Academic journal article The Government Accountants Journal

Changing the Yellow Book Standards: A Blueprint for Successful Performance Audits

Academic journal article The Government Accountants Journal

Changing the Yellow Book Standards: A Blueprint for Successful Performance Audits

Article excerpt

Knowing the program you're auditing and understanding the needs of the people who'll read your report are essential to setting performance audit objectives, according to revised auditing standards proposed by the General Accounting Office (GAO).

The proposed revisions to the "yellow book" standards also embrace program evaluation methods and present a clearer picture of auditors' responsibilities for testing management controls and compliance with laws and regulations. GAO is seeking comments on these and other proposed changes to the yellow book, which are contained in a July, 1993, exposure draft (ED). (See Exhibit 1 for an overview of changes to the financial audit standards and information on how to get a copy of the ED).

Shortly before GAO published the ED, an ACA task force published the results of its study of the field of performance auditing. Among the questions the AGA task force considered was: "What changes, if any, would make the 'yellow book' more useful to performance auditors?" The AGA task force recommended a number of improvements to the standards. This article examines the proposed changes to performance audit standards in light of those recommendations.


The ED represents the consensus of the Government Auditing Standards Advisory Council, which began considering possible changes to the standards in April 1991. (See Exhibit 2 for a description of the council and how it works).

The council saw that in the years since GAO last revised the yellow book, governments have been striving to be more accountable for their performance. At the federal level, the Chief Financial Officers (CFO) Act of 1990 requires CFOs to develop systems that provide for "the systematic measurement of performance" and "to prepare and submit to the agency head timely performance reports." Proposed legislation would provide for the establishment, testing and evaluation of strategic planning and performance measurement in the federal government .

At the state and local levels, the Governmental Accounting Standards Board (GASB) has published a number of studies on the measurement of service efforts and accomplishments (SEA), and individual governments have experimented with SEA reporting. For example, the city of Portland, Oregon publishes an annual report on city government performance.

The growing importance of government performance measurement has been accompanied by the growing importance of performance auditing. Had the yellow book standards kept pace with this growth? That was the question the council faced.

Facing the same question was an AGA task force on performance auditing. The council decided early on to leverage the work of the task force as it addressed performance audit standards. The council and task force communicated with each other through GAO staff who observed the task force's meetings and through one of the council members who was also a member of the task force.

The AGA task force published its report in the Summer 1993 issue of the Government Accountants JOURNAL. The task force concluded that the 1988 revision of the yellow book provided an appropriate general set of standards for performance auditing. It noted, however, that some performance auditors have been critical of the yellow book, largely because they see it as too rooted in the concepts and terminology of financial auditing. The task force suggested that performance auditing be defined as "the systematic assessment of the performance of an organization, program, function or activity by an independent auditor, who reports findings, conclusions and recommendations to a party or group with legal responsibility to oversee and/or initiate corrective action. " To help implement this definition, the task force suggested that the yellow book identify a continuum of questions a performance audit could address.

The task force also said that the yellow book emphasizes some issues too much and discusses other issues too little. …

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