those laws and regulations that 

might have a significant impact on the audit 

objectives. 

36. A variety of sources exist for information on 

requirements of laws and regulations. The audited 

entity is expected to know the applicable requirements, and thus is a good first source. When funding from another level of government is involved 

and the source is known, auditors can obtain and/or 

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corroborate information about the applicable 

requirements from the funding entity. Auditors 

should consult with appropriate legal counsel when 

questions arise concerning application and the 

interpretation of laws and regulations. 

37. Where an assessment of compliance with laws and 

regulations is required: 

Auditors should design the audit to provide reasonable assurance of detecting abuse or illegal 

acts that could significantly affect the audit 

objectives. 

XL In conducting audits in accordance with this stan 

dard, the auditors choose and perform audit steps 

and procedures that, in their professional judgment, 

are appropriate in the circumstances to achieve the 

audit objectives. These audit steps and procedures 

are designed to obtain sufficient, competent, and 

relevant evidence that will provide a reasonable 

basis for their judgments and conclusions regarding 

the audit objectives. 

39. This standard places responsibility on the auditor 

when assessing compliance with laws and regulations to: 

a. Assess, for each applicable compliance requircment, the risk that abuse and illegal acts could 

occur. 

b. Based on that assessment., design steps and procedures to provide reasonable assurance of 

detecting abuse or illegal acts. 

40. When audit steps and procedures indicate that 

abuse or illegal acts have or may have occurred, the 

auditor needs to determine the extent to which 

these acts significantly affect the audit results. 

41. Detecting noncompliance resulting from illegal acts 

is generally difficult. Doing so commonly requires 

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special steps, and auditors are expected to devise 

and apply such steps as may be effective. Because a 

sound internal control structure can be effective in 

ensuring compliance, an assessment of the control 

structure is generally useful. 

42. In all performance audits: 

Auditors should be alert to situations or transactions that could be indicative of abuse or illegal acts. 

43. When information comes to the auditor’s attention 

(through audit procedures, tips, or other means) 

indicating that abuse or illegal acts may have 

occurred, the auditor should consider the potential 

impact of these acts on the audit results. If these 

acts could significantly affect the audit results, the 

auditor should extend the audit steps and procedures, as necessary (a) to determine whether the 

acts occurred and (b) if so, to determine the extent 

to which these acts significantly affect the audit 

results. 

Due Care 

Concerning 

Illegal Acts 

44. When an audit is conducted under contract and the 

contract does not permit the auditor to unilaterally 

extend steps and procedures, the auditor should 

obtain written approval to perform the necessary 

additional work. If such approval is not given to the 

auditor, a scope impairment generally exists which 

should be stated in the auditor’s report. 

45. Auditors should exercise due professional care and 

caution in pursuing indications of illegal acts so as 

not to interfere with potential future investigations 

and/or legal proceedings. Due care would include 

consulting appropriate legal counsel and/or the 

applicable law enforcement organization. where 

appropriate, before proceeding. 

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46. Circumstances may exist in which laws, regulations, 

or policy require auditors to promptly report indications of illegal acts to law enforcement or investigatory authorities before extending audit steps and 

procedures. The auditor may also be required to 

withdraw from, or defer further work on, the audit 

or a portion of the audit in order not to interfere 

with an investigation. However, the auditor should 

consider whether this would restrict the completion 

of the remaining portion of the audit or interfere 

with the auditor’s ability to form objective opinions 

and conclusions. If it restricts or interferes, the 

auditor should terminate the audit or discontinue 

further action until completion of the investigation. 

(See reporting requirements in chapter 7.) 

47. Most auditors are not trained to conduct investigations of certain types of illegal acts which are the 

responsibility of the investigator or law enforcement authorities. However, auditors are responsible 

for being aware of the charact,eristics and types of 

vulnerabilities and potential illegal acts associated 

with the area being audited in order to be able to 

identify indications that these acts may have 

occurred. 

48. An audit made in accordance with the standards in 

this statement will not guarantee the discovery of 

all abuse or illegal acts. Nor does the subsequent 

discovery of abuse or illegal acts committed during 

the audit period necessarily mean the auditors’ performance was inadequate, provided the audit was 

made in accordance with the standards in this 

statement. 

Internal 

Control 

49. The fourth field work standard for government performance audits is: 

An assessment should be made of applicable 

interual controls when necessary to satisfy the 

audit objectives. 

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60. Management is responsible for establishing an 

effective system of internal controls. The lack of 

administrative continuity in government units 

because of continuing changes in elected legislative 

bodies and in administrative organizations increases 

the need for an effective internal control system. 

51. Internal controls include the plan of organization 

and methods and procedures adopted by management to ensure that its goals and objectives are met; 

that resources are used consistent with laws, regulations, and policies; that resources are safeguarded 

against waste, loss, and misuse; and that reliable 

data are obtained, maintained, and fairly disclosed 

in reports. 

52. The need to assess internal controls and the focus of 

that assessment varies with the objectives of the 

audit. 

a. An assessment is required in audits having as 

objectives the assessment of the adequacy of particular internal controls. Here, the auditor should 

design steps and procedures to assess the effectiveness of the prescribed control procedures or actual 

control practices. 

b. An assessment of internal controls is a natural 

adjunct in audits having as their objectives an 

assessment of the adequacy of the process (e.g., 

procedures and practices) for carrying out a particular program, service, activity, or function. Here, 

the auditor should design steps and procedures to 

determine if controls needed in the process exist 

and if the existing controls are adequate to achieve 

the desired objectives. 

c. An assessment may be necessary in audits having 

as objectives determining the underlying cause of 

unsatisfactory performance (e.g., lack of improvement achieved by recently installed automation 

intended to increase productivity). Here, if the 

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unsatisfactory performance could occur from weaknesses in internal controls, the auditor should 

design steps and procedures to assess the adequacy 

of those specific controls that if weak could cause 

the unsatisfactory performance. 

6s. The focus of the assessment of internal controls 

varies with the objective of the audit being 

conducted. 

a. Economy and efficiency audits: The auditors may 

assess those policies, procedures, practices, and 

controls applicable to the programs, functions, and 

activities, under audit to the extent necessary, as 

determined by the audit objectives. 

b. Program audits: The auditors may assess those 

policies, procedures, practices, and controls which 

specifically bear on the attainment of the goals and 

objectives specified by the law or regulations for 

the organization, program, activity, or function 

under audit to the extent necessary, as determined 

by the audit objectives. 

64. Auditors may be required or contracted to audit or 

assess particular internal controls. Such assessments should be made in accordance with the standards in this statement.2 

55. Internal auditing is an important part of internal 

control, and the auditors should consider this in 

conducting the audit. Where an assessment of internal controls is called for, external auditors should 

consider the extent to which the work of the internal auditors can be relied upon to help provide 

reasonable assurance that internal control is functioning properly and to prevent duplication of 

effort.” 

“Examples include the Federal Managers’ Financial Integrity Act 

of 1982 (Public Law 97.255) and the laws of several states 

“See chapter 3, paragraph 37 for guidance the auditor should follow when relying on the work of others. 

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56. In view of the wide range in the size and nature of 

government organizations, programs, activities, and 

functions and in view of their organizational structures and operating methods, no single pattern for 

internal audit and review activities can be specified. 

Many government entities have these activities 

identified by other names, such as inspection, 

appraisal, investigation, organization and methods, 

or management analysis. These activities assist 

management by reviewing selected functions. 

Evidence 57. The fifth field work standard for government performance audits is: 

Sufficient, competent, and relevant evidence is 

to be obtained to afford a reasonable basis for 

the auditors’ judgments and conclusions regarding the organization, program, activity, or function under audit. A record of the auditors’ work 

is to be retained in the form of working papers. 

Worldng papers may include tapes, films, and 

discs. 

Types of 

Evidence 

58. Evidence may be categorized as (1) physical, (2) 

documentary, (3) testimonial, and (4) analytical. 

a. Physical evidence: Physical evidence is obtained 

by direct inspection or observation of (1) activities 

of people, (2) property, or (3) events. Such evidence 

may be documented in the form of memoranda summarizing the matters inspected or observed, photographs, charts, maps, or actual samples. 

b. Documentary evidence: Documentary evidence 

consists of created information such as letters, contracts, accounting records, invoices, and management information on performance. 

c. Testimonial evidence: Testimonial evidence is 

obtained from others through statements received 

in response to inquiries or through interviews. 

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Statements important to the audit should be corroborated when possible with additional evidence. Testimonial evidence also needs to be evaluated from 

the standpoint of whether the individual may be 

biased or only have partial knowledge about the 

area. 

d. Analytical evidence: Analytical evidence includes 

computations, comparisons, reasoning, and separation of information into components. 

Tests of 

Evidence 

59. The evidence should meet the basic tests of sufficiency, relevance, and competence. The working 

papers should reflect the details of the evidence and 

disclose how it was obtained. 

a. Sufficiency: Sufficiency is the presence of enough 

factual and convincing evidence to support the 

auditors’ findings, conclusions, and any recommendations. Determining the sufficiency of evidence 

requires judgment. When appropriate, statistical 

methods may be used to establish sufficiency. 

b. Relevance: Relevance refers to the relationship of 

evidence to its use. The information used to prove 

or disprove an issue is relevant if it has a logical, 

sensible relationship to that issue. Information that 

does not is irrelevant and therefore should not be 

included as evidence. 

c. Competence: To be competent, evidence should be 

valid and reliable. In evaluating the competence of 

evidence, the auditors should carefully consider 

whether reasons exist to doubt its validity or completeness. If so, t,he auditors should obtain additional evidence or reflect the situation in the report. 

60. The following presumptions are useful in judging 

the competence of evidence. However, these presumptions are not to be considered sufficient in 

themselves to determine competence. 

