GAO issues new auditor independence standards; certain non-audit services restricted.

Late in Jan. the General Accounting Office issued its final standards on auditor independence. The changes in Government Auditing Standards ("Yellow Book") are significant and will impact audits of many governments, non-profit entities, and for-profit entities that receive federal assistance or participate in federal programs.

Ever since the GAO issued an exposure draft on auditor independence, the AICPA had been actively engaged with the GAO to address the issues and concerns of CPAs and their clients. The Institute was concerned about a number of issues, including those involving the costs of restricting certain non-audit services (including bookkeeping and human resources services) without corresponding benefits, the pervasiveness of the restrictions, and how an additional set of independence rules (the SEC and AICPA having their own) would result in confusion in an already complex practice environment. Our efforts were relentless right up until the day before the rule's release. In the end, the GAO adopted many of the SEC's rules on auditor independence and, in certain areas, put in place rules that are more restrictive.

However, because of a lack of clarity in the rules governing non-audit services and uncertainty in the different possible interpretations of the standards, making uniform implementation difficult, the GAO has committed to work with the AICPA to address issues to be clarified and to develop implementation guidance.

We have received hundreds of questions and comments from members and have organized and submitted them to the GAO for consideration. Working with the Comptroller General, we hope to mitigate varying interpretations and any unintended adverse consequences that the standard might have, particularly on smaller entities subject to Yellow Book standards and on accounting firms.

For more on the GAO's new auditor independence standards, see this month's public accounting or government supplements (access instructions on page 2) or visit www.aicpa.org/members/div/ethics/index.htm where you will find an AICPA-GAO independence rules comparison on non-audit services and a GAO Auditor Independence Standards Fact Sheet.