GOVERNMENT AUDITING STANDARDS

July 2018

United States Government Accountability Office

By the Comptroller General of the United States

GOVERNMENT AUDITING STANDARDS

2018 Revision

GAO-18-568G

July 2018

United States Government Accountability Office

By the Comptroller General of the United States

GOVERNMENT AUDITING STANDARDS

2018 Revision

GAO-18-568G

The 2018 revision of Government Auditing Standards is effective for financial audits, attestation engagements, and reviews of financial statements for periods ending on or after June 30, 2020, and for performance audits beginning on or after July 1, 2019. Early implementation is not permitted. The 2018 revision of Government Auditing Standards supersedes the 2011 revision (GAO-12-331G, December 2011), the 2005 Government Auditing Standards: Guidance on GAGAS Requirements for Continuing Professional Education (GAO-05-568G, April 2005), and the 2014 Government Auditing Standards: Guidance for Understanding the New Peer Review Ratings (D06602, January 2014). The 2018 revision should be used until further updates and revisions are made. An electronic version of this document can be accessed on GAO's Yellow Book web page at .

Contents

Letter

1

Chapter 1: Foundation and Principles for the Use and Application of Government Auditing Standards

3

Introduction

3

Types of GAGAS Users

6

Types of GAGAS Engagements

7

Financial Audits

7

Attestation Engagements and Reviews of Financial

Statements

9

Performance Audits

10

Terms Used in GAGAS

15

The GAGAS Format

16

Chapter 2: General Requirements for Complying with Government Auditing Standards

18

Complying with GAGAS

18

Relationship between GAGAS and Other Professional Standards

20

Stating Compliance with GAGAS in the Audit Report

22

Chapter 3: Ethics, Independence, and Professional Judgment

25

Ethical Principles

25

The Public Interest

26

Integrity

26

Objectivity

27

Proper Use of Government Information, Resources, and

Positions

27

Professional Behavior

28

Independence

28

GAGAS Conceptual Framework Approach to

Independence

31

Provision of Nonaudit Services to Audited Entities

43

Consideration of Specific Nonaudit Services

50

Documentation

57

Professional Judgment

58

Chapter 4: Competence and Continuing Professional Education

63

Competence

63

Continuing Professional Education

67

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GAO-18-568G Government Auditing Standards

Chapter 5: Quality Control and Peer Review

81

Quality Control and Assurance

81

System of Quality Control

81

Leadership Responsibilities for Quality within the Audit

Organization

82

Independence, Legal, and Ethical Requirements

82

Initiation, Acceptance, and Continuance of Engagements

84

Human Resources

84

Engagement Performance

86

Monitoring of Quality

91

External Peer Review

96

Additional Requirements for Audit Organizations Not

Affiliated with Recognized Organizations

102

Chapter 6: Standards for Financial Audits

109

Additional GAGAS Requirements for Conducting Financial Audits 109

Compliance with Standards

109

Licensing and Certification

110

Auditor Communication

110

Results of Previous Engagements

111

Investigations or Legal Proceedings

112

Noncompliance with Provisions of Laws, Regulations,

Contracts, and Grant Agreements

112

Findings

113

Audit Documentation

116

Availability of Individuals and Documentation

117

Additional GAGAS Requirements for Reporting on Financial

Audits

118

Reporting the Auditors' Compliance with GAGAS

118

Reporting on Internal Control; Compliance with Provisions

of Laws, Regulations, Contracts, and Grant

Agreements; and Instances of Fraud

119

Presenting Findings in the Audit Report

121

Reporting Findings Directly to Parties outside the Audited

Entity

122

Obtaining and Reporting the Views of Responsible Officials 123

Reporting Confidential or Sensitive Information

125

Distributing Reports

126

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GAO-18-568G Government Auditing Standards

Chapter 7: Standards for Attestation Engagements and Reviews of Financial Statements