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- 

a. Evidence obtained from an independent source is 

more reliable than that secured from the audited 

organization. 

b. Evidence developed under a good system of internal control is more reliable than that obtained 

where such control is weak, unsatisfactory, or 

nonexistent. 

c. Evidence obtained through physical examination, 

observation, computation, and inspection is more 

reliable than evidence obtained indirectly. 

d. Original documents are more reliable than copies. 

e. Testimonial evidence obtained under conditions 

where persons may speak freely is more credible 

than testimonial evidence obtained under compromising conditions (e.g., where the persons may be 

intimidated). 

61. Auditors should, when they deem it useful, obtain 

from officials of the audited entity written representations concerning the relevance and competence 

of the evidence they obtain. 

Reliability of 62. When computer-processed data are an important or 

Evidence From integral part of the audit and the data’s reliability is 

Computer-Based crucial to accomplishing the audit objectives, audiSystems tors need to satisfy themselves that the data are relevant and reliable. This is important regardless of 

whether the data are provided to the auditor or the 

auditor independently extracts them. To determine 

the reliability of the data, the auditors may either 

(a) conduct a review of the general and application 

controls in the computer-baaed systems including 

tests as are Warrdnted;” or(b) if the general and 

4When the reliability of a computer-based system is the primary 

objective of the audit. the auditors should conduct a review of the 

system’s gtwra1 and app11catKnl controls. 

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application controls are not reviewed or are determined to be unreliable, conduct other tests and 

procedures. 

63. When computer-processed data are used by the 

auditor, or included in the report, for background or 

informational purposes and are not significant to 

the audit results, citing the source of the data in the 

report will usually satisfy the reporting standards 

for accuracy and completeness set forth in this 

statement. 

Review of General 

and Application 

Controls 

64. In reviewing the general and application controls, 

the auditor is to consider the effectiveness of those 

general controls relevant to the application system 

being reviewed. General controls are normally 

applicable to all data processing being carried out 

within an installation and provide a control environment affecting the applications being processed. 

Application controls, however, apply on an individual basis, and may vary among applications. 

Review of General 

Controls 

65. General controls include the plan of organization 

and methods and procedures that apply to the overall computer operations in an agency. In reviewing 

the general controls, the auditor should determine 

whether the controls (a) have been designed according to management direction and known legal 

requirements and (b) are operating effectively to 

provide reliability of, and security over, the data 

being processed. The objectives and procedures followed in conducting this work are discussed in the 

three areas below. 

66. Organization and management controls: The auditor 

should determine whether (a) there is a clear 

assignment of responsibilities and accountability 

for planning, managing, and controlling the functions of the data processing organization, (b) personnel are qualified and adequately trained and 

supervised, and (c) there is proper separation of 

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Review of 

Application 

Controls 

duties. Such controls will help ensure that the 

organization’s objectives are achieved, and that 

errors or irregular acts are prevented or detected. 

67. Security controls: The auditor should determine 

whether adequate security is provided over the 

computer programs, data files, telecommunications 

network, and input and output materials. These 

controls, such as physical restrictions and the use of 

passwords to limit system access, help ensure that 

only authorized persons are granted access to the 

computer system for authorized purposes. 

68. Systems software and hardware controls: Computer 

systems are controlled by systems software such as 

operating, data base management, and program 

library systems. Systems software and hardware 

normally include built-in error-checking features to 

detect any errors during processing. The auditor 

should be aware (a) of the procedures used to 

ensure that the systems software and hardware are 

functioning properly, and (b) that when errors are 

detected, appropriate and authorized corrective 

actions are taken. The auditor should also be aware 

of the controls the systems software can exercise 

over the system, how these controls can be 

bypassed or overridden, and how modifications to 

the software are controlled. 

69. Application controls are designed to ensure the 

authority of data origination, accuracy of data 

input, integrit,y of processing, and verification and 

distribution of output. The auditor should review 

the application controls upon which the auditor is 

relying to assess their reliability to process only 

authorized data and to process them promptly, 

accurately, and completely. This includes a review 

of the controls used to ensure that application software and later modifications are authorized and 

tested before implementation. These controls are 

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Field Work Standards for 

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intended to protect the integrity of the application 

software. 

Testing for Data 

RehabW 

70. The degree of testing needed to determine data reliability generally increases to the extent that the 

general or application controls were determined to 

be unreliable or were not reviewed. Testing procedures could include: 

a. Confirming computer-processed data with independent sources, such as third parties, and knowledgeable internal sources, such as regular users of 

the data, and suppliers of data. 

b. Comparing the data with source documents, or 

physical counts and inspections. 

c. Reviewing agency test procedures and results, 

and processing test transactions through the 

application. 

Working Papers 71. Working papers are the link between field work and 

the audit report. They should contain the evidence 

to support the findings, judgments, and conclusions 

in the report. Audit organizations need to establish 

policies and procedures for the preparation and 

maintenance of working papers, including safe custody and retention for a time sufficient to satisfy 

legal and administrative requirements. 

72. As a general guideline, working papers should: 

a. Contain a written audit program cross-referenced 

to the working papers. 

b. Contain adequate indexing and cross-referencing, 

schedules, and summaries. 

c. Be dated and signed by the preparer 

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d. Be reviewed by a supervisor. (That review 

should be documented in the working papers.) 

e. Be complete and accurate to provide proper support for findings, judgments, and conclusions, and 

to enable demonstration of the nature and scope of 

work conducted. 

f. Be understandable without oral explanations. 

They should also be complete and yet concise. Anyone using them should be able to readily determine 

their purpose, data sources, the nature and scope of 

the work conducted, and the preparer’s conclusions. 

Conciseness is important, but clarity and completeness should not be sacrificed just to save time or 

paw-. 

g. Be as legible and neat as practicable. Otherwise 

the working papers may lose their worth as 

evidence. 

h. Be restricted to matters that are significant and 

relevant to the objectives of the assignment. 

73. There are no substitutes for a working understanding of the audit objectives, the reasons for conducting a specific task, and knowing how the task 

will satisfy the objectives. This understanding 

comes from well-planned and well-organized work 

programs and effective instructions by supervisors. 

The practice of having all working papers contain 

clear statements of purpose is very helpful in ensuring that information accumulated is properly 

related to audit ob,jectives and reporting. 

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Purpose 1. This chapter prescribes standards of reporting for 

government performance audits. The report “Contents” and “Presentation” standards may also 

apply for some financial audits. 

Form 2. The first reporting standard for government performance audits is: 

Written audit reports are to be prepared communicating the results of each government audit. 

3. This standard is not intended to limit or prevent 

discussion of findings, judgments, conclusions, and 

recommendations with persons who have responsibilities involving the area being audited. On the contrary, such discussions are encouraged. However, a 

written report should be prepared regardless of 

whether such discussions are held. 

4. Written reports are necessary to (a) communicate 

the results of audits to officials at all levels of government, (b) make the results less susceptible to 

misunderstanding, (c) make the results available for 

public inspection, and (d) facilitate follow-up to 

determine whether appropriate corrective actions 

have been taken. 

5. When an audit is terminated prior to completion, 

the auditor should communicate the termination to 

the auditee and other appropriate officials, preferably in writing. The auditor should also prepare a 

memorandum for the record briefly summarizing 

the results of the work conducted and explaining 

why the audit was terminated. 

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Timeliness 6. The second reporting standard for government performance audits is: 

Reports are to be issued promptly so as to make 

the information available for timely use by management and legislative officials, and by other 

interested parties. 

7. To be of maximum use, the report must be timely. A 

carefully prepared report may be of little value to 

decisionmakers if it arrives too late. Therefore, the 

audit organization should plan for the timely issuance of the audit report and conduct the audit with 

this goal in mind. 

8. The auditors should consider interim reporting of 

significant matters to appropriate officials during 

the audit. Such communication, which may be oral 

or written, is not a substitute for a final written 

report, but it does alert officials to matters needing 

immediate attention and permits them to take corrective action before the final report is completed. 

Report 

Contents 

s. The third reporting standard for government performance audits covers the report contents. 

Objectives, 

Scope, and 

Methodology 

Objectives 

IO. The report should include a statement of the 

audit objectives and a description of the audit 

scope and methodology. 

ii. Knowledge of the objectives of the audit, and the 

audit scope and methodology for achieving the 

objectives, is needed by readers to understand the 

purpose of the audit, judge the merits of the audit 

work and what is reported, and understand any significant limitations. 

12. The statement of objectives being reported on 

should explain why the audit was made and state 

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what the report is to accomplish. Articulating what 

the report is to accomplish normally involves identifying the audit subject and the aspect of performance examined, and because what is reported 

depends on the objectives, communicating what 

finding elements are discussed and whether conclusions and recommendations are being given. 

13. The statement of objectives tells the reader the 

boundaries of the audit. To preclude misunderstanding in cases where the pursued objectives are 

particularly limited and broader objectives can be 

inferred, it may be necessary to clearly define the 

audit boundaries by stating objectives that were not 

pursued. 

Scope and 

Methodology 

14. The statement of scope should describe the depth 

and coverage of audit work conducted to accomplish the audit’s objectives. It should, as applicable, 

explain the relationship between the universe and 

what was audited, identify organizations and geographic locations at which audit work was conducted and the time period covered, cite the kinds 

and sources of evidence used and the techniques 

used to verify it, and explain any quality or other 

problems with the evidence. If unverified data are 

used, this needs to be stated. Any constraints 

imposed on the audit approach by data limitations 

or scope impairments (see chapter 3, paragraph 42) 

are to be disclosed. 

15. The statement on methodology should clearly 

explain the evidence gathering and analysis techniques used to accomplish the audit’s objectives. 

