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Unformatted text preview: Chapter 15 Auditing Governments and Not-for-Profit Organizations Questions for Review and Discussion 1. The Yellow Book, (Government Auditing Standards ), is the primary source of generally accepted government auditing standards. The GAO has no authority to regulate the audits of either state or local governments or not-for-profit organizations. Nevertheless, it issued the Yellow Book in the hope that the standards would elevate the audit practices of governments at all levels. More importantly, the Single Audit Act requires that all audits conducted under its provisions meet the Yellow Book standards. Therefore, the audits of all federal funds recipients subject to the Single Audit Act which include most state and local governments and many not-for-profits have been influenced by the standards. 2. The main distinction between audits of governments and not-for-profits and audits of businesses is that those of governments and not-for-profits are far more concerned with assuring that the auditee has complied with applicable provisions of laws, regulations, and provisions of grants and contracts. 3. The State Auditor of Missouri is part of the same governmental unit (i.e., the state) as the University of Missouri. Hence he or she could not meet the AICPA criteria of independence. The GAO standards have addressed this apparent conflict by stating that a government audit organization may be considered independent as long as it is: from a different branch (e.g., legislative, executive) of the government than the particular units that it is to examine; or is headed by an auditor who is elected by the citizens of the governments jurisdiction or who is accountable to the governments legislative body. Therefore he or she would not be in violation of the GAO standards. 4. The GAO standards require that all accountants who perform government audits have at least 80 hours of continuing professional education (CPE) hours every two years. Of these 24 must be directly related to the governmental environment. The AICPA standards include no comparable requirements for CPE hours in specialized areas. 5. The GAO, but not the AICPA, standards require that the complete audit report, including deficiencies in internal control and instances of illegal acts, irregularities or noncompliance be made public. Sarbanes-Oxley has not changed the AICPA standards, but requires a firm within the jurisdiction of the PCAOB to report on its 15-1 clients internal control structure and to have its auditor both issue an opinion on the firms reports on internal control and issue its own report on internal control. The GAO, but not the AICPA, standards, require that the auditors explicitly describe (either in their reports on the financial statements or in separate reports) the scope of their compliance and internal control testing. They must also indicate any irregularities, illegal acts and other instances of material noncompliance that they found....
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- Spring '10