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Changes Impact How You Act on Deficiencies in Controls

A number of federal rule changes are likely to affect your next audit—including the way an auditor evaluates and reports on deficiencies in a not-for-profit’s internal controls.

Among revisions to the General Accounting Office (GAO) Government Auditing Standards, often referred to as the Yellow Book, is a requirement that the head of internal audit communicate audit results to the board of directors (via the audit committee).

The revised standards, issued in July, "encourage" internal auditors to use Institute of Internal Auditors (IIA) standards along with government auditing standards generally accepted in the United States of America (GAGAS).

The revised standards apply to financial audits, attestation engagements and performance audits beginning after Jan. 1, 2008.

Here are just a few of the other significant changes. They relate to the following:

• Ethics and independence. There will be greater emphasis on ethical principles as the foundation, discipline and structure behind the implementation of the standards including a description of five key ethical principles to guide auditors’ work. Chapter 2 is now completely devoted to ethical principles.
• Performance audits. The GAO has "enhanced" performance auditing standards to elaborate on the overall framework for "high-quality performance audits." The office has also added a section on information systems controls to be used to assess audit risk and plan the audit. Additionally, it has added requirements and guidance for auditors to follow in situations when they discover they didn’t have sufficient and appropriate evidence to support the reported findings.

For a full description of the Yellow Book changes, go to www.gao.gov.

The Yellow Book, last revised in 2003, is used for guidance in following GAGAS. The standards apply to organizations that spend $500,000 or more of federal funds in a year and are required to have a Circular A-133 audit.

The standards might also apply to not-for-profits that receive state and local funds, depending on the audit requirements of those government funding sources.

To make sure you’re in compliance with the new standards, discuss them with your independent auditors.

Questions?
Contact Cliff Shapiro at 312-980-2908.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.