The explanation should identify any assumptions 

made in conducting the audit, describe any comparative techniques applied and measures and criteria 

used to assess performance, and if sampling is 

involved, describe the sample design and state why 

it was chosen. 

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16. Every effort should be made to avoid any misunderstanding by the reader concerning the work that 

was and was not done to achieve the audit objectives, particularly when the work was limited by 

relying on internal controls or because of constraints on time or resources. 

Audit Findings 17. The report should include a full discussion of 

and Conclusions the audit findings, and where applicable, the 

auditor’s conclusions. 

Findings I 18. The report should present the findings and finding 

elements developed in response to the audit objective.’ Sufficient, competent and relevant information about findings should be included to promote 

adequate understanding of the matters reported 

and to provide convincing, but fair presentations in 

proper perspective. Appropriate background information that readers need to understand the findings 

should also be included. 

19. Audit findings have often been regarded as containing the elements of criteria, condition, and effect, 

plus cause when problems are found. However, the 

elements needed for a complete finding depend 

entirely on the objectives of the audit. Thus, a finding or set of findings is complete to the extent that 

the audit objectives are satisfied and the report 

clearly relates those objectives to the finding’s 

elements. 

Conclusions 20. The report should contain conclusions when called 

for by the audit objectives. Conchisions should be 

‘Any audit findings not mcluded in the audit report. e.g , because 

of insigmficance. should be separately communicated to management. preferably in wntmg. The audit report should reference 

fmdmgs communicated in a management letter to top management. All communicatwnb should be documented m the working 

papCY3. 

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- 

Cause and 21. 

Recommendations 

Cause 22. 

23. 

24. 

Recommendations 25. 

specified and not left to be inferred by readers. The 

report should not be written on the basis that a bare 

recital of facts makes the conclusions inescapable. 

The report should include the cause of problem 

areas noted in the audit, and recommendations 

for actions to correct the problem areas and to 

improve operations, when called for by the audit 

objectives. 

The report should include a discussion of cause 

when problems are reported and the audit objectives call for development of the reasons for the 

problems. In some audits, the objective may be limited to identifying whether or not a problem exists 

with no requirement for identifying the cause, even 

if a problem is found. 

Identifying the underlying cause of problems found 

is helpful in making constructive recommendations 

to achieve corrective action. When auditors know 

why something happened, they can more readily 

determine what action is needed to prevent its 

recurrence. 

Because problems can result from a number of plausible factors, auditors need to clearly demonstrate 

and explain with applicable evidence and reasoning 

the link between the problem and the factor or factors they identified as the cause. In some cases, the 

auditors may need to describe how they isolated the 

stated cause or causes from other plausible factors. 

This is not a requirement for proof of a causal relationship, but a requirement for reasonable persuasive argument. 

The report should contain recommendations when 

the potential for significant improvement in operations and performance is substantiated by the 

reported findings and recommendations are called 

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for by the audit objectives. Recommendations to 

effect compliance with laws and regulations and 

improve internal controls should also be made when 

significant instances of noncompliance are noted or 

significant weaknesses in controls are found. The 

auditor’s report should also disclose the status of 

known uncorrected significant findings and recommendations from prior audits that affect the objectives and findings of the current audit. 

26. Reports which contain constructive recommendations can encourage improvements in the conduct of 

government programs and activities. Recommendations are most constructive when they are directed 

at resolving the cause of identified problems, are 

action oriented and specific, and are addressed to 

parties that need to act. Recommendations also 

need to be feasible and cost-effective. 

Statement on 

Auditing 

Standards 

27. The report should include a statement that the 

audit was made in accordance with generally 

accepted government auditing standards and 

disclose when applicable standards were not 

followed. 

28. The statement of conformity refers to the applicable standards that the auditors should have followed during the audit. The statement need not be 

qualified when standards that were not applicable 

were not followed. When applicable standards were 

not followed, the auditors should modify the statement to disclose in the scope section of their report 

the required standard that was not followed, the 

reasons therefor. and the known effect not following the standard had on the results of the audit. 

Internal 

Controls 

2% The report should identify the significant internal controls that were assessed, the scope of the 

auditor’s assessment work, and any significant 

weaknesses found during the audit. 

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Compliance 

With Laws and 

Regulations 

Noncompliance 

30. Reporting on internal controls will vary depending 

on the significance of any weaknesses found and 

the relationship of those weaknesses to the audit 

objectives.’ 

31. In audits where the sole objective is to audit the 

internal controls, weaknesses found of significance 

to warrant reporting would be considered deficiencies and be so identified in the audit report. The 

internal controls that were assessed would be identified for full presentation of the findings. 

32. In audits having as their objective an assessment of 

performance, auditors in seeking the cause of deficient performance found, may identify weaknesses 

in internal controls of such significance to be a key 

source of the deficient performance. In reporting 

findings, the controls would be identified and the 

weaknesses would be described as the “cause.” 

33. The report should include all significant 

instances of noncompliance and abuse and all 

indications or instances of illegal acts that could 

result in criminal prosecution that were found 

during or in connection with the audit.:’ 

34. The auditors’ report should include all significant 

instances of noncompliance found during or in connection with the audit, even those not resulting in a 

legal liability of the entity. All instances of illegal 

acts that could result in the entity, or an official or 

employee of the entity, being subject to criminal 

prosecution should also be reported. (See paragraph 

42, page 7-9). 

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35. In reporting significant instances of noncompliance 

identified in response to the audit objectives, the 

auditors should place their findings in proper perspective. To give the reader a basis for judging the 

prevalence and consequences of noncompliance, the 

instances of noncompliance should be related to the 

universe or the number of cases examined and be 

quantified in terms of dollar value, if appropriate. 

Abuse and Illegal 

Acts 

36. If, during an audit or in connection with an audit of 

a government entity, external government auditors 

become aware of abuse or illegal acts or indications 

of such acts that could affect the government 

entity, they should promptly report to the top official of that entity. The auditor should also consider 

reporting to the appropriate oversight body. If the 

top official is believed to be a party to such acts or 

otherwise implicated, the auditor should in all cases 

report to the appropriate oversight body. If the acts 

involve funds received from other government entities, the auditors should also promptly report to the 

proper officials, including the audit officials, of 

those entities. 

37. Internal government auditors auditing an entity 

that is external to the entity to which they are 

assigned should promptly report to officials and 

authorities in accordance with the preceding 

paragraph. 

38. Internal government auditors auditing within the 

government entity to which they are assigned, 

should report to the top officials of the entity under 

audit (unless the official is believed to be a party to 

such acts) and/or the appropriate entity investigative personnel. 

as. Nongovernment audit organizations conducting 

government audits will discharge their responsibilities for reporting abuse or illegal acts or indications 

of such acts found during or in connection with an 

audit by promptly reporting to the top official of 

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the entity arranging for the audit. The auditor 

should also consider reporting to the appropriate 

oversight body. If the audited entity and the top 

official is believed to be a party to such acts or 

otherwise implicated, the auditors should in all 

cases report to the appropriate oversight body. 

Also, when the acts involve funds received from 

other government entities, the audited entity is 

expected to notify the proper officials, including the 

audit officials, of those entities. If the entity does 

not do so within a reasonable time or was unable to 

because the top official was involved, the auditor 

should report to the officials of those other government entities. 

40. It is the responsibility of an entity receiving the 

information from the various organizations, both 

audited entity and funding entity, to report to 

appropriate law enforcement authorities and other 

government entities whose funds are involved. 

41. In the case of an audit of government funds 

received by a nongovernment entity, the auditors 

should promptly report to the appropriate government entity requiring or arranging for the audit, 

and such other officials designated by law or regulation to receive the audit reports. 

42. Abuse or illegal acts or indications of such acts that 

auditors become aware of should be covered in a 

written report and submitted in accordance with 

the preceding paragraphs. Such acts may be covered in a separate report if including them in the 

overall report would compromise investigative or 

legal proceedings or otherwise preclude the report 

from being released to the public. Auditors generally should not release information or reports containing information on potential illegal acts that 

could result in the entity, or officer or employee of 

the entity, being subjected to criminal prosecution, 

or reports with references that such acts were omitted from reports, without consulting with appropriate legal counsel, since this could interfere with 

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legal processes or subject the implicated individuals 

to undue publicity, or might subject the auditor to 

potential legal action. 

Views of 

Responsible 

Officials 

43. The report should include the pertinent views of 

responsible officials of the organization, program, activity, or function audited concerning 

the auditors’ findings, conclusions, and recommendations, and what corrective action is 

planned. 

44. One of the most effective ways to ensure that a 

report is fair, complete, and objective is to obtain 

advance review and comments by responsible 

auditee officials, and others as may be appropriate. 

Including the views of responsible officials produces a report that shows not only what was found 

and what the auditors think about it, but also what 

the responsible persons think about it and what 

they plan to do about it. 

45. The auditor should normally request that the 

responsible officials’ views be submitted in writing 

for significant findings, conclusions, and recommendations adversely affecting the audited entity. 

When, in these cases, written comments are not 

obtained, oral comments should be requested. 

46. Advance comments should be objectively evaluated 

and recognized, as appropriate, in the report. A 

promise or plan for corrective action should be 

noted but should not be accepted as justification for 

dropping a significant point or a related 

recommendation. 

47. When the comments oppose the report’s findings, 

conclusions, or recommendations, and are not in the 

auditors’ opinion valid, the auditors may choose to 

state their reasons for rejecting them. Conversely, 

the auditors should modify their report if they find 

the comments valid. 

Page 7-10 
Chapter 7 

Reporting standards for 

Performance Audits 

Noteworthy 48. The report should include a description of any 

Accomplishments significant noteworthy accomplishments, particularly when management improvements in one 

area may be applicable elsewhere. 

