Auditor Communication

GAO-03-673G Government Auditing Standards > Chapter 4 Field Work Standards for Financial Audits > Auditor Communication

4.06 The standard related to auditor communication for financial audits performed in accordance with GAGAS is:

Auditors should communicate information regarding the nature, timing, and extent of planned testing and reporting and the level of assurance provided to officials of the audited entity and to the individuals contracting for or requesting the audit.

4.07 AICPA standards and GAGAS require auditors to establish an understanding with the client and to communicate with audit committees. GAGAS broaden the parties with whom auditors must communicate and require auditors to communicate specific information during the planning stages of a financial audit, including any potential restriction of the auditors’ reports, to reduce the risk that the needs or expectations of the parties involved may be misinterpreted. Auditors should use their professional judgment to determine the form, content, and frequency of the communication, although written communication is preferred. Auditors may use an engagement letter, if appropriate, to communicate the information. Auditors should document the communication in their audit documentation.

4.08 Auditors should communicate their responsibilities for the engagement to the appropriate officials of the audited entity, including

a. the head of the audited entity,

b. the audit committee or board of directors or other equivalent oversight body in the absence of an audit committee, and

c. the individual who possesses a sufficient level of authority and responsibility for the financial reporting process, such as the chief financial officer.

4.09 In situations in which auditors are performing the audit under a contract with a party other than the officials of the audited entity, or pursuant to a third-party request, auditors should also communicate with the individuals contracting for or requesting the audit, such as contracting officials or members or staff of legislative committees. When auditors are performing the audit pursuant to a law or regulation, auditors should communicate with the members or staff of legislative committees who have oversight of the auditee.¹ Auditors should coordinate communications with the responsible government audit organization and/or management of the audited entity and may use the engagement letter to keep interested parties informed. If an audit is terminated before it is completed, auditors should write a memorandum for the record that summarizes the results of the work and explains the reasons why the audit was terminated. In addition, auditors should communicate the reason for terminating the audit to management of the audited entity, the entity requesting the audit, and other appropriate officials, preferably in writing. This communication should be documented.

4.10 In communicating the nature of services and level of assurance provided, auditors should specifically address their planned work and reporting related to testing internal control over financial reporting and compliance with laws, regulations, and provisions of contracts or grant agreements. During the planning stages of an audit, auditors should communicate their responsibilities for testing and reporting on internal control over financial reporting and compliance with laws, regulations, and provisions of contracts or grant agreements. Such communication should include the nature of any additional testing of internal control and compliance required by laws, regulations, and provisions of contracts or grant agreements, or otherwise requested, and whether the auditors are planning on providing opinions on internal control over financial reporting and compliance with laws, regulations, and provisions of contracts or grant agreements.

4.11 To assist in understanding the limitations of auditors’ responsibilities for testing and reporting on internal control over financial reporting and compliance with laws, regulations, and provisions of contracts or grant agreements, auditors may want to contrast those responsibilities with other audits of internal control and compliance. The discussion in paragraphs 4.12 and 4.13 may be helpful to auditors in explaining their responsibilities for testing and reporting on internal control over financial reporting and compliance to officials of the audited entity and other interested parties.

4.12 Tests of internal control over financial reporting and compliance with laws, regulations, and provisions of contracts or grant agreements in a financial statement audit contribute to the evidence supporting the auditors’ opinion on the financial statements or other conclusions regarding financial data. However, such tests generally are not sufficient in scope to opine on internal control over financial reporting or compliance with laws, regulations, and provisions of contracts or grant agreements. To meet certain audit report users’ needs, laws and regulations sometimes prescribe testing and reporting on internal control over financial reporting and compliance with laws, regulations, and provisions of contracts and grant agreements to supplement coverage of these areas.²

4.13 Even after auditors perform and report the results of additional tests of internal control over financial reporting and compliance with laws, regulations, and provisions of contracts and grant agreements, some reasonable needs of officials of the audited entity or individuals contracting for or requesting the audit still may be unmet. Auditors may meet these needs by performing further tests of internal control and compliance with laws, regulations, and provisions of contracts or grant agreements using the AICPA Statements on Standards for Attestation Engagements and additional GAGAS requirements (see chapter 6), or the performance audit standards (see chapters 7 and 8), to achieve these objectives.

1This requirement applies only to situations where the law or regulation specifically identifies the entity to be audited, such as an audit of a specific agency’s financial statements required by the Chief Financial Officers Act of 1990, as expanded by the Government Management Reform Act of 1994. Situations in which the mandate to audit financial statements applies to entities not specifically identified, such as audits required by the Single Audit Act Amendments of 1996, are excluded.

2For example, when engaged to perform audits under the Single Audit Act Amendments of 1996 for state and local government entities and nonprofit entities that receive federal awards, auditors should be familiar with the Office of Management and Budget (OMB) Circular A-133 on single audits. The act and circular include specific audit requirements, mainly in the areas of internal control and compliance with laws and regulations, that exceed the minimum audit requirements in the standards in chapters 4 and 5 of this document. Audits performed under the Chief Financial Officers Act of 1990, as expanded by the Government Management Reform Act of 1994, also have specific audit requirements prescribed by OMB in the areas of internal control and compliance. In addition, some state and local governments may have additional audit requirements that the auditors would need to consider in planning the audit.