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GAO report finds improved single audit quality.


A recent report of the General Accounting Office to the Legislation and National Security Subcommittee of the House Committee on Government Operations found that CPAs complied with auditing standards in 35 of the 40 single audits the GAO reviewed between October 1988 and May 1989.

The report concludes that, "with few exceptions, CPAs conducted adequate evaluations of internal controls and testing for compliance with laws and regulations, the two predominant problem areas cited in our 1986 report." In the latter report, the GAO found 34% of a sample of 120 audits did not satisfactorily comply with generally accepted auditing standards or the standards for audit issued by the GAO.

The Single Audit Act of 1984 requires that each major program (as defined) of state and local government entities be tested for compliance with applicable laws and regulations. In addition to expressing an opinion on the financial statements of the governmental unit, an auditor is required to report on the internal controls used in administering the program, compliance with laws and regulations and fraud or illegal acts, when uncovered.

The American Institute of CPAs, concerned about the findings of the first GAO report, established a task force to identify factors that adversely affect the quality of audits of governmental units, recommend ways to correct such conditions and propose programs to improve government officials' understanding of the audit process. In 1987, the task force issued its report, which contained 25 recommendations in five categories including education of the auditor, engagement of the auditor, evaluation of the quality of audits, enforcement of professional standards and exchange of information. Another report on the implementation of the recommendations was issued in May 1989.

The GAO plans to refer the five CPA firms that experienced problems with internal controls, compliance testing or reporting to appropriate state accountancy boards and the AICPA for review. Further, it made certain recommendations to improve the process.

Specifically, the GAO believes it would be helpful to government program managers if auditors were required to identify the programs tested for compliance with laws and regulations. Finally, the GAO recommends the Office of Management and Budget define and establish responsibilities for agencies that provide general oversight to the single audit program. At present, general oversight efforts vary among the various agencies.
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Publication:Journal of Accountancy
Date:Dec 1, 1989
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