TOP AUDITING ISSUES FOR 2013 - CCH

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MODULE 1 — CHAPTER 1 — The Conceptual Framework Approach to Independence 7 Some threats are so significant that they cannot be eliminated or reduced to an acceptable level by applying safeguards. This results in impaired independence. Auditors should decline to perform a prospective audit under these circumstances, or should terminate an audit already in progress. Government Auditors The independence standard applies to auditors in government entities. This is true whether they report to third parties externally (external auditors) or to senior management within the audited entity (internal auditors), or to both. The ability of an audit organization to objectively perform and report on its work can be affected by its placement within the government and the structure of the audited entity. External auditor independence. Constitutional or statutory safeguards are often in place to mitigate structural threats to independence for audit organizations that are structurally located within government entities. For external auditors, these may include structures under which the government audit organization is: At a different level of government than the audited entity, such as state auditors auditing a local government program In a different branch of government than the audited entity, such as executive branch auditors auditing a legislative program Structural threats can also be mitigated if the head of the audit organization meets any of the following criteria in accordance with constitutional or statutory requirements: Directly elected by voters of the audited jurisdiction Elected or appointed by a legislative body, subject to removal by a legislative body, and accountable to and reports audit results to a legislative body Appointed by other than a legislative body, as long as the appointment is confirmed by and removal is subject to approval or oversight by a legislative body, and accountable to and reports audit results to a legislative body Appointed by, accountable to, reports to, and can only be removed by a statutorily created governing body outside the audited entity, with a majority of its members independently elected or appointed The Yellow Book also recognizes that there may be other organizational structures under which external audit organizations in government entities could be considered to be independent. When properly implemented, these structures prevent the audited entity from