127

Examination Engagements

128

Compliance with Standards

128

Licensing and Certification

129

Auditor Communication

129

Results of Previous Engagements

130

Investigations or Legal Proceedings

130

Noncompliance with Provisions of Laws, Regulations,

Contracts, and Grant Agreements

131

Findings

132

Examination Engagement Documentation

135

Availability of Individuals and Documentation

136

Reporting the Auditors' Compliance with GAGAS

136

Reporting Deficiencies in Internal Control

137

Reporting on Noncompliance with Provisions of Laws,

Regulations, Contracts, and Grant Agreements or

Instances of Fraud

138

Presenting Findings in the Report

139

Reporting Findings Directly to Parties outside the Audited

Entity

139

Obtaining and Reporting the Views of Responsible Officials 140

Reporting Confidential or Sensitive Information

142

Distributing Reports

143

Review Engagements

144

Compliance with Standards

144

Licensing and Certification

144

Noncompliance with Provisions of Laws, Regulations,

Contracts, and Grant Agreements

145

Reporting Auditors' Compliance with GAGAS

145

Distributing Reports

146

Agreed-Upon Procedures Engagements

147

Compliance with Standards

147

Licensing and Certification

147

Noncompliance with Provisions of Laws, Regulations,

Contracts, and Grant Agreements

148

Reporting Auditors' Compliance with GAGAS

148

Distributing Reports

149

Reviews of Financial Statements

150

Compliance with Standards

150

Licensing and Certification

150

Noncompliance with Provisions of Laws, Regulations,

Contracts, and Grant Agreements

151

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GAO-18-568G Government Auditing Standards

Reporting Auditors' Compliance with GAGAS

151

Distributing Reports

152

Chapter 8: Fieldwork Standards for Performance Audits

154

Planning

154

Auditor Communication

158

Investigations or Legal Proceedings

159

Results of Previous Engagements

160

Assigning Auditors

160

Preparing a Written Audit Plan

161

Conducting the Engagement

162

Nature and Profile of the Program and User Needs

162

Determining Significance and Obtaining an Understanding

of Internal Control

165

Assessing Internal Control

168

Internal Control Deficiencies Considerations

169

Information Systems Controls Considerations

171

Provisions of Laws, Regulations, Contracts, and Grant

Agreements

174

Fraud

175

Identifying Sources of Evidence and the Amount and Type

of Evidence Required

177

Using the Work of Others

177

Supervision

179

Evidence

179

Overall Assessment of Evidence

185

Findings

186

Audit Documentation

190

Availability of Individuals and Documentation

192

Chapter 9: Reporting Standards for Performance Audits

194

Reporting Auditors' Compliance with GAGAS

194

Report Format

195

Report Content

195

Reporting Findings, Conclusions, and Recommendations 199

Reporting on Internal Control

201

Reporting on Noncompliance with Provisions of Laws,

Regulations, Contracts, and Grant Agreements

203

Reporting on Instances of Fraud

204

Reporting Findings Directly to Parties outside the Audited

Entity

204

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GAO-18-568G Government Auditing Standards

Glossary Acknowledgments

Figures

Obtaining the Views of Responsible Officials

206

Report Distribution

207

Reporting Confidential or Sensitive Information

208

Discovery of Insufficient Evidence after Report Release

210

211

222

Comptroller General's Advisory Council on Government Auditing

Standards (2016-2020)

222

GAO Project Team

223

Staff Acknowledgments

223

Figure 1: Generally Accepted Government Auditing Standards

Conceptual Framework for Independence

61

Figure 2: Independence Considerations for Preparing Accounting

Records and Financial Statements

62

Figure 3: Developing Peer Review Communications for Observed

Matters in Accordance with Generally Accepted

Government Auditing Standards

108

Figure 4: Consideration of Internal Control in a Generally

Accepted Government Auditing Standards Performance

Audit

193

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GAO-18-568G Government Auditing Standards

Abbreviations

AICPA AR-C

AT-C

AU-C CPA CPE GAGAS IAASB IT OMB PCAOB SAS SSAE

American Institute of Certified Public Accountants AICPA Codification of Statements on Standards for Accounting and Review Services AICPA Codification of Statements on Standards for Attestation Engagements AICPA Codification of Statements on Auditing Standards certified public accountant continuing professional education generally accepted government auditing standards International Auditing and Assurance Standards Board information technology Office of Management and Budget Public Company Accounting Oversight Board Statements on Auditing Standards Statements on Standards for Attestation Engagements

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GAO-18-568G Government Auditing Standards

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