Common Attributes of Quality Audits

Article excerpt

Some audits of federal financial assistance recipients do not meet established standards, and the accounting profession and government officials want to know why. Federal inspectors general (IGs) reviews suggest audit quality has improved for large single audits conducted in accordance with Office of Management and Budget (OMB) Circular A-128, Audits of State and Local Governments. However, the quality of audits of small school districts, audits conducted in accordance with OMB Circular A-133, Audits of Institutions of Higher Education and Other Nonprofit Institutions, and audits of individual federal financial assistance programs still need improvement.

Practitioners must understand better what makes an audit substandard. A 1992 survey of 93 government audits by the American Institute of CPAs federal assistance audit quality task force identified common attributes associated with quality federal financial assistance audits. The study results reported in this article establish a strong link between quality audits and 11 specific audit characteristics. Federal financial assistance recipients and their auditors can use this information as a basis for improving audit quality.


The AICPA established the federal assistance audit quality task force in 1991 to

1. Determine the attributes affecting the quality of federal financial assistance audits and compare them to the recommendations in Report of the Task Force on the Quality of Audits of Governmental Units (the 1987 Steinberg report, so-called after the task force's chairman, Harold I. Steinberg).

2. Ascertain the underlying nature of substandard work noted by the IGs.

3. Evaluate the approach the IGs use to review, classify and summarize the quality of federal financial assistance audits.

4. Develop recommendations, if any, to improve audit quality and the IGs' method of reporting the results.

The task force developed a survey for IGs to complete when performing quality control reviews (QCRs). (Unlike desk reviews, which involve only a review of auditors! reports, QCRs also review workpapers.) A total of 93 surveys were completed from January to June 1992. Exhibit 1, page 63, summarizes the types of audits included.


Types of audits surveyed

Types of audits

A-128 single audits 32

A-133 single audits 5

Federal program-specific audits 56


Types of federal program-specific audits

Department of Education 29

(student financial assistance)

Department of Agriculture, Farmers Home

Administration, Rural Rental Housing 20

Small Business Investment Corp. 4

Housing and Urban Development 3

Based on survey responses, 21 attributes were found to be strongly associated with audit quality; 2 related to recipient attributes while 19 related to auditor attributes. The 2 recipient attributes pertained to whether recipients used competitive bidding to select auditors and had audit the likelihood of getting a quality audit assessment from the IGs. The 19 auditor attributes were grouped in the categories shown in exhibit 2, page 64.


Nineteen important auditor attributes (including two recipient contributes)

Strongest attributes are presented in boldface.

* KnowLedge of the industry

* Average hours of biennial government auditing continuing professional

education earned by the audit team

* Average percentage of time the partner spent on federal financial

assistance audits in the current year

* Average percentage of time spent on federal financial assistance audits by the audit

team in the current year (partner, manager and in-charge auditor)

* Average percentage of time spent on federal financial assistance audits by the audit

team in the last three years

* Percentage of firm business relating to federal financial assistance audits

* Familiarity with industry authoritative literature

* Audit hours and audit fees

* Manager time as a percentage of total audit hours

* Hours spent by the audit team on the audit

* Total audit fees

* Whether the in-charge auditor was a CPA

* General audit knowledge and experience

* Hours of accounting anti auditing CPE by the in-charge auditor

* Percentage of total time spent doing audits by the audit team

* Whether the audit firm derived at least 10% of its business from audits

not related to federal financial assistance

* Average hours of accounting and auditing CPE earned by the audit team

* Firm quality control commitment

* Whether the audit report and workpapers received a second partner


* Whether the firm received an unqualified or qualified peer or quality


* Whether the audit firm had a peer or quality review in the last three years

* Whether responsibility for monitoring CPE for staff auditors (below the in-charge level)

was independent of the audit team and centralized

* The time needed to complete the audit (from beginning of fieldwork to the audit report date! …


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