4s. Significant management accomplishments identified 

during the audit, which were within the scope of 

the audit necessary to accomplish the audit objectives, should be included in the audit report, along 

with deficiencies. Such information is necessary to 

fairly present the situation the auditors find and to 

provide appropriate balance to the report. In addition, inclusion of such accomplishments may lead to 

improved performance by other government organizations that read the report. 

Issues Needing 

Further Study 

50. The report should include a listing of any significant issues needing further study and 

consideration. 

51. If during the audit, the auditor identifies significant 

issues that warrant, further audit work, but the 

issues are not directly related to the audit objectives 

and the auditor does not expand the audit and pursue them, the auditor should: 

a. refer the issues to the appropriate auditors 

within the audit organization responsible for planning future audit work, and 

b. disclose the issues in the report and the reasons 

the issues need further study. 

Privileged and 

Confidential 

Information 

52. The report should include a statement about any 

pertinent information that was omitted because 

it is deemed privileged or confidential. The 

nature of such information should be described, 

and the basis under which it is withheld should 

be stated. 

Page 7-11 
Chapter 7 

Reporting Standards for 

Performance Audits 

53. Certain information may be prohibited from general 

disclosure by federal, state, or local laws or regulations. Such information may be provided on a needto-know basis only to persons authorized by law or 

regulation to receive it. Before omitting pertinent 

data from the report, the auditors should obtain 

assurance that a valid requirement for the omission 

exists, and where appropriate, consult with legal 

counsel. 

54. Auditors should generally consult with appropriate 

legal counsel before releasing reports with references that illegal acts or indications of such acts 

were omitted from reports.’ 

Report 

Presentation 

55. The fourth reporting standard for government performance audits is: 

The report should be complete, accurate, objective, and convincing, and be as clear and concise 

as the subject matter permits. 

Complete 56. Being complete requires that the report contain all 

pertinent information needed to satisfy the audit 

objectives, promote an adequate and correct understanding of the matters reported, and meet the 

applicable report content requirements. It also 

means including appropriate background 

information. 

87. Giving readers an adequate and correct understanding means providing perspective on the extent and 

significance of reported findings, such as the frequency of occurrence relative to the number of 

cases or transactions tested and the relationship of 

the findings to thtb ent,ity’s operations. 

5s. Except as necessary to make convincing presentations, detailed supporting data need not be included. 

Page 7-12 
Chapter 7 

Reporting standards for 

Performance Audits 

In most cases, a single example of a deficiency is not 

sufficient to support a broad conclusion or a related 

recommendation. All that it supports is that there 

was a deviation, an error, or a weakness. 

Accurate 59. Accuracy requires that the evidence presented be 

true and that findings be correctly portrayed. The 

need for accuracy is based on the need to assure 

readers that what is reported is credible and reliable. One inaccuracy in a report can cast doubt on 

the validity of an entire report and can divert attention from the substance of the report. Also, inaccurate reports can damage the credibility of the 

issuing audit organization and reduce the effectiveness of reports it issues. 

60. The report should include only information, findings, and conclusions that are supported by competent and relevant evidence in the auditor’s working 

papers. That evidence should demonstrate the correctness and reasonableness of the matters 

reported. Correct, portrayal means describing accurately the audit scope and methodology, and 

presenting findings and conclusions in a manner 

consistent with the scope of audit work. 

Objective 61. 

62. 

Objectivity requires that the presentation throughout the report be balanced in content and tone. A 

report’s credibility is significantly enhanced when it 

presents evidence in an unbiased manner so that. 

readers are persuaded by the facts. 

The audit report should be fair and not be misleading, and should place the audit results in proper 

perspective. This means presenting the audit results 

impartially and guarding against the tendency to 

exaggerate or overemphasize deficient performance. In describing shortcomings in performance, 

auditors should present the explanation of responsible officials including the consideration of any 

unusual difficulties or circumstances they faced. 

Page 7.13 
Chapter 7 

Reporting Standards for 

Perfmmance Audits 

63. The tone of reports should encourage favorable 

reaction to findings and recommendations. Titles, 

captions, and the text of reports should be stated 

constructively. Although findings should be presented in clear, forthright terms, the auditors 

should keep in mind that one of their objectives is to 

be persuasive, and that this can best be done by 

avoiding language that unnecessarily generates 

defensiveness and opposition. Although criticism of 

past performance is often necessary, the report 

should emphasize needed improvements. 

Convincing 64. Being convincing requires that the audit results be 

responsive to the audit objectives, and that the findings be presented in a manner that is persuasive 

and that conclusions and recommendations follow 

logically from the facts presented. The information 

presented should be sufficient to persuade the readers of the validity of the findings, the reasonableness of the conclusions, and the desirability of their 

accepting the recommendations. Reports designed in 

this manner can do much to focus the attention of 

responsible officials on the matters in reports that 

warrant attention and to stimulate corrective 

actions. 

Clear 65. Clarity requires that the report be easy to read and 

understand. Reports should be written in language 

as clear and simple as the subject matter permits, 

66. Use of straightforward, nontechnical language is 

essential to simplicity of presentation. If technical 

terms and unfamiliar abbreviations and acronyms 

are used, they should be clearly defined. Acronyms 

should be used sparingly. 

67. Both logical organization of material, and accuracy 

and precision in stating facts and in drawing conclusions, are essential to clarity and understanding. 

Effective use of titles and captions and thesis and 

topic sentences make the report easier to read and 

Page 7-14 
Chapter 7 

Reporting Standards fur 

Performance Audits 

understand. Visual aids (such as pictures, charts, 

graphs, and maps) should be used when appropriate to clarify and summarize complex material. 

Concise 68. 

69. 

Being concise requires that the report be no longer 

than necessary to convey the message. Too much 

detail detracts from a report, may even conceal the 

real message, and may confuse or discourage readers. Needless repetition should be avoided. 

Although room exists for considerable judgment in 

determining the content of reports, those that are 

complete, but still concise, are likely to receive 

greater attention. 

Report 

Distribution 

70. The fifth reporting standard for government performance audits is: 

Written audit reports are to be submitted by the 

audit organization to the appropriate officials of 

the organization audited, and to the appropriate 

officials of the organizations requiring or 

arranging for the audits, including external 

funding organizations, unless legal restrictions, 

ethical considerations, or other arrangements 

prevent it. Copies of the reports should also be 

sent to other officials who may be responsible 

for taking action on audit findings and recommendations and to others authorized to receive 

such reports. Unless restricted by law or regulation, copies should be made available for public 

inspection. 

71. Audit reports should be distributed to as many 

interested officials as is practicable. In some cases, 

the subject of the audit may involve material that is 

classified for security purposes or is not releasable 

to particular parties or the public for other valid 

reasons. Generally, however, the report should be 

distributed to officials directly interested in the 

results. Such officials include those designated by 

Page 7.15 
Chapter 7 

Reporting standards for 

Perfommnce Audits 

law or regulation to receive such reports, those 

responsible for acting on the findings and recommendations, legislators, and those of other levels of 

government that have provided funds to the 

audited entity. 

72. Internal auditors auditing within their entity should 

follow their entity’s own arrangements and statutory requirements. Usually, they report to their 

entity’s top management and the entity is responsible for distribution of the report. 

73. When nongovernment audit organizations are 

engaged, the engaging government organization is 

responsible for distributing the reports and for 

making reports available to the public, as appropriate. If the nongovernment audit organization is to 

make the distribution, the engagement agreement 

should indicate what officials or organizations 

should receive the report. 

Page 7-16 
Appendix 

Summ~ of Statement on Government 

Auditing Smdards 

I. Introduction 

A. Purpose 

1. This statement contarns standards for audrts of government organizations, programs, 

actrvities, and functrons, and of government funds recerved by contractors, nonprofit 

organizations, and other nongovernment organizatrons 

2 The standards are to be followed by audrtors and audit organizahons when requrred by 

law, regulatron, agreement or contract, or poky 

II. Types of Government Audits 

A. Purpose 

1 Thus chapter descrrbes the types of audits that government and nongovernment audit 

organizatrons conduct, and that government organrzatrons arrange to have conducted 

This descnptron IS not Intended to lrmrt or require the types of audits that may be 

conducted or arranged 

2 In conducting these types of audits, auditors should follow the applrcable standards 

included and incorporated In thus statement 

B. Financial Audrts 

1 Frnancral statement audks determine (a) whether the financial statements of an audrted 

entity present farrly the frnancral positron, results of operatrons. and cash flows or changes 

rn financial posrtron rn accordance with generally accepted accounting pnncrples, and 

(b) whether the entity has complied with laws and regulations for those transactions and 

events that may have a materral effect on the financial statements. 

2. Frnancral related audrts rnclude determrnrng (a) whether frnancral reports and related 

items, such as elements, accounts, or funds are farrly presented, (b) whether frnancral 

rnformation IS presented In accordance with established or stated criterra, and(c) whether 

the entity has adhered to specific frnancral complrance requrrements 

C. Performance Audrts 

1 Economy and efficiency audrts Include determrnrng (a) whether the entrty IS acqurnng, 

protecting, and usrng Its resources (such as personnel, property, and space) economrcally 

and efficrently, (b) the causes of inefficrencres or uneconomrcal practrces, and (c) whether 

the entity has complred with laws and regulations concernrng matters of economy and 

efficiency 

2. Program audits Include determrnrng (a) the extent to which the dewed results or 

benefits establrshed by the legislature or other authorizing body are berng achreved, 

(b) the effechveness of organrzatrons, programs, actrvrties, or functrons, and (c) whether 

the entrty has complred wrth laws and regulatrons applrcable to the program 

(contrnued) 

Page A-l 
Appendix A 

Summary of Statement on 

Government 

Auditing Standards 

D. Understandrng the Audit Objectives and Scope 

1 Audits may have a combrnatron of financial and performance audit objectives, or may 

have objectrves limrted to only some aspects of one audrt type. 

