IIA and GAO work to clarify standards differences.(Institute of Internal Auditors)(General Accounting Office)(Advertisement)

According to a recent article appearing in the August 2003 Internal Auditor, the U.S. General Accounting Office (GAO) and The Institute of Internal Auditors (IIA) are working together to clarify any perceived discrepancy between the two organizations' positions on auditor independence.

For government auditors following The IIA's International Standards for the Professional Practice of Internal Auditing (or Red Book), consulting services as described by The IIA Standards are compatible with audit services as described by the GAO in its standards (or Yellow Book) if certain principles and safeguards are met.

GAO staff has publicly acknowledged that the vast majority of services being provided under The IIA's definition of consulting appear to be audit and assurance services. The GAO has further acknowledged that its use of the term consulting was directed to nongovernment auditors (for the most part, CPAs in public practice) who perform audits of government and nonprofit entities under the Government Auditing Standards. The substance of the issue appears to be that both organizations are using the term consulting to mean two entirely different things.

Most readers recognize that consulting and other nonaudit services provided by public accountants jeopardize the independence of external audit firms. The reason for this is that consulting by external auditors often results in the performance of management functions that can conflict with the auditor's independence when performing a subsequent financial statement or performance audit. In providing audit services, the GAO identifies two overarching principles in its Independence Standard that cannot be violated when conducting an audit:

* Auditors should not perform management functions or make management decisions.

* Auditors should not audit their own work or provide nonaudit services in situations where the amounts or services involved are significant/material to the subject matter of the audit.

The IIA agrees with the GAO and encourages government auditors who need to comply with the Yellow Book standards and wish to do consulting in accordance with The IIA's Standards, to first check their activities against the two Yellow Book overarching principles for independence and then against the other applicable GAO standards. Evaluating the substance of the work in relation to both The IIA and Yellow Book standards positions government auditors for success, based on the guidance from both The IIA and the GAO.

For further information, contact

The IIA's Brenda Lovell (blovell@theiia.org; +1-407-937-1305) or GAO's Jeanette Meixner Franzel (franzel@gao.gov; +1-202-512-9471).

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