Presentation on theme: "GAO/Financial Management and Assurance American Accounting Association"— Presentation transcript:
1 GAO/Financial Management and Assurance American Accounting Association GAO UpdateJim Dalkin DirectorGAO/Financial Management and AssuranceAmerican Accounting AssociationMarch 2, 2012
2 GAO’s MissionOur mission is to support the Congress in meeting its constitutional responsibilities and to help improve the performance and ensure the accountability of the federal government for the benefit of the American people.We provide Congress with timely information that is objective, fact-based, nonpartisan, non-ideological, fair, and balanced.
4 Recent Reports and Testimonies More Efficient and Effective Government: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue; GAO T, Feb 28, 2012Airport and Airway Trust Fund: Factors Affecting Revenue Forecast Accuracy and Realizing Future FAA Expenditure; GAO , Jan 23, 2012Law Enforcement Body Armor: DOJ Could Enhance Grant Management Controls and Better Ensure Consistency in Grant Program Requirements; GAO , Feb 15, 2012Management Report: Improvements Are Needed in Internal Control over Financial Reporting for the Troubled Asset Relief Program; GAO R, Feb 13, 2012
5 Financial Management and Assurance Team (FMA) Serves as the financial audit “firm” for financial audits within GAOOur main practice areas include:Financial AuditsPerformance AuditsProfessional StandardsAuditing and Accounting Profession
6 Financial Management and Assurance Team – Financial Audits Financial Statement Audits performed by FMAConsolidated Financial Statements of the U.S. GovernmentSecurities and Exchange CommissionTroubled Asset Relief ProgramInternal Revenue ServiceFederal Deposit Insurance CorporationBureau of Public DebtFederal Housing Finance AgencyConsumer Financial Protection Bureau
7 Financial Management and Assurance Team – Performance Audits Recent performance audits performed by FMAFederal Grants: Improvements Needed in Oversight and Accountability Processes; GAO T, Jun 23, 2011Veterans Health Care: Monitoring Is Needed to Determine the Accuracy of Veteran Copayment Charges; GAO , Aug 29, 2011Inspectors General: Reporting on Independence, Effectiveness, and Expertise; GAO , Sep 21, 2011Deepwater Horizon Oil Spill: Actions Needed to Reduce Evolving but Uncertain Federal Financial Risks; GAO-12-86, Oct 24, 2011
8 Financial Management and Assurance Team – Professional Standards Generally Accepted Government Auditing Standards (Yellow Book)Standards built on the SASs issued by the Auditing Standards Board of the AICPA.GAO uses an extensive deliberative process including public comments and input from the CG’s Advisory Council on Government Auditing Standards to accomplish general acceptance.Standards for Internal Control in the Federal Government (Green Book)GAO issues Standards for Internal Control in the Federal Government under the authority in FMFIA.Drafting update to Green Book, using COSO ED as a basis, developing additional sections for government, i.e. compliance.
9 Financial Management and Assurance Team – Professional Standards (cont FMA collaborates with ASB, PCAOB, AGA, INTOSAI, ISB, IAASB, IIA and many others (including AAA)FMA provides input to other standard setters on proposed/updated guidance. Recent comment letters include:PCAOB: Auditor Independence & Audit Firm RotationPCAOB: RE-Proposed Standard -- Communications with Audit CommitteesIPSASB: Long-Term Sustainability of a Public Sector Entity’s FinancesGASB: Economic Reporting: Financial ProjectionsNote: Our comment letters are posted on our website GAO.gov/commentletters
10 High Profile Issues – Improper Payments Estimated $115.3 billion in Federal improper payments in fiscal year 2011The $115.3 billion estimate was attributable to 79 programs spread among 17 agencies.Ten programs accounted for about $107 billion or 93 percent of the total estimated improper payments agencies reported for fiscal year 2011.A 2011 reported decreases primarily related to three programs—Department of Labor’s Unemployment Insurance programEarned Income Tax CreditMedicare Advantage program.For additional information see Improper Payments: Moving Forward with Government-wide Reduction Strategies; GAO T, Feb 7, 2012
11 High Profile Issues – DoD Audit Readiness The Department of Defense (DOD) originally was scheduled to be auditable by 1997The National Defense Authorization Act of Fiscal Year 2010 mandated that DOD be audit-ready by September 30, 2017.DOD’s management challenges are commensurate with its size, complexity and system/data reliabilityWhile DOD's top management has demonstrated a commitment to transforming the department’s business operations and has initiated reforms to address long-standing weaknesses, significant inefficiencies remain.
12 High Profile Issues – Audit Quality Federal government grants have risen substantiallyFrom $7 billion in 1960 to almost $450 billion budgeted in 2007The single audit is an important mechanism of accountabilityOMB has proposed revisions including increasing the threshold for auditAs proposed under $1.0 million no Single Audit requirement$1-3.0 million an audit and focused compliance proceduresOver $3.0 million full single auditPast study the Report on National Single Audit Sampling Project, (2007)51 percent having deficiencies severe enough to classify the audits as limited in reliability or unacceptable. The report also recognized a need to review audit sampling.Limited current data on the effectiveness and quality of Single Audits.Have efforts to improve audit quality by the profession been successful?