2 Auditors should follow the appropriate standards rn thus statement that are applrcable 

to the individual objectives of the audit. 

E. Other Actrvrtres of An Audrt Organizatron 

1. Servrces other than audits The head of the audrt organrzation should establish pokey 

on whrch audit standards from thus statement should be followed by the auditors in 

performrng such servrces However, as a mrnrmum, audrtors should collectrvely possess 

adequate professronal proficiency and exercise due professional care for the service 

being performed 

2 investrgatrve work. The head of the audrt organrzatron should estabksh policy on 

whether the audit standards in this statement, or some other appropriate standards, are 

to be followed by the employees performing this work 

3. Nonaudrt actrvrtres. The head of the audrt organrzatron should establish policy on what 

standards In thus statement are to be followed, or whether some other appropriate 

standards are to be followed, by the employees In performing this type of work. 

Ill. General Standards 

A. Qualrfrcations The staff assigned to conduct the audrt should collectrvely possess 

adequate professional proficiency for the tasks requrred 

B. Independence: In all matters relatrng to the audrt work, the audrt organization and the 

Individual auditors, whether government or publrc. should be free from personal and external 

Impairments to independence, should be organizatronally independent, and should marntarn 

an independent attrtude and appearance. 

C. Due Professronal Care Due professional care should be used In conducting the audit and 

in prepanng related reports 

D. Quality Control Audrt organizations conducting government audrts should have an 

appropriate internal quality control system In place and particrpate rn an external qualrty 

control revrew program 

IV. Field Work Standards for Financial Audits 

A. Relatronship to AICPA Standards 

1 The standards of field work for government frnancral audits incorporate the AICPA 

standards of field work for financral audits, and prescribes supplemental standards of field 

work needed to satisfy the unique needs of government financial audits. 

2. The field work standards of the AICPA and the supplemental standards rn chapter 4 of 

this statement apply to both financial statement audits and financial related audits 

(contrnued) 

Page A-2 
Appendix A 

Summary of Statement on 

Govemment 

Auditing Standards 

B. Plannrng 

1 Supplemental plannmg field work standards for government financral audits are. 

a. Audit Requirements for all Government Levels Planning should include considerairon 

of the audit requirements of all levels of government 

b. Legal and Regulatory Requirements A test should be made of compliance with 

applrcable laws and regulatrons. 

(1) In determrning compliance with laws and regulatrons: 

(a) The auditor should desrgn audrt steps and procedures to provide reasonable 

assurance of detecting errors, irregularrtres, and fllegal acts that could have a drrect 

and matenal effect on the financial statement amounts or the results of financfal 

related audits. 

(b) The auditor should also be aware of the possibrlity of illegal acts which could 

have an Indirect and material effect on the frnancral statements or results of 

financial related audits 

C. Evidence (Working papers) 

1. The AICPA field work standards and this statement require that: A record of the 

audrtors’ work be retained in the form of workrng papers. 

2. Supplemental working paper requirements for frnancral audits are that working papers 

should 

a. Contain a written audrt program cross-referenced to the working papers 

b. Contatn the obfectrve, scope, methodology and results of the audit 

c. Contatn suffrcrent rnformation so that supplementary oral explanations are not 

required. 

d. Be legrble with adequate indexrng and cross-referencrng, and include summaries and 

lead schedules, as appropnate. 

e Restrict rnformatron rncluded to matters that are matenally Important and felevant to 

the objectrves of the audit 

f Contain evrdence of supervisory reviews of the work conducted 

D. Internal Control 

1. The AICPA field work standards and thts statement requrre that. A sufficrent 

understanding of the Internal control structure IS to be obtained to plan the audrt and to 

determine the nature, trming, and extent of tests to be performed. 

(conttnued) 

Page A-3 
Appendix A 

Summary of Statement on 

Government 

Auditing Standards 

V. Reporting Standards for Financial Audits 

A. Relationshrp to AICPA Standards 

1, The standards of reportmg for government frnancral audits Incorporate the AICPA 

standards of reporting for financial audrts. and prescribes supplemental standards of 

reporting needed to satrsfy the unrque needs of government frnancral audrts 

2. The reporting standards of the AICPA and the supplemental standards in chapter 5 of 

this statement apply to both financial statement audrts and frnancral related audits 

B. Supplemental reportrng standards for government financial audrts are’ 

1, Statement on Auditing Standards: A statement should be included rn the audrtors’ 

report that the audrt was made rn accordance wrth generally accepted government 

auditing standards. (AICPA standards require that public accountants state that the audit 

was made rn accordance wrth generally accepted audrtlng standards. In conductrng 

government audits, publrc accountants should also state that their audrt was conducted rn 

accordance wrth the standards set forth In chapters 3, 4, and 5.) 

2. Report on Compliance The auditors should prepare a wrrtten report on their tests of 

compliance wrth applrcable laws and regulatrons Thus report, which may be included rn 

erther the report on the financial audrt or a separate report, should contain a statement of 

posrtrve assurance on those Items whrch were tested for compliance and negative 

assurance on those Items not tested. It should rnclude all material Instances of 

noncomplrance, and all Instances or rndrcatrons of rllegal acts whrch could result in 

crimrnal prosecutron 

3 Report on Internal Controls The audrtors should prepare a wrrtten report on therr 

understanding of the entrty’s Internal control structure and the assessment of control rusk 

made as part of a frnancral statement audit, or a frnancral related audit. Thus report may be 

Included in either the audrtor’s report on the frnanctal audrt or a separate report. The 

auditor’s report should include as a mrnrmum (a) the scope of the auditor’s work rn 

obtaining an understandrng of the Internal control structure and rn assessrng the control 

rusk, (b) the entity’s srgnrfrcant internal controls or control structure rncludrng the controls 

established to ensure compliance wrth laws and regulatrons that have a materral Impact 

on the financral statements and the results of the frnancral related audit, and (c) the 

reportable condrtrons. rncludrng the rdentrfrcahon of matenal weaknesses, rdentrfred as a 

result of the audrtors work rn understandrng and assessrng the control risk 

4. Reportrng on Financial Related Audits Wrrtten audrt reports are to be prepared givrng 

the results of each frnancral related audrt 

5 Prrvrleged and Confidential lnformatron If certain rnformatron IS prohrbrted from general 

disclosure, the report should state the nature of the rnformatron omrtted and the 

requirement that makes the omrssron necessary 

(continued) 

Page A-4 
Appendix A 

Summary of Statement on 

Government 

Auditing Standards 

6 Report Distribution: Written au&t reports are to be submrtted by the audit organization 

to the appropnate offrcrals of the organization audrted and to the appropriate officials of 

the organrzatrons requirrng or arranging for the audrts, rncluding external fundrng 

organrzatrons, unless legal restnctrons. ethical consrderations, or other arrangements 

prevent it. Copies of the reports should also be sent to other offrcrals who have legal 

oversrght authorrty or who may be responsrble for taking actron and to others authorrzed 

to recerve such reports Unless restncted by law or regulation. copies should be made 

available for publrc Inspection 

VI. Field Work Standards for Performance Audits 

A. Plannrng Work IS to be adequately planned 

8. Supervrsron Staff are to be properly supervrsed 

C. Legal and Regulatory Requirements An assessment IS to be made of complrance wrth 

applrcable requrrements of laws and regulations when necessary to satisfy the audrt 

ob)ectrves 

1 Where an assessment of complrance wrth laws and regulations IS required Auditors 

should desrgn the audit to provrde reasonable assurance of detectrng abuse or rllegal acts 

that could srgnrfrcantly affect the audit objectIves 

2 In all performance audrts Auditors should be alert to srtuatrons or transactrons that 

could be rndrcative of abuse or rllegal acts. 

D. Internal Control An assessment should be made of appircable Internal controls when 

necessary to satisfy the audrt objectrves 

E. Evidence, Suffrcrent. competent, and relevant evrdence IS to be obtarned to afford a 

reasonable basis for the auditors’ judgments and conclusrons regarding the organizahon, 

program, actlvlty, or functron under audit A record of the audrtors’ work IS to be retained rn 

the form of working papers Workrng papers may Include tapes, films, and drscs 

VII. Reporting Standards for Performance Audits 

A. Form, Wrrtten audrt reports are to be prepared communrcatrng the results of each 

government audit 

6. Trmelrness Reports are to be Issued promptly so as to make the rnformatron avarlabie for 

tamely use by management and legrslatrve offrcrals, and by other Interested partres 

C. Report Contents 

1 Oblectrves, Scope, and Methodology The report should Include a statement of the 

audrt obtectives and a descnptron of the audrt scope and methodology 

2 Audit Frndrngs and Conclusions The report should rnclude a full drscussron of the audit 

frndrngs, and where applrcable, the audrtor’s conclusrons 

(continued) 

Page A-5 
Appendix A 

summaly of statement on 

Government 

Auditing Standards 

3. Cause and Recommendations~ The report should Include the cause of problem areas 

noted in the audrt, and recommendations for actions to correct the problem areas and to 

improve operatrons. when called for by the audit objectrves. 

4. Statement on Audrtrng Standards, The report should rnclude a statement that the audrt 

was made In accordance with generally accepted government audrting standards and 

drsclose when applrcable standards were not followed 

5. Internal Controls The report should identify the srgnrfrcant internal controls that were 

assessed, the scope of the auditor’s assessment work, and any significant weaknesses 

found durrng the audit 

6. Complrance With Laws and Regulatrons: The report should Include all srgnifrcant 

instances of noncomplrance and abuse and all rndrcations or Instances of Illegal acts that 

could result rn crrmrnal prosecution that were found dunng or rn connectron wrth the audrt. 

