The GAO's proposed independence standard is a rehash

The GAO issued a proposed revision of the Yellow Book a few weeks ago and most of the revision is less than noteworthy.  The GAO is cleaning things up, reorganizing, and syncing up its language with the AICPA.

On first blush - I thought the revision to the independence standard was the biggest change and would have the biggest impact on CPAs in public practice.  But today, I find that the GAO is simply repeating what the AICPA has been saying all along regarding independence in its Code of Professional Conduct... please see http://www.aicpa.org/Research/Standards/CodeofConduct/Pages/et_101.aspx#et_101

and compare and contrast that with the start of chapter 3 in the proposed Yellow Book revision at http://www.gao.gov/new.items/d10853g.pdf

I knew, from hearing Marcia Buchanan (GAO project manager for GAGAS... aka the Yellow Book) speak, that they had plucked the most difficult controversial quote direclty from the AICPA standards.  Here is a quote from the 2010 revision:

GAGAS 3.46 Management is responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework. Consequently an auditor’s acceptance of responsibility for the preparation and fair presentation of financial statements that the auditor will subsequently audit would impair the auditor’s independence. Auditors should determine that audited entity management taking responsibility for the preparation and fair presentation of the financial statements possesses suitable skill, knowledge, and/or experience to evaluate the adequacy of any services in this area provided by the auditor.

But this sounds so much like the AICPA, I am afraid it won't change anyone's actual behavior when it comes to both creating and auditing the financial statements. 

 


AICPA CODE OF ETHICS .05 101-3—Performance of nonattest services.

General Requirements for Performing Nonattest Services

1.     The member should not perform management functions or make management decisions for the attest client. However, the member may provide advice, research materials, and recommendations to assist the client's management in performing its functions and making decisions.

2.     The client must agree to perform the following functions in connection with the engagement to perform nonattest services:

a.     Make all management decisions and perform all management functions;

b.     Designate an individual who possesses suitable skill, knowledge, and/or experience, preferably within senior management, to oversee the services;

c.     Evaluate the adequacy and results of the services performed; and

d.     Accept responsibility for the results of the services;

The member should be satisfied that the client will be able to meet all of these criteria and make an informed judgment on the results of the member's nonattest services. In assessing whether the designated individual possesses suitable skill, knowledge, and/or experience, the member should be satisfied that such individual understands the services to be performed sufficiently to oversee them. However, the individual is not required to possess the expertise to perform or re-perform the services.

In cases where the client is unable or unwilling to assume these responsibilities (for example, the client does not have an individual with suitable skill, knowledge, and/or experience to oversee the nonattest services provided, or is unwilling to perform such functions due to lack of time or desire), the member's provision of these services would impair independence.

 

See... very similar. 

What does all of this mean, bottom line?  Well, I guess we won't know for sure until the fat lady sings... or until the GAO finalizes the standard in February.  I know that many CPAs really aren't interested in giving up their financial statement drafting gig and so will read the standard to their own advantage.  And the GAO has left them some wiggle room. 

If you have an opinion, now is the time to voice it.  Write to yellowbook@gao.gov to give the folks at the GAO a piece of your mind... if you can spare it today, that is.

 

 

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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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