| Spring
2003 |
Nonprofit Advisor
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New GAO Amendment Strengthens Auditor Independence Standards
An amendment to the Government Auditing Standards (commonly referred to as the Yellow Book) significantly strengthens auditor independence standards.
The new standard issued last year by the General Accounting Office was designed to better serve the public interest and maintain a high degree of integrity, objectivity, and independence for audits of government entities and organizations receiving federal funds. The standard must be applied to all audits for periods beginning on or after Jan. 1, 2003.
While the new standard deals with a range of auditor independence issues, the most significant change relates to the rules associated with non-audit or consulting services.
The standard for non-audit services is based on two overarching principles:
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Auditors should not perform management functions or make management decisions.
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Auditors should not audit their own work or provide non-audit services in situations where the amounts or services involved are significant or material to the subject matter of the audit.
The independence standard permits several key activities that would not impair independence. For example, an auditor can provide advice to the organization and its management on establishing internal controls or implementing audit recommendations. The auditor can also provide tools and methodologies, such as best practice guides, benchmarking studies, and internal control assessment methodologies.
The auditor cannot, however, serve as a member of the organization's management decision-making committee or on its board of directors; make policy decisions affecting the direction and operation of programs; supervise employees; authorize transactions; or maintain custody of assets.
Organizations and board members need to understand the new standards and meet with their auditors to discuss the next steps. Although some non-audit services are not allowed under the new rules, many services that benefit not-for-profits are still permitted and worth exploring.
The Nonprofit Advisor is produced quarterly by Bober, Markey, Fedorovich
& Company's Nonprofit Services Team. If you would like additional information about the services that we can provide to nonprofit organizations, please call or email our team leader, Lori A. Sheets, CPA at 330.762.9785 or
lsheets@bobermarkey.com.
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