The New Yellow Book: What You Need to Know about 2007 Revision of Government Auditing Standards
Earlier this year, the U.S. Government Accountability Office (GAO) released a revised edition of Government Auditing Standards, commonly known as the "Yellow Book," to replace the 2003 edition currently in use. The new version will be mandatory for engagements beginning on or after January 1,2008.
The most recent changes in the 2007 revision of Government Auditing Standards reinforce the most fundamental of auditing ethics and principles, including transparency and accountability; update language to align with other standards; and give auditors and auditees additional guidance for a clearer understanding of what it takes to achieve high-quality government auditing to contribute to overall accountability in government. Government financial managers can avoid surprises in the audit process if they take the time to become aware of the revisions and how they can affect the auditor's work and audit reporting.
First published in 1972, the U.S. Comptroller General's auditing standards (commonly referred to as "the Yellow Book") cover audits of entities of the federal government and organizations that receive federal funds. Various federal laws require compliance with the standards. Many states, local governments, and other entities, domestic and international, voluntarily have adopted these standards. Auditors of every state and most local governments follow these standards, as required by the Single Audit Act Amendments of 1996.
The new revision went through an extensive deliberative process, including comments from the range of stakeholders during the public comment period and input from the Comptroller General's Advisory Council on Government Auditing Standards. The views of all parties were thoroughly considered in finalizing the standards. In fact, the wide-ranging comments and discussion on an important addition to quality assurance and peer review prompted the team to reexpose that section for comment.
The GAO decided, however, not to hold up release of the other standards so that auditors and financial managers can begin reviewing the changes and incorporating them into their own operations and training. So, except for the reexposed quality control and peer review sections, the January 2007 version posted to the GAO's Web site (www.gao.gov/govaud/ybk01.htm) is final and supersedes the 2003 revision. The complete 2007 revision will be issued once the quality assurance and peer review sections are finalized. It will be effective for financial audits and attestation engagements for periods beginning on or after January 1, 2008, and for performance audits beginning on or after January 1,2008. Early implementation is permissible and encouraged.
Fundamental changes in the 2007 revision include:
* reinforced key role of auditing in maintaining accountability and providing information for making improvements in government operations,
* increased emphasis on ethical principles,
* streamlined discussion of nonaudit services and their impact on auditor independence,
* updated financial auditing standards based on recent developments in financial auditing and internal control,
* increased transparency surrounding restatements and significant concerns, uncertainties, or other unusual events, and
* clarified language to define the auditor's level of responsibility and distinguish between auditor requirements and additional guidance.
Reinforced Role of Auditing in Accountability. Because the principles of transparency and accountability for the use of public resources are fundamental to our nation's governing processes, they are the bedrock of the Comptroller General's government auditing standards. Government officials and recipients of federal monies are responsible for carrying out their public functions so that their actions are visible to official oversight and public scrutiny and so they can be held accountable for those actions within government and by the public. …