13 High Profile Issues – Long Term Sustainability For FY 10-12, long-term fiscal projections are presented as Required Supplemental Information.SFFAS 36 requires a basic statement in the CFS subject to audit beginning FY 13.Debt held by the public (as a percent of GDP)—Approximated 36 percent in 2007Approximated 62 percent in 2010The federal government’s fiscal outlook has improved since GAO’s last report, largely due to provisions in the Budget Control Act ofThis Act requires at least $2.1 trillion in deficit reduction from 2012–2021.Assumes the Act will not be repealed or modified1GAO, The Federal Government's Long-Term Fiscal Outlook: January 2011 Update (GAO SP, Mar. 18, 2011)
14 High Profile Issues – Long Term Sustainability (cont.) Our simulations show that the Budget Control Act of 2011 will help reduce deficits. However, the longer-term fiscal challenge remains.Figure 1 presents debt held by the public under two fiscal policy simulationsFigure 1Source: GAO-12-28SP Long-Term Fiscal Outlook Fall 2011
15 Statistics and DataGAO works with a variety of statistics and data setsThey are available for use by outside organizations on a case by case basis but are protected by GAO to the extent that there are agreements in place to do so.
16 2011 Yellow Book What You Need to Know Effective for financial audit periods ending on or after December 15, 2012Effective for attestation periods ending on or after December 15, 2012Effective for performance audits starting on or after December 15, 2011Independence may be impacted before the beginning of an engagementLikely periods ending after December 15, 2012 (Chapter 4)
17 Primary Yellow Book Changes Updated independenceIncluded a conceptual frameworkAdded documentation requirementsAdditional documentation in independenceFocus on non-audit servicesFocused on converging where practicalIncorporated clarified SASsFewer differencesMade several revisions to details of the performance audit chapters1717
18 Independence Significant differences from ET-101-3 Conceptual FrameworkAllows the auditor to assess unique circumstancesAdaptableConsistent with AICPA and IFAC frameworksSignificant differences from ET-101-3Entry point for use of the frameworkEmphasis on services “in aggregate”Documentation requirements1818
20 Applying the Framework New approach combines a conceptual framework with certain rules (prohibitions)Balances principle and rules based standardsServes as a hybrid frameworkCertain prohibitions remainGenerally consistent with Rule 101 AICPABeyond a prohibitionApply the conceptual frameworkWill be used more often than AICPA2020
21 Applying the Framework Conceptual Framework:Identify threats to independenceEvaluate the significance of the threats identified, both individually and in the aggregateApply safeguards as necessary to eliminate the threats or reduce them to an acceptable levelEvaluate whether the safeguard is effectiveDocumentation Requirement:Para 3.24: When threats are not at an acceptable level and require application of safeguards, auditors should document the safeguards applied.21
23 Applying the Framework: Categories of Threats Management participation threatSelf-review threatBias threatFamiliarity threatUndue influence threatSelf interest threatStructural threat2323
24 Routine Audit Services and Nonaudit Services Routine audit services pertain directly to the audit and include:Providing advice related to an accounting matterResearching and responding to an audited entity’s technical questionsProviding advice on routine business mattersEducating the audited entity on technical mattersOther services not directly related to the audit are considered nonaudit services24
25 Defined Nonaudit Services Services that are specifically identified as nonaudit services include:Financial statement preparationBookkeeping servicesCash to accrual conversions (a form of bookkeeping)Other services not directly related to the audit25
26 Nonaudit Services1. Determine if there is a specific prohibition. Unless specifically prohibited, nonaudit services MAY be permitted but should be documented. 2. If not prohibited, assess the nonaudit service’s impact on independence using the conceptual framework. 3. If the auditor assesses any identified threat to independence as higher than insignificant, assess the sufficiency of audited entity management’s skill, knowledge, and experience to oversee the nonaudit service. And…
27 Nonaudit Services (Continued) 4. If the auditor concludes that performance of the nonaudit service will not impair independence, document assessments in relation to both:safeguards applied in accordance with the conceptual framework andthe auditor’s assessment of sufficiency of audited entity managements’ skill, knowledge or experience to oversee the nonaudit service (paragraph 3.34).
28 Assessing Management’s Skill, Knowledge, or Experience Factors to document include management’s:Understanding of the nature of the nonaudit serviceKnowledge of the audited entity’s mission and operationsGeneral business knowledgeEducationPosition at the audited entitySome factors may be given more weight than othersGAGAS does not require that management have the ability to perform or reperform the service28
29 SAS 125: Sample Language for GAGAS Report on ICFR and Compliance “The purpose of this report is solely to describe the scope of our testing of internal control over financial reporting and compliance, and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control over financial reporting or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control over financial reporting and compliance. Accordingly, this report is not suitable for any other purpose.”29
30 Where to Find the Yellow Book The Yellow Book is available on GAO’s website at:For technical assistance, contact us at:or call (202)303030