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  • 1. Why Audit Quality is Important to Auditees Cam Matheny, CPA, CGMA RCM Consulting LLC
  • 2. Key Topics to be Covered Importance of Having a Quality Audit Auditee Factors Affecting Audit Quality 5 Steps to Improve Quality BONUS Yellow Book Independence Update!
  • 3. Importance of Having a Quality Audit The public and other stakeholders place significant reliance on governmental entities and not-for-profits organizations to always act in an ethical manner and to take steps to ensure the proper use of public funds. If you are responsible for or take part in the process to procure auditing services for your organization you have a vital fiduciary responsibility to ensure that your audit is of the highest quality. Independent audits of organizations like yours, including your financial statement and compliance audits (also commonly referred to as Yellow Book audits if performed under Government Auditing Standards and single audits when performed under Office of Management and Budget Circular A-133), are an important accountability mechanism.
  • 4. Importance of Having a QualityAudit (Cont.) These audits provide a form of assurance to your management as well as regulators, taxpayers and donors that your entity is in compliance with certain laws and regulations governing the assistance you receive or programs in which you participate.
  • 5. Importance of Having a QualityAudit (Cont.) Quality financial statement and compliance audits can help you: Fulfill your fiduciary responsibility; Obtain assurance related to the financial integrity of funded programs; Identify possible non-compliance and other issues early to avoid interruption of current funding; Lower the risk of future non-compliance; Build goodwill among taxpayers, donors and other key stakeholders; and Strengthen your ability to secure additional funding in the future.
  • 6. Auditor Factors AffectingAudit Quality Taking the following factors in account collectively when selecting an independent auditor will contribute to receiving a quality audit: Demonstration of the audit organization’s qualifications in response to your request for proposal (RFP); Experienced, qualified staff with appropriate technical abilities, particularly with Yellow Book and single audits if applicable to your audit engagement; Extent of the audit organization’s practice with organizations like yours (for example, governments or not-for-profits);
  • 7. Auditee FactorsAffectingAudit Quality (Cont.) Taking the following factors in account collectively when selecting an independent auditor will contribute to receiving a quality audit (Cont.): Results of the audit organization’s external peer review; and Participation by the audit organization in quality improvement programs (for example, membership in the AICPA Governmental Audit Quality Center).
  • 8. 5 Steps to Improve Audit Quality 1. Make sure the audit organization has qualified, knowledgeable staff with the right skills for your financial statement, Yellow Book or single audits. 2. Grant your auditor access to all the necessary financial and program records and be sure to identify all governmental financial assistance and federal programs in which you participate 3. Ensure that key staff personnel are available to your auditor. 4. Be actively involved – take the initiative to understand what your auditor is doing and ask questions when you don’t. 5. Make the most out of the exit process –ask questions about your auditor’s work, the audit opinion, and other compliance reports.
  • 9. BONUS! Yellow Book Independence Update! What is the Yellow Book? (Best to make sure everyone is on the same page!) Generally Accepted Government Auditing Standards (GAGAS) as produced by the Government Accountability Office (GAO). The standards apply to both financial and performance audits of local government entities and non-profits subject to governmental auditing standards. Covers 5 general standards: Independence Due care Continuing professional education (CPE) Supervision Quality control
  • 10. BONUS! Yellow Book Independence Update! New Independence Language: Auditors should assess and document whether management possesses suitable skill, knowledge, or experience to over see the non-audit service. Do your auditors provide you with any non-audit services? Preparation of financial statements and related notes. Preparation of IRS Form 990 (For those of you organized as non- profits)
  • 11. BONUS! Yellow Book Independence Update! What are the major factor’s used in assessing management’s SKILL, KNOWLEDGE, AND EXPERTISE? Understanding of the nature of the service Knowledge of the audited entity’s mission and operations General business knowledge Education Position at the audited entity
  • 12. BONUS! Yellow Book Independence Update! Sufficiency of SKILL, KNOWLEDGE, AND EXPERTISE may be judged in part based on: The ability of the identified client personnel to identify material errors or misstatements in a non-audit service work product (Would they know if the financial statements were not prepared in accordance with Generally Accepted Accounting Principals?) The ability of the client with the sufficient background to understand the nature and results of the non-audit service. The ability of management to take responsibility and understand the work.
  • 13. BONUS! Yellow Book Independence Update! Client prepared material in poor condition may indicate the client is not capable of taking responsibility for the service. Significant audit findings and adjustments may also be indicative of this issue.
  • 14. BONUS! Yellow Book Independence Update! So tell us Cam, what in the world does that mean? The auditor is not independent if management does not possess the Skill, Knowldege, and Expertise to take responsibility for the non-audit services. The auditor can not perform your audit if they are not independent.
  • 15. WhyAudit Quality is Important toAuditees Discussion/Questions
  • 16. Helpful Links Please go to the NADO website to download this presentation and important links Government Accountability Office – Government Auditing Standards (Yellow Book)  American Institute of Certified Public Accountants (AICPA) – Audit Resource Center  Resources/AuditeeResourceCenter/Pages/AuditeeResourceCenter .aspx AICPA – Not-for-Profit Audit Committee Toolkit  ment/Resources/NotForProfitResourceCenter/Pages/AICPANot- for-ProfitAuditCommitteeToolkitDownloads.aspx