PDF Financial Audit Manual - Government Accountability Office

Financial Audit Manual

Foreword

On behalf of the General Accounting Office (GAO) and the President's Council on Integrity and Efficiency (PCIE), we are pleased to present the first-ever GAO/PCIE Financial Audit Manual.

With passage of the Government Management and Reform Act of 1994, executive branch Inspectors General and GAO gained statutory responsibility for auditing agency and government-wide consolidated financial statements, respectively. Since that time, GAO and the PCIE community have worked cooperatively to ensure that these audits are of the highest possible quality, consistency, and cost-effectiveness. This manual is a natural outgrowth of that cooperation. More importantly, the new manual represents our ongoing efforts to ensure that financial statement audits achieve their intended outcomes of providing enhanced accountability over taxpayer-provided resources.

We extend our thanks to the many individuals and organizations that provided comments and insights to make the manual stronger. The Task Force assembled by GAO and the PCIE also deserves much credit for its dedication to completing this project.

Jeffrey C. Steinhoff Managing Director U.S. General Accounting Office

The Honorable Gregory H. Friedman Chair, Audit Committee President's Council on Integrity

and Efficiency

July 2001

GAO/PCIE Financial Audit Manual

Forward-1

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CONTENTS

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CONTENTS

100

INTRODUCTION

200

PLANNING PHASE

210 220 225 230 235

240

245 250 260 270 275 280

285 290

295 A 295 B

295 C 295 D 295 E 295 F 295 G 295 H 295 I 295 J

Overview Understand the Entity's Operations Perform Preliminary Analytical Procedures Determine Planning, Design, and Test Materiality Identify Significant Line Items, Accounts, Assertions, and

RSSI Identify Significant Cycles, Accounting Applications, and Financial

Management Systems Identify Significant Provisions of Laws and Regulations Identify Relevant Budget Restrictions Identify Risk Factors Determine Likelihood of Effective Information System Controls Identify Relevant Operations Controls to Evaluate and Test Plan Other Audit Procedures Inquiries of Attorneys Management Representations Related Party Transactions Sensitive Payments Reaching an Understanding with Management and Requesters Other Audit Requirements Plan Locations to Visit Documentation Appendixes to Section 200: Potential Inherent Risk Conditions Potential Control Environment, Risk Assessment, Communication,

and Monitoring Weaknesses An Approach for Multiple-Location Audits Interim Substantive Testing of Balance Sheet Accounts Effect of Risk on Extent of Audit Procedures Types of Information System Controls Budget Controls Laws Identified in OMB Audit Guidance and Other General Laws Examples of Auditor Responses to Fraud Risk Factors Steps in Assessing Information System Controls

July 2001

GAO/PCIE Financial Audit Manual

Contents-1

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