7 Views of Responsrble Officials The report should Include the pertrnent vrews of 

responsible officrals of the organization, program, actrvrty, or functron audtted concernrng 

the auditors’ findmgs. conclusions, and recommendatrons, and what corrective action IS 

planned 

6 Noteworthy Accomplrshments The report should Include a description of any 

srgnrfrcant noteworthy accomplrshments, particularly when management improvements in 

one area may be applrcable elsewhere 

9 Issues Needing Further Study The report should Include a IMng of any significant 

Issues needing further study and consrderatron 

10. Prrvrleged and Confidentral Informatron: The report should Include a statement about 

any pertrnent rnformatton that was omrtted because It IS deemed privileged or confidential 

The nature of such mformatron should be descrrbed, and the basrs under whrch It IS 

withheld should be stated 

D. Report Presentabon The report should be complete, accurate, objective, and convrncrng, 

and be as clear and concrse as the subject matter permrts 

E. Report Dtstnbutron: Wrrtten audrt reports are to be submrtted by the audrt organrzatron to 

the approprrate offrcrals of the organizatron audited, and to the appropriate offictals of the 

organrzattons requrnng or arrangrng for the audits, includrng external funding organrzations, 

unless legal restrictions, ethrcal considerations, or other arrangements prevent It. Copres of 

the reports should also be sent to other offrcrals who may be responsrble for takrng action on 

audit findrngs and recommendatrons and to others authorrzed to receive such reports 

Unless restricted by law or regulation, copres should be made available for publrc 

Inspection. 

VIII. AICPA Generally Accepted Auditing Standards 

A. General Standards 

1. The examrnatron IS to be performed by a person or persons havrng adequate technrcal 

training and profrcrency as an auditor 

(contrnued) 

Page A-6 
Appemlix A 

summary of statement on 

Government 

Auditing Standards 

2. In all matters relating to the assrgnment, an Independence in mental attitude is to be 

maintained by the auditor or auditors. 

3 Due professional care IS to be exercised in the performance of the examrnation and the 

preparation of the report. 

B. Standards of Freld Work 

1 The work IS to be adequately planned and assrstants, rf any, are to be properly 

supervised. 

2. A sufficrent understandrng of the Internal control structure is to be obtained to plan the 

audit and to determrne the nature, timrng, and extent of tests to be performed. 

3. Sufficrent competent evrdential matter is to be obtarned through inspection, 

observation, rnqurrres, and confirmatrons to afford a reasonable basrs for an oprnron 

regarding the financial statements under examrnatron 

C. Standards of Reportrng 

1. The report shall state whether the frnancral statements are presented In accordance 

with generally accepted accountrng prrnciples 

2. The report shall identify those crrcumstances rn which such princrples have not been 

consistently observed in the current penod rn relation to the preceding penod 

3 Informative drsclosures in the frnancral statements are to be regarded as reasonably 

adequate unless otherwise stated rn the report 

4 The report shall erther contain an expression of opinion regardrng the financral 

statements, taken as a whole, or an assertion to the effect that an oprnron cannot be 

expressed. When an overall oprnron cannot be expressed, the reasons therefor should be 

stated. In all cases where an auditor’s name is associated with financial statements, the 

report should contarn a clear-cut rndrcatron of the character of the auditor’s examinatron, if 

any, and the degree of responsibilrty he IS taking 

Page A-7 
Appendix B 

Overview of Standards 

GENERALLY ACCEPTED GOVERNMENT AUDITING STANDARDS (GAGAS) 

GENERALLY ACCEPTED GOVERNMENT 

AUDITING STANDARDS (GAGAS) 

STANDARDS 

r-5 r-4-l-l 

FINANCIAL PERFORMANCE QUALIFICATIONS INDEPENDENCE DUE PROFESSIONAL DUALITY 

CARE CONTROL 

l Fmanc~al * Economy and l Praflclency l P*rSO”al . Planning l Infernal 

Statement Etf~cency l Contlnulng hp.-l,W3”tS * Conducting l External 

* Financial . Program ProfeSSIonal l External 

Related 

- RepOrtinQ 

Education lmpalrments 

- Organlzatlonal 

Independence 

Page B-l 
Appendix B 

Overview of Standards 

GENERALLY ACCEPTED GOVERNMENT AUDITING STANDARDS (GAGAS) (Continued) 

I 

FINANCIAL AUDITS PERFORMANCE AUDITS 

I I 

FIELD WORK REPORTING 

STANDARDS STANDARDS 

I 

FIELD WORK 

STANDARDS 

I 

REPORTING 

STANDARDS 

Confidential 

Information 

* Dlstributhon 

Page B-2 
Appendix C 

Auditing Standards Advisory Council 

James F. Antonio 

Chairman, Governmental 

Accounting Standards Board 

Robert W. Bramlett 

Project Manager, Governmental 

Accounting Standards Board 

Thomas Cook 

Professor of Psychology 

Northwestern Unrversity 

James H. Curry 

Assrstant Inspector General 

U.S. Department of Defense 

Bert T. Edwards 

Partner, Arthur Andersen & Co 

Bernard P. Gelzer 

First Deputy Inspector General 

Metropolitan Transportation 

Authority, New York 

Frank L Greathouse 

Drrector, Division of State 

Audit, Tennessee 

Thomas W. Hayes 

Auditor General 

California 

Edward P. Henderson 

Partner, Fleming, Relss,Ltttle & Co. 

Willlam R Krnney, Jr 

Professor of Accountrng 

University of Texas 

Roland M Malan 

AssIstant Deputy 

Comptroller, State of New York 

John R. Miller 

Partner, Peat Marwlck Main & Co 

Douglas R Norton 

AudItor General 

Arizona 

(continued) 

Page C-l 
Appendix C 

Auditing Standards 

Advisory Council 

Edward Renfrow 

State Auditor 

North Carolina 

Lee Sechrest 

Professor of Psychology 

Unrversrty of Arrzona 

James B Thomas, Jr 

Inspector General 

U S. Department of Education 

Cornellus E Tierney 

Partner, Arthur Young & Co 

Rrchard A. White 

Former Manager of Standards 

institute of Internal Audrtors 

GAO Project Team 

Wrlliam J. Anderson Jr 

W. A Broadus, Jr 

Donald Ft. Polashuk 

Ronell B Raaum 

Frederick D. Wolf 

Page c-2 
Abuse Furnishing excessive services to beneficiaries; or 

performing what may be considered improper practices, none of which involves noncompliance with 

laws and regulations. 

Audit Refers to the type of work described in chapter 2 of 

this statement. 

Audit Methodology The methods and techniques used to gather and 

analyze data needed to accomplish the audit 

objectives. 

Audit Objective(s) A statement of the purpose of the audit; the question(s) the audit will answer. (Note: The ~tcr.4 refers 

to audit objectives as the objectives developed to 

achieve the financial statement assertions.) 

Audit Program 

- 

Audit Results 

A document listing the suggested steps and procedures to be followed in conducting the audit and 

preparing the report. 

Include the audit findings, and as appropriate, conclusions and recommendations. 

Audit Scope 

Impairments 

Factors external to the audit organization which 

can restrict the auditors’ abiMy to render objective 

opinions and conclusions. 

Audit Standards Pertain to the auditor’s professional qualifications, 

the quality of audit effort, and the characteristics 

of professional and meaningful audit reports. 

kditor The term as used in this statement refers to the 

auditor as well as the audit organization unless 

otherwise indicatcad in this statement. 

Page G-1 
Auditor’s Opinion An expression in the audit report of the auditor’s 

position on whether the financial information of the 

entity is presented fairly, in all material respects, in 

conformity with generally accepted accounting 

principles (or with other specified accounting principles applicable to the auditee). 

Body of Technical 

Knowledge 

Existing sources of information on types of audits, 

tests, procedures, and methodology. Such information is available through such organizations as the 

American Evaluation Association, American Institute of Certified Public Accountants, Canadian 

Comprehensive Auditing Foundation, Institute of 

Internal Auditors, Intergovernmental Audit 

Forums, and U.S. General Accounting Office. 

Competence Refers to evidence that is valid and reliable. 

Compliance With 

Laws and 

Regulations 

The term, as used in this statement, refers to following requirements or not violating prohibitions 

contained in statutes, regulations, contracts, and 

grants and in binding policies and procedures governing entity conduct. 

Computer-Based 

System 

That part of an overall information system which 

uses automated equipment and associated methods 

and procedures to process the data and information. 

Computer-Processed Data that are collected, processed, and stored, and 

Data subsequently compiled and produced as data or 

information, through use of a computer. 

Conclusions An expression in the audit report of the auditor’s - 

position on the audit objective(s). 

Page G-2 
Contract Audit An audit of a government contract for goods and 

services with profit as well as nonprofit 

organizations. 

Due Professional 

Care 

The third general standard for government auditing. Conducting audits and preparing reports in 

accordance with generally accepted government 

auditing standards including: 

l Competently and adequately carrying out the audit 

steps and procedures which are necessary in order 

to achieve the audit objectives. 

. Possessing skill and knowledge appropriate for the 

audit. 

l Using sound judgment in establishing the scope, 

selecting the methodology, and choosing tests and 

procedures for the audit, and in evaluating and 

reporting on the audit results. 

. Exercising integrity and objectivity in conducting 

the audit and preparing the report. 

l Follow-up on known findings and recommendations 

from previous audits to determine whether prompt 

and appropriate corrective actions have been taken 

by entity officials. 

