CPA Audit Quality:

Inspectors General Find Significant Problems

AFMD-86-20: Published: Dec 5, 1985. Publicly Released: Dec 5, 1985.

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In response to a congressional request, GAO reviewed the quality of audits performed by certified public accountants (CPA) to determine: (1) their compliance with professional standards; (2) the extent of quality problems on audits of federal funds; and (3) the causes of these problems.

In its review of quality control systems used by federal inspectors general (IG), GAO found that: (1) IG have identified significant numbers of problem reports and audits; (2) IG have identified reporting problems needing correction in one out of four audit reports reviewed; (3) IG did not accept one in five audits in which the required audit work was not performed, or the audit documentation was inadequate or unclear after reviewing the auditors' working papers; and (4) although IG worked with CPA to correct problems on individual audits, additional efforts are needed to make use of the data in these individual case files. GAO also found that IG: (1) have uneven policies and practices for reviewing the work of CPA; (2) rarely take action against CPA when they identify unacceptable audit work; and (3) do not systematically compile, analyze, and use the results of their quality control reviews (QCR) to correct recurring audit quality problems.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IG are currently revising their policies in this area.

    Recommendation: The Statutory Inspectors General should clarify and, where necessary, revise policies on taking actions against CPA on unacceptable audits, even when the auditor ultimately provides an acceptable report. Policies should also include provisions for referring CPA to regulatory and professional bodies such as State Boards of Accountancy and AICPA, respectively.

    Agency Affected: Statutory Inspectors General

  2. Status: Closed - Implemented

    Comments: IGs and AICPA decided on procedures to expedite referrals. IGs seem to be using these procedures and are continuing to refer poor quality audits to AICPA and state boards.

    Recommendation: The Statutory Inspectors General should work with the American Institute of Certified Public Accountants (AICPA) and appropriate state boards of accountancy to expedite referrals to these bodies.

    Agency Affected: Statutory Inspectors General

  3. Status: Closed - Implemented

    Comments: IG are developing systems to accomplish this recommendation.

    Recommendation: The Statutory Inspectors General should require RIG offices to collect, compile, analyze, and use data on the results of their QCR of individual audits to identify and correct trends or patterns of quality control problems.

    Agency Affected: Statutory Inspectors General

  4. Status: Closed - Implemented

    Comments: IG have established guidelines to perform QCR on a set percentage of audits they receive.

    Recommendation: The Statutory Inspectors General should require all RIG to conduct QCR on an established percentage of the audit reports they receive.

    Agency Affected: Statutory Inspectors General

  5. Status: Closed - Implemented

    Comments: IG have revised their checklists in accordance with the recommendations.

    Recommendation: The Statutory Inspectors General should develop and require RIG offices to use standardized checklists that are annotated to generally accepted government auditing standards.

    Agency Affected: Statutory Inspectors General

  6. Status: Closed - Not Implemented

    Comments: IG are in the process of updating their audit guides where they would still be applicable.

    Recommendation: The Statutory Inspectors General should prepare and update program audit guides for nonfederal auditors to use in the conduct of their audits. Due to the passage of the Single Audit Act, all audit guides should be reviewed to determine how they can best assist the auditor in performing grant audits that build upon the single audit.

    Agency Affected: Statutory Inspectors General

  7. Status: Closed - Implemented

    Comments: IG are planning various procedures to accomplish this recommendation.

    Recommendation: The Statutory Inspectors General should require regional IG (RIG) offices to report quality results to headquarters using consistent formats and terminology so that nationwide trends and patterns of quality problems can be identified.

    Agency Affected: Statutory Inspectors General

  8. Status: Closed - Implemented

    Comments: IG have revised their policy to include this type of information in their semiannual reports.

    Recommendation: The Statutory Inspectors General should report problems identified and efforts to improve audit quality to agency heads and to Congress in their semiannual reports.

    Agency Affected: Statutory Inspectors General

 

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