CPA Audit Quality:

Many Governmental Audits Do Not Comply With Professional Standards

AFMD-86-33: Published: Mar 19, 1986. Publicly Released: Mar 19, 1986.

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In response to a congressional request, GAO reviewed the quality of certified public accountants' (CPA) audits of federal assistance programs.

GAO found that: (1) CPA did not satisfactorily comply with auditing standards on 34 percent of the governmental audits they performed; (2) more than half of the unsatisfactory audits had severe standards violations; (3) two predominant CPA problems were insufficient audit work or working paper evidence showing testing of compliance with laws and regulations, and evidence showing studies and evaluations of internal controls; and (4) smaller CPA firms had greater problems than larger firms in satisfactorily complying with standards. GAO believes that, to improve the quality of governmental audits: (1) CPA must have the expertise to perform governmental audits; (2) the profession should develop and maintain positive enforcement programs to randomly or periodically review CPA who perform poor quality audits; (3) the profession should work actively with agency inspectors general (IG) to improve the systems that IG have for reviewing, compiling, analyzing, and using data on individual audits to identify and correct trends or patterns of quality problems; and (4) state boards of accountancy and the American Institute of Certified Public Accountants should act promptly and decisively to address professional standards violations referred to them.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Federal inspectors general have improved their oversight of CPA audit quality. In addition, recent GAO studies showed that the public accounting profession has significantly improved its audit quality.

    Recommendation: The Director of the Office of Management and Budget (OMB) should establish, consistent with the Single Audit Act, more definitive criteria for prohibiting the cost of substandard audits to be charged to federally assisted programs.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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