Enhancing public confidence: the GAO's peer review experience: even auditors need to be audited.
UNDER THE MICROSCOPE
A team of 16 experienced performance auditors from seven countries reviewed our performance audit practice. The Office of the Auditor General of Canada led the multinational team. Other participants included national audit offices in Australia, Mexico, the Netherlands, Norway, South Africa and Sweden. The KPMG team consisted of experienced financial audit partners and managers with extensive government financial auditing experience.
The review teams focused on the elements of our quality assurance system dealing with engagement performance and compliance monitoring. They reviewed our audit policies and process controls, examined a representative sample of our 2004 audit engagement files and reports on government programs, and interviewed senior managers and staff responsible for selected engagements. They also evaluated our internal inspection program, including a representative sample of engagement files that our internal inspectors had examined in 2004 to determine whether their findings were supportable.
The performance audit team followed government auditing standards (the Yellow Book) and conducted the review in a manner consistent with the code of ethics and standards issued by the International Organization of Supreme Audit Institutions.
The review team's ultimate objective was to determine whether the GAO's system of quality controls provided reasonable assurance that our work is independent, objective and reliable. The financial audit team followed the applicable AICPA peer review standards as well as government auditing standards.
A key organizational and operational benefit of the peer review was the reviewers' confirmation that some of our key overarching quality control procedures are global better practices (see "How to Do It Better,"). According to their report, those practices help ensure that we focus our efforts on factors that affect government performance, that we assign engagement resources according to risk, that we develop complete and reliable evidence, that our engagement teams have the guidance and diagnostic tools necessary to perform their work and that our reports are clear, persuasive and fair.
The reviewers also said that the GAO could improve its performance audit practice by, for example, enhancing the transparency and efficiency of its quality assurance system and policies. We have implemented some of these recommendations, and we are testing others (see "Dividends Earned,").
A PLAN FOR EXCELLENCE
The GAO's approach to quality assurance was based on applicable professional standards and the agency's core values of accountability, reliability and integrity and it ends with public dissemination of virtually all its products. We had already created a quality assurance framework (see the exhibit) to summarize the policies and procedures we use to ensure compliance with professional standards and our core values. It applies to both performance and financial audits. The framework focuses on staff, processes and technology It addresses leadership, human capital, engagement performance, monitoring and policy review by defining the roles and responsibilities of key participants, key control objectives and relevant procedures, and by providing links to online references. At the framework's core is a standardized, decision-based engagement management process that ensures consistency in the application of key controls. The framework also includes monitoring and assessment by both internal and external entities, and mechanisms for continuous improvement.
THE KEY TO QUALITY CONTROL
The GAO has long had a rigorous internal quality control program that annually reviewed a sample of work from every part of the agency for compliance with policies and procedures. These reviews evolved into our current inspection program, which the peer reviewers recognized as a comprehensive, effective assessment. The development of this rigorous inspection program took several years, but its results have helped enhance training, reform policies and improve audit tools. We also had improved our methodology for conducting the inspection by designing checklists and other tools to facilitate it and had developed a staff with the expertise to conduct inspections.
IDEAS FOR IMPROVEMENT
The peer reviewers also made the following suggestions:
* Distinguish between audit and non-audit services. Provide additional guidance on what kind and extent of evidence is appropriate for each form of service, and explain when it is appropriate to consider changing an audit determination in view of newly obtained evidence.
* Provide additional details on the sources of critical audit-related information and the implications of choosing a particular audit scope and methodology.
* Review the quality assurance system to see whether we can improve it.
* Streamline the audit documentation requirements.
* Increase the efficiency of the inspection program.
IT WORKS FOR US
Although peer review is a lengthy and costly process, it enables us to better inform stakeholders of our activities and their results. For example, in accordance with government auditing standards we share the peer review reports with our oversight committee. We also make them available to the public on our Web site (www.gao. gov/aac.html) and refer to them in our annual performance and accountability report and testimony to Congress.
In addition to promoting the public interest, peer review helps an audit organization understand whether its practices comply with professional standards and how they compare with those of other entities and with new practices. For us, the chief benefit was confirmation of our compliance with government auditing standards. As an organization in constant pursuit of improvement, we also benefited from the peer reviewers' recognition of our quality control procedures as global better practices as well as their suggestions on how to strengthen guidance and streamline procedures. These positive results have more than repaid the time, money and effort we've put into peer review.
"Peer Review: Are You Ready?" (text, # 731692JA).
"Peer Review Is Stronger and Better Now," JofA, Apr.05, page 44, www.aicpa.org/ pubs/jofa/apr2005/jentho.htm.
Center for Public Company Audit Firms Peer Review Program, www.aicpa.org/ centerprp/peer_review.htm.
AICPA Peer Review Program Manual (loose-leaf subscription, # QR-XXJA).
For more information or to place an order, go to www.cpa2biz.com or call 888-777-7077.
RELATED ARTICLE: How to do it better.
The peer reviewers identified the following as GAG better practices:
* Use strategic planning to focus on and respond to significant issues and management challenges.
* Conduct audit risk assessments to identify risk levels and determine the appropriate level of product review and management involvement.
* Establish agency protocols (see www.gao.gov) that explain what agencies can expect from the GAG during the audit and what the GAG expects from them.
* Use experts to conduct innovative analysis of complex situations.
* Employ the Electronic Assistance Guide for Leading Engagements (EAGLE) that helps GAG staff better manage their engagements by giving them immediate access to the policy, procedural and documentation requirements of the quality assurance system.
* Tailor audit report designs to the needs of readers with varied interests.
RELATED ARTICLE: Origin and mission.
The GAO is part of the legislative branch of the federal government and thus is independent of the executive branch. Congress established the GAO in 1921 to investigate all matters relating to the receipt, disbursement and application of public funds. Since then, Congress has expanded the GAO's statutory authorities and frequently calls upon it to thoroughly examine federal programs and their performance, conduct financial and management audits, perform policy analysis, provide legal opinions, adjudicate bid protests and conduct investigations. In 2004 the GAO began work on nearly 800 performance audit engagements and issued more than 1,000 audit products. In fiscal year 2005, the GAG produced an $83 return on each dollar invested in our agency.
RELATED ARTICLE: Dividends earned.
The GAO's peer review
* Provides assurance to Congress and to the American people that the GAO's work is objective, independent and reliable.
* Helps the GAO meet government auditing standards.
* Provides assurance to the Comptroller General and to senior GAO executives that the GAO is fulfilling its responsibilities and complying with requirements.
* Demonstrates that the GAO itself is accountable.
* Documents the GAO's Quality Assurance Framework.
* Enables the GAO's staff to learn from others.
* Is a source of pride for GAO staff.
* Improves policies, forms, guidance and training.
* Increases the staff's knowledge of standards, policies, guidance and better practices.
* Enhances the GAO'S quality control system.
by The Honorable David M. Walker, Comptroller General of the United States
David M. Walker, CPA, is comptroller general of the United States and heads the U.S. Government Accountability Office.
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|Title Annotation:||Government Accountability Office|
|Author:||Walker, David M.|
|Publication:||Journal of Accountancy|
|Date:||Jul 1, 2006|
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