NASC 25th Annual Conference

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U.S. Government Accountability Office Modernizatio
n of the Accountability Profession

• NASC 25th Annual Conference
• March 22, 2006
• Jeanette Franzel, Director
• Marcia Buchanan, Assistant Director
• US Government Accountability Office

2
Sarbanes Oxley Auditor Independence
Implications for the Federal Government

• Yellow Book independence standards became
  effective in 2003
• Audit Partner Rotation no related government
  requirement.
• Auditors should report in to the appropriate
  level within the corporate governance structure
  of the organization
• GAO Study on Potential Effects of Mandatory Audit
  Firm Rotation (GAO-04-216), November 2003

3
Sarbanes-Oxley Corporate Responsibility
Implications for the Federal Government

• Auditors and financial professionals should
  evaluate whether implementing an audit committee
  or similar type of committee would enhance
  governance
• Auditors should encourage good governance
  practices within the entities they audit
• Domestic Working Group project on governance
• CFO and CEO Certification of financial results
• Auditors watch for reporting pressures and
  improper management on audit or reporting
  results.

4
Sarbanes-Oxley Act Internal Controls Implications
for the Federal Government

• GAO strongly supports section 404
• At the same time, efficiencies can be gained in
  the process through
• streamlining
• better integration of the financial audit and
  internal control audit
• adopting a risk-based approach using reasoned
  risk and experience-based auditor judgments in
  areas such as rotation of testing and additional
  flexibility in using the work of others
• use of common sense strategies in large and small
  environments

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Sarbanes-Oxley Act Internal Controls Implications
for the Federal Government

• Management Accountability and Control, December
  2004 (OMB Circular A-123)
• Implements the Federal Managers Financial
  Integrity Act of 1982
• Requires management assessment of internal
  control over all aspects of agencies operations
  (programmatic, financial, and compliance)
• Provides updated internal control standards (COSO
  elements) and specific requirements for
  managements assessment process
• Separate assurance on internal control over
  financial reporting using the COSO elements for
  the 24 CFO Act Agencies
• identification of weaknesses, non-conformances,
  and corrective actions.
• Effective fiscal year 2006
• Does not require audit of internal control over
  financial reporting
• GAO supported the newly revised OMB Circular
  A-123 in Feb 16, 2005 testimony-- House
  Government Reform

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Sarbanes-Oxley Act Internal Controls Implications
for the Federal Government

• Department of Homeland Security (DHS)
  Accountability Act PL 108-330
• Requires DHS management to
• Provide an assertion on the effectiveness of
  internal control over financial reporting for
  fiscal year 2005
• Obtain an auditors opinion on internal control
  over financial reporting for fiscal year 2006
• Directs the CFO Council and the Presidents
  Council on Integrity and Efficiency (PCIE) to
  conduct a joint study of the potential costs and
  benefits on requiring internal control opinions
  over financial reporting
• Requires GAO to review the study

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Sarbanes-Oxley Act Internal Controls Implications
for the Federal Government

• Estimating the Costs and benefits of Rendering
  an Opinion on Internal Control over Financial
  Reporting
• Joint CFO Council/PCIE study, issued Sept 27,
  2005
• Estimated cost 140 million (56 civilian/84
  DoD)
• Benefits can only be described in general terms,
  making a costs/benefit analysis difficult
• It would be prudent to see how federal managers
  implement OMB A-123 and to evaluate the private
  sector experiences
• Decisions about whether to obtain an opinion on
  controls need to be made on an agency-by-agency
  basis

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Sarbanes-Oxley Act Internal Controls Implications
for the Federal Government

• Two GAO reports to be issued in April 2006
• GAO study of the joint CFO Council/ PCIE report,
  Estimating the Costs and Benefits of Rendering
  and Opinion on Internal Control over Financial
  Reporting.
• GAO study on the impact of Sarbanes-Oxley on
  smaller public companies

9
Government Auditing Standards 2006 Revision

• Ensure that Government Auditing Standards that
  are high quality, well understood, highly
  regarded, widely used, and serve as a model for
  the private sector and other governments around
  the world.
• Provide leadership in modernizing and
  transforming the accountability profession in the
  public and private sectors, both domestically and
  internationally.
• Build a solid foundation for an accountability
  profession that is
• effective,
• ethical, and
• prepared for 21st century challenges

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Government Auditing Standards 2006 Revision

• Audit quality assurance, monitoring, inspection,
  peer review
• Ethics/professional judgment
• Expanding and clarifying the categories of
  nonaudit services
• Reporting deficiencies in internal control for
  financial audits
• Auditors responsibility for evaluating and
  disclosing financial statement restatements
• Audit documentation
• Use of GAGAS with other standards (PCAOB, AICPA,
  IIA, IAASB)
• Level of assurance, evidence, and data
  reliability in performance audits
• Clarification and clean up

11
Government Auditing Standards 2006 Revision

• Advisory Council Meeting April 6, 2006
• Finalization of projects, incorporating Council
  comments and comments received in forums such as
  this.
• Exposure draft issued for comment late April/
  early May 2006
• Final, 2006 revision of Yellow Book, issued late
  summer/ early fall

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Internal Controls, Governance, Accountability Som
e Parting Thoughts

• As government financial professionals, we have a
  unique and special responsibility in
  accountability for the prudent use of public
  resources.
• Good internal control, governance,
  accountability, and auditing are critical in the
  public sector for the effective and credible
  functioning of a healthy democracy, and in
  fulfilling the governments responsibility to
  citizens and taxpayers.
• The public relies on us to report whether
  government services are being provided
  efficiently, effectively, economically, and in
  compliance with laws and regulations.
• Getting it right with regard internal control
  and accountability will be critical to
  maintaining the publics trust in government.

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• Questions, comments, or suggestions?