Evidence The data and information an auditor obtains during 

audit field work to document findings and support 

opinions and conclusions. 

External 

Impairments 

These are factors external to the audit organization 

that may restrict the audit or interfere with an 

auditor’s ability to form independent and objective 

opinions and conclusions. 

External Quality 

Control Review 

Program 

A review of an audit organization by an organization not affiliated with the audit organization being 

reviewed to determine that: (1) the organization’s 

internal quality control system is in place and operating effectively and (2) established policies and 

Page G-3 
Glossary 

procedures and applicable auditing standards are 

being followed in its audit work, including its government audits. 

Financial Audits 1. Financial statement audits determine (a) whether 

the financial statements of an audited entity present fairly the financial position, results of operations, and cash flows or changes in financial 

position in accordance with generally accepted 

accounting principles, and (b) whether the entity 

has complied with laws and regulations for those 

transactions and events that may have a material 

effect on the financial statements. 

2. Financial related audits include determining 

(a) whether financial reports and related items, 

such as elements, accounts, or funds are fairly presented, (b) whether financial information is presented in accordance with established or stated 

criteria, and (c) whether the entity has adhered to 

specific financial compliance requirements. 

Financial Statements A presentation of financial data and information, 

including accompanying notes, derived from 

accounting records to communicate at a point in 

time an entity’s financial position, and for a period 

of time its results of operations and cash flows or 

changes in financial position. 

Findings The result of information development-a logical 

pulling together of information to arrive at conclusions (or a response to an audit objective on the 

basis of the sum of the information) about an organization, program, activity, function, condition, or 

other matter which was analyzed or evaluated. It 

need not be critical or be concerned only with deficiencies or weaknesses. A finding will be the basis 

for conclusions and recommendations for corrective 

action. 

Page G-4 
Glossary 

Generally Accepted Rules and procedures established by authoritative 

Accounting bodies or conventions that have evolved through 

Principles (GAAP) custom and common usage. 

The Governmental Accounting Standards Board 

(GASB) establishes accounting principles and financial reporting standards for state and local government entities. 

The Financial Accounting Standards Board (wsa) 

establishes accounting principles for nongovernment entities. 

The General Accounting Office (GAO) establishes 

accounting principles and financial reporting stan 

dards for the federal government. 

Some state and local governments and regulatory 

bodies also have established specific accounting 

principles. 

Generally Accepted Those audit standards set forth in the AICPA’S StateAuditing Standards ments on Auditing Standards. 

(GfiS) 

Generally Accepted Those audit standards set forth in the Government 

Government Auditing Stand, 

Auditing Standards ernmental - 

(GAGAS) Functions 

United St; 

ards (Standards for Audit of Govurganizations, Programs, Activittes, and 

) issued by the Comptroller General of the 

Des 

General Standards A term pertaining to (1) the qualifications of the 

staff, (‘2) the audit organization’s and the individual 

auditor’s independence, (3) the exercise of due professional care in conducting the audit and in preparing related reports, and (4) the presence of quality 

controls. 

Page G-5 
Government 

Activity 

A specific and distinguishable line of work conducted within an organizational component of a 

government entity. 

Government Entity Generally means a: 

l State agency (e.g., department, office, commission, 

committee, division, bureau, or section within state 

government.) 

l Municipality (i.e., a city or town with its own incorporated government for local affairs). 

* County, independent school district, special district, 

or authority. 

l Local agency (e.g., department, office, commission, 

committee, division, bureau, or section within local 

government). 

l Nonprofit government agency. 

l Government regional planning agency, commission, 

authority, or corporation. 

. Federal department and agency. 

Government 

Function 

The purpose for which a government organization 

is responsible. 

Government 

Organization 

A government entity or component of a government 

entity. 

Government 

Program 

Generally defined as an organized set of activities 

directed toward a common goal. In practice, however, the term program has many uses and thus 

does not have a well-defined meaning. 

Illegal Acts A type of noncompliance in which the source of the 

requirement not followed or prohibition violated is 

a statute or implementing regulation. 

Page G-6 
Independence The second general standard for government auditing. In all matters relating to the audit work, the 

audit organization and the individual auditors, 

whether government or public, should be free from 

personal and external impairments to independence, should be organizationally independent, and 

should maintain an independent attitude and 

appearance. 

Internal Control Internal control is defined as follows: 

1. According to the AICPA, SAS on Consideration of 

the Internal Control Structure in a Financial Statement Audit. This applies to the field work and 

reporting standards for financial audits contained 

in chapters 4 and 5 of this statement. 

An entity’s internal control structure consists of the 

policies and procedures established to provide reasonable assurance that specific entity objectives 

will be achieved. An entity’s internal control structure consists of three elements: 

l Control Environment: The collective effect of various factors on establishing, enhancing, or mitigating 

the effectiveness of specific policies and procedures. 

l Accounting System: The methods and records established to identify, assemble, analyze, classify, 

record, and report an entity’s transactions and to 

maintain accountability for the related assets and 

liabilities. 

l Control Procedures: The policies and procedures in 

addition to the control environment and accounting 

system that management has established to provide 

reasonable assurance that specific entity objectives 

will be achieved. 

2. According to the GAO'S Standards for Internal 

Controls in the Federal Government: This applies to 

the field work and reporting standards for performance audits contained in chapters 6 and 7 of this 

statement. 

PageG-7 
Glossary 

“The plan of organizatmn and methods and procedures 

adopted by management to ensure that resource use is consistent with laws, regulations, and policies; that resources are 

safeguarded against waste, loss, and misuse; and that reliable 

data are obtained, maintained, and fairly disclosed in 

reports.” 

Internal Quality 

Control System 

Operating policies and procedures established by 

the audit organization to provide reasonable assurance that it: (1) has established, and is following, 

adequate audit policies and procedures and (2) has 

adopted, and is following, applicable auditing 

standards. 

Materiality and/or 

Significance 

The weight that evidence plays in influencing the 

auditor’s decision concerning: the selection of issues 

and areas for audit; the nature, timing, and extent 

of audit tests and procedures (methodology); and 

the auditor’s audit opinion, judgment, or conclusion. 

- Materiality: The magnitude of an omission or misstatement of accounting information that, in the 

light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying 

on the information would have been changed or 

influenced by the omission or misstatement. Materiality judgments are made in light of surrounding 

circumstances and necessarily involve both quantitative and qualitative considerations. 

l Significance: The importance, in relation to the 

audit objectives, of an item, event, information, or 

matter, or of a problem the auditor identifies. 

Noncompliance With A failure to follow requirements, or a violation of 

Laws and prohibitions, contained in statutes, regulations, conRegulations tracts, grants, and binding policies and procedures 

governing entity conduct, 

Page G-8 
Organizational 

Independence 

This concerns the auditor’s being sufficiently 

removed from pressures within the organizational 

structure of a government to express impartial 

opinions and conclusions. 

Performance Audits 1. Economy and efficiency audits include determining (a) whether the entity is acquiring, protecting, 

and using its resources (such as personnel, property, and space) economically and efficiently, 

(b) the causes of inefficiencies or uneconomical 

practices, and (c) whether the entity has complied 

with laws and regulations concerning matters of 

economy and efficiency. 

2. Program audits include determining (a) the 

extent to which the desired results or benefits 

established by the legislature or other authorizing 

body are being achieved, (b) the effectiveness of 

organizations, programs, activities, or functions, 

and (c) whether the entity is complying with 

requirements of laws and regulations applicable to 

the program. 

Personal 

Impairments 

They involve circumstances in which auditors may 

not be impartial, or may not be perceived to be 

impartial. 

Planning The first field work standard for government auditing. This standard requires that the work is to be 

adequately planned. Adequate planning includes 

consideration of: audit objectives, scope, and methodology; criteria for assessing performance (where 

applicable); coordination with other government 

auditors; skill and knowledge of the staff to be 

used, and the use of consultants, experts, and specialists; compliance with laws and regulations and 

potential abuse and illegal acts; assessment of internal controls; and materiality and/or significance 

and audit risk. 

Page G-9 
Program 

Effectiveness 

Evaluation 

The application of systematic methods to estimate 

the extent to which observed results, intended or 

unintended, are caused by program activities. Cause 

is linked to effect through use of design and anafysis methods which compare results observed after 

implementation to estimates of results which would 

havebeenobservedinthe absenceoftheprogram. 

Program Evaluation The application of systematic methods to the 

assessment of program conceptualization, implementation, and effectiveness. 

Qualifications The first general standard for government auditing. 

The staff assigned should collectively possess (1) a 

knowledge of the methods and techniques applicable to government auditing and be able to apply it, 

(2) a knowledge of government organizations, programs, activities, and functions, (3) the skills to 

communicate clearly and effectively, and (4) the 

knowledge and the skills necessary for the audit. 

Qualifications of When public accountants are engaged to conduct 

Public Accountants fiiancial audits that lead to an expression of an 

opinion, public accountants should be: (1) licensed 

certified public accountants or persons working for 

a licensed certified public accounting firm or 

(2) public accountants licensed on or before December 31, 1970, or persons working for a public 

accounting firm licensed on or before December 31, 

1970. 

Quality Control The fourth general standard for government auditing. Audit organizations conducting government 

audits should have an appropriate internal quality 

control system in place and participate in an external quality control review program. 

Page G-10 
Recommendations Actions the auditor believes are needed to correct 

problem areas and to improve operations. 

Relevance Refers to the relationship of evidence to its use. 

Report (Audit) 1. The auditor’s report in a financial audit through 

which an auditor expresses a conclusion or opinion 

or, if circumstances require, disclaims an opinion. 

2. The auditor’s report in a performance audit 

through which an auditor communicates the audit 

results. 

