In response to my article "For the Orange"

In response to my article "For the Orange":

Hi Leita,
 
I don’t agree or disagree but I have a question.  I work for X County Auditor’s Office.  County Auditor is appointed by a committee made up by 8 district judges.  This is going to change, but meanwhile, County Auditor does not report to the County officials, such as Commissioners Court, County Judge, or County Administrator.  County Auditor is also Treasurer for the County, and she oversees Financial Accounting, Grants, Accounts Payable, Payroll, and Internal Audit.  Nothing seems to apply to us.  Anything related to financial statements, we have no independence whatsoever.  What do you suggest our most applicable guidance that be?    Thank you.

Are you looking to tell management that you do not agree with this assignment?  That it compromises your independence?

If so, I would consult the yellow book.  Here are a few quotes from the 2011 version that might be applicable: http://www.gao.gov/assets/590/587281.pdf

3.36 Whether an activity is a management responsibility depends on the facts and circumstances and auditors exercise professional judgment in identifying these activities. Examples of activities that are considered management responsibilities and would therefore impair independence if performed for an audited entity include:

a. setting policies and strategic direction for the audited entity;

b. directing and accepting responsibility for the actions of the audited entity’s employees in the performance of their routine, recurring activities;

c. having custody of an audited entity’s assets;

d. reporting to those charged with governance on behalf of management;

e. deciding which of the auditor’s or outside third party’s recommendations to implement;

f. accepting responsibility for the management of an audited entity’s project;

g. accepting responsibility for designing, implementing, or maintaining internal control;

h. providing services that are intended to be used as management’s primary basis for making decisions that are significant to the subject matter of the audit;

i. developing an audited entity’s performance measurement system when that system is material or significant to the subject matter of the audit; and

j. serving as a voting member of an audited entity’s management committee or board of directors.

3.49 If performed on behalf of an audited entity by the entity’s auditor, management responsibilities such as those listed in paragraph 3.36 would create management participation threats so significant that no safeguards could reduce them to an acceptable level. Consequently the auditor’s independence would be impaired with respect to that entity.

INTERNAL AUDITORS 3.31 Certain entities employ auditors to work for entity management. These auditors may be subject to administrative direction from persons involved in the entity management process. Such audit organizations are internal audit functions and are encouraged to use the Institute of Internal Auditors (IIA) International Standards for the Professional Practice of Internal Auditing in conjunction with GAGAS. In accordance with GAGAS, internal auditors who work under the direction of the audited entity’s management are considered independent for the purposes of reporting internally if the head of the audit organization meets all of the following criteria:

a. is accountable to the head or deputy head of the government entity or to those charged with governance;

b. reports the audit results both to the head or deputy head of the government entity and to those charged with governance;

c. is located organizationally outside the staff or line-management function of the unit under audit;

d. has access to those charged with governance; and

e. is sufficiently removed from political pressures to conduct audits and report findings, opinions, and conclusions objectively without fear of political reprisal.

It is not OK for an auditor to audit their own work or a department they are responsible for because they are not independent.

This blog

Governmental auditors unite! Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of “The Yellow Book Interpreted” and owner of Yellowbook-CPE.com a website devoted to training for governmental auditors. Whether you are an internal auditor or monitor for a government entity or a CPA doing grant audits, you will enjoy Leita’s humorous take on the complexity of auditing in the government environment.

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