Government Auditing Standards: July 1999: Chapter 1

	Chapter 1: Introduction
Contents Next	Purpose 1.1 This document contains standards for audits of government organizations, programs, activities, and functions, and of government assistance received by contractors, nonprofit organizations, and other nongovernment organizations. These standards, often referred to as generally accepted government auditing standards (GAGAS), are to be followed by auditors and audit organizations when required by law, regulation, agreement, contract, or policy. The standards pertain to auditors' professional qualifications, the quality of audit effort, and the characteristics of professional and meaningful audit reports.
Contents Previous Next	Applicability 1.2 Federal legislation requires that the federal inspectors general comply with the Comptroller General's standards for audits of federal organizations, programs, activities, and functions. The legislation further states that the inspectors general are to ensure that nonfederal auditors comply with these standards when they audit federal organizations, programs, activities, and functions.¹ [NOTE 1: The Inspector General Act of 1978, as amended, 5 U.S.C. App. (1982).] 1.3 Other federal auditors must also follow these standards. The Office of Management and Budget (OMB) included these standards in OMB Circular A-73² as basic audit criteria for federal executive departments and agencies. [NOTE 2: Section 6, "Audit of Federal Operations and Programs"] 1.4 The Chief Financial Officers Act of 1990 requires that these standards be followed in audits of federal departments and agencies.³ [NOTE 3: The Chief Financial Officers Act of 1990 (Public Law 101-576).] 1.5 The Single Audit Act of 1984 requires that these standards be followed in audits of state and local governments which receive federal financial assistance.⁴ [NOTE 4: The Single Audit Act of 1984 (31 U.S.C. 7501-7507)] 1.6 Other federal policies and regulations, such as OMB Circular A-133, require that these standards be followed in audits of institutions of higher education and other nonprofit organizations that receive federal financial assistance.⁵ [NOTE 5: OMB Circular A-133, "Audits of Institutions of Higher Education and Other Nonprofit Institutions."] 1.7 Auditors conducting audits under agreement or contract also may be required to comply with these standards under the terms of the agreement or contract. 1.8 The standards in this document are generally relevant 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. 1.9 The American Institute of Certified Public Accountants (AICPA) has issued auditing and attestation standards that apply in financial audits, as discussed in chapters 4 and 5. The Institute of Internal Auditors and the American Evaluation Association (formerly the Evaluation Research Society) have issued related standards.⁶ [NOTE 6: Codification of the Standards for the Professional Practice of Internal Auditing, The Institute of Internal Auditors, Inc., copyright 1993; and New Directions for Program Evaluation: Standards for Evaluation Practice, no. 15. San Francisco: Jossey-Bass, September 1982.]
Contents Previous Next	Accountability 1.10 Our system of managing public programs today rests on an elaborate structure of relationships among all levels of government. Officials and employees who manage these programs need to render an 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. 1.11 The need for accountability has caused a demand for more information about government programs and services. Public officials, legislators, and citizens want and need to know whether government funds are handled properly and in compliance with laws and regulations. They also want and need to know whether government organizations, programs, and services are achieving their purposes and whether these organizations, programs, and services are operating economically and efficiently. 1.12 This document provides auditing standards to help provide accountability and to assist public officials and employees in carrying out their responsibilities. These 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.
Contents Previous Next	Basic Premises 1.13 The following premises underlie these standards and were considered in their development. a. The term "audit" includes both financial and performance audits. b. Public officials and others entrusted with handling public resources (for example, managers of a not-for-profit organization that receives federal assistance) are responsible for applying those 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 or others by their own constituencies or by other levels of government. c. Public officials and others entrusted with public resources 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 that compliance. d. Public officials and others entrusted with public resources are responsible for establishing and maintaining effective controls to ensure that appropriate goals and objectives are met; resources are safeguarded; laws and regulations are followed; and reliable data are obtained, maintained, and fairly disclosed. e. Public officials and others entrusted with public resources 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. f. Audit of government reporting is an essential element of public control and accountability. Auditing provides credibility to the information reported by or obtained from management through objectively acquiring and evaluating evidence. The importance and comprehensive nature of auditing place a special responsibility on public officials or others entrusted with public resources who authorize or arrange audits to be done in accordance with these standards. This responsibility is to provide audit coverage that is broad enough to help fulfill the reasonable needs of potential users of the audit report. Auditors can assist public officials and others in understanding the auditors' responsibilities under GAGAS and other audit coverage required by law or regulation. This comprehensive nature of auditing also highlights the importance of auditors clearly understanding the audit objectives, the scope of the work to be conducted, and the reporting requirements. g. Financial auditing contributes to providing accountability since it provides independent reports on whether an entity's financial information is presented fairly and/or on its internal controls and compliance with laws and regulations. h. Performance auditing contributes to providing accountability because it provides an independent assessment of the performance of a government organization, program, activity, or function in order to provide information to improve public accountability and facilitate decision-making by parties with responsibility to oversee or initiate corrective action. i. To realize governmental accountability, the citizens, their elected representatives, and program managers need information to assess the integrity, performance, and stewardship of the government's activities. Thus, unless legal restrictions or ethical considerations prevent it, audit reports should be available to the public and to other levels of government that have supplied resources. [NOTE 7: The Single Audit Act (31 U.S.C. 7502(f)) requires that the report on single audits be made available for public inspection.]
Contents Previous Next	Auditors' Responsibilities 1.14 The comprehensive nature of auditing done in accordance with these standards places on the audit organization the responsibility for ensuring that (1) the audit is conducted by personnel who collectively have the necessary skills, (2) independence is maintained, (3) applicable standards are followed in planning and conducting audits and reporting the results, (4) the organization has an appropriate internal quality control system in place, and (5) the organization undergoes an external quality control review.
Contents Previous Next	Procurement of Audit Services 1.15 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 experience of the bidder; availability of bidder staff with professional qualifications and technical abilities; and the results of the bidders' external quality control reviews. [NOTE 8: See How to Avoid a Substandard Audit: Suggestions for Procuring an Audit, National Intergovernmental Audit Forum, May 1988.] If you have questions about Government Auditing Standards, send email to yellowbook@gao.gov. Updated 8/13/99