3. Other special auditor’s reports through which an 

auditor communicates information required by the 

audit engagement include “Report on Compliance,” 

“Report on Internal Control,” and so forth. 

Scope Refers to the depth and coverage of audit work. It 

concerns such questions as: Is the whole program or 

a part going to be audited? What period of time is to 

be covered? Is the audit regional or confined to particular localities? How precise must measures of 

performance be? What level of validity is needed in 

documenting the existence of a problem? What finding and reporting elements are to be developed? 

Should When the term “should” is used to describe the 

auditor’s and/or audit organization’s responsibility, 

this means that the standards that are applicable to 

the work and necessary to satisfy the audit objectives are to be followed. Departures from applicable 

standards must be disclosed in the audit report. 

Significance See materiality 

Page G-11 
Sufficiency 

Supervision 

Survey 

Timeliness 

The presence of enough factual and convincing evidence to support the auditors findings, conclusions, 

and any recommendations. 

This standard for government auditing requires 

that staff be properly supervised. Supervisors 

should ensure that less skilled staff members 

receive training and guidance in doing their work 

and that all staff clearly understand their tasks and 

what the work is expected to accomplish. 

A process for quickly gathering information, without detailed verification, on the entity’s organization, programs, activities, and functions. It is an 

effective method to help identify specific audit 

areas and to obtain information for use in planning. 

This standard for government auditing states that 

reports are to be issued promptly so as to make the 

information available for timely use by management and legislative officials, and by other interested parties. 

Value-For-Money 

Audits 

Audits which assess whether government entities 

are managed with regard for economy and efficiency, and for effectiveness measurement, and in 

compliance with applicable laws, regulations, and 

directives. 

Working Papers Documents containing the evidence to support the 

auditor’s findings, opinions, conclusions, and judgments. They include the collection of evidence, prepared or obtained by the auditor during the audit, 

Page G-12 
Index 

Abuse ---- -- 

AccountabilIty of publlc offlclals 

AICPA statements on auditing standards 

Applicability of audit standards 

Audit follow-up 

Audit methodology 

Audit objectives 

Audit program See Planning 

6-11, 6-12, 7-7, 7-8 

l-3,1-4 

l-3,4-1,5-1 

__- 

l-l, 2-1,2-3,2-5,3-l, 3-10 

3-16 

G-2,6-3,6-7,7-2 

2-1,2-5,3-12.4-l, 6-2.6-3, 

7-2 

Audit reports __~~~~ _~ ~- - 

Financial audits 5-1,5-2,5-6, S-10 

Performance audits 7-1 

Audit results 6-1,7-l 

Audit scoae lmoalrments 3-16 

Audit survey See Planning 

Audit types See Types of audits 

Basic premises 

Compliance with laws and regulattons 

- 

Standard for assesslna and testlna 

l-4 

4-2 6-9 .I_ 

Standard for reporting 5-2,7-7 

Computer~based systems rellablllty of data from 

See Evidence 

Conclusions 2-5,6-3,7-4 

Continuing education and tralnlng 

lmplementatlon reSDOnSlbllltV 

Requirements 

Cnteria 

Due professlonal care 

Audit follow-up 

Conductlna 

3-2 

6-2,6-4,7-4 

3-16 

3-10 3-11 

Materlallty and stgnlflcance 3-13 

Planning 3-10 

Reliance on work of others 3-14 

Reporting 3-11 

(continued) 
Index 

Standard 

Economy and efficlencraudrts 

Elements of ftndings 

Evtdence 

Analytrcal 

Combetence 

3-10 

2-3 

5-4,7-4 

6-16,6-17 

6-17 

Documentary 

Physical 

Relevance 

6-16 

6-16 

6-17 

Reliabilrty of data from computer-based systems 6-18 

Standard 6-16 

Tests of 

Types of 

Freld work standards for frnancral audrts 

Evidence 

Suffrcrency 6-17 

Testimonial 6-16.6-17 

6-17 

6-16 

4-6 

Internal controls 

Plannrng 

Freld work standards for performance audrts 

4-7 

4-i 

Evrdence 

Internal control 

Legal and regulatory requrrements 

Planning 

Supervrsron 

Ftnancral audits 

Financial related audrts 

Frnancial statement audrts 

Findrngs Also see Audrt results and Elements 

of findings 

Generally accepted accountrng prrncrples 

General standards 

Due professronal care 

Independence 

Qualrfrcatrons 

Quality control 

6-16 

6-13 

6-9 

6-l 

6-6 

2-l 

2-2 

2-1 

6-3.7-4 

2-l 

3-10 

3-4 

3-1 

3-17 

(contrnued) 

Page I-2 
Index 

Illegal acts 

Alert to 

Designing steps to detect 

Due care In oursulnq 

Reporting 

lmpalrments 

External 

-___~~ -~~~ 

Organlzatlonal 

Personal 

--~ -~~~~ 

Scope 

lndeoendence 

-External auditors 

External lmpalrments 

Internal auditors 

Nonqovernment auditors 

OrganizatIonal Independence ~-___~-~ ~~~ .~. 

Personal Impairments 

Standard 

Internal controls 

--Standard for assessing and consldenng 

Standard for reporting 

Materlallty 

Methodology See audit methodology 

Nongovernment auditors 

.~~ 

Objectwes See Audit obJectIves 

Opinion 

Other actlvltles of an audit organization 

Performance audits 

Economy and efficiency 

Program 

Planmng 

Audit oroqram 

Audit requirements for all government levels 

Audit survey 

Compliance 

4-4,6-12 

4-4,6-i 1 

4-4,6-l 2 

5-2,5-4,7-7,7-a 

3-7 

3-8 

3-6 

3-16 

3-9 

3-7 

3-8 

3-5 

3-8 

3-6 

3-4 

4-7,6-13 

5-6,7-6 

3-13,6-3 

3-1,3-5 

2-5,5-2,5-4 

2-6 

2-3 

2-3,2-4 

6-6 

4-l 

6-l 

4-2,6-10 

(continued) 

Page I-3 
Index 

Coordrnatron 

Errors and rrregularrtres 

Illegal acts and abuse 

Obtectrves 

Personnel 

Scope and methodology 

Standard 

Procurement of audtt servrces 

Program audrts 

Public accountants 

Qualrftcations 

Consultants 

6-4 

4-4 

4-4.6-l 1 

6-2,6-3 

6-6 

6-3 

6-l 

l-6 

2-3,2-4 

3-4.3-5.5-5 5-12 

3-3 

Contrnuing educatron requrrements 3-2,3-3 

Experts and specralrsts 3-3 

Skulls and knowledae 3-l __- .~ ----- ~- - ~-~ - 

Staff qualrficatrons 

Standard 

-3-1 3-3 

3-l 

Quality control 

External quality control revrew program 

__-~ ~- - 

Internal quakty control system 

Standard __~ ~ ~~~ ~~ _ _ _ _~~ 

Aecommendatrons 

Relying on work of others 

__~~ ~ ~-~ - - - ~-~ - ~ 

Access to working papers 

External audrtors 

Internal auditors 

__-~ ~~- -~~-- 

Nonauditors 

3-18 

3-17 

3-17 

6-3,?-5 

.~ 

3-G 3-16 

3-14 

3-15 

3-15 

Report contents for performance audits 

Cause 

Complrance 

Conclusrons 

Frndrngs 

Illegal acts 

Internal controls 

Issues needrng further study 

7-5 

7-7 

7-4 

7-4 

T-8 

-7-G 

7-11 

(contrnued) 

Page I-4 
Index 

Methodology 

Noteworthy accomplishments-recoqnrtron of 

Obtectrves 

Pnvileged and confrdentral rnformatron 

Recommendatrons 

Scope 

Statement of audrtrng standards 

Vrews of responsrble offrcrals 

__---- 

Report drstrrbutron 

Standard 

Report form 

Standard 

Report presentation 

Accurate 

Clear 

Complete 

Comse 

Convrncrng 

Obtectrve 

Standard 

Report trmelrness 

Standard 

Reporttng standards for flnancral audtts 

Compliance 

Drstnbutron 

Frnancral related 

Illegal acts 

Internal controls 

Pnvrleged and confrdentral rnformatron 

Statement on audrtrng standards 

Reoortrna standards for oerformance audrts 

Content 

Drstrrbutron 

Form 

Presentatton 

7-2,7-3 

7-11 

7-2 

7-11 

7-5 

7-2,7-3 

7-6 

7-10 

5-11,7-15 

7-1 

7-13 

7-14 

7-12 

7-15 

7-14 

7-13 

7-12 

7-2 

5-2 

5-11 

5-io 

5-4 

5-6 

5-10 

5-1 

7-2 

7-15 

i-1 

7-12 

(contrnued) 

Page I-5 
Index 

Timeltness 7-2 

Significance 3-13,6-3 

Single audit act l-1, l-2,4-2, 4-3, 4-4, 5-2, 

5-3.5-6.5-l 1 

Statement of conformity wrth audrt standards 

~ -.~- 

Suoervrsion 

Standard 6-8 

5-l. 7-6 

Tyoes of audrts 

Economy and effrcrency 2-3 

Frnancral 2-1 

Financral related 2-2 

Frnancial statement 2-1 

Performance 2-3 

Program 

Value-for-money audrts 

Views of resaonstble offrctals 

Workrng papers 

Content 

Standard 

2-3,2-4 

2-3 

7-10 

4-6.6-21 

4-6,6-16 

Page I-6 
- 

‘i u. s. GOVERNMENT PRINTING OFFICE 1988 522-327/no343 
’ r 

This pamphlet, Government Auditing Standards, is 

for sale bv the Sunerintendent of Documents. U.S. 

Governmknt Printing Oftice, Washington, D.C: 20401; 

stock number 020-000-00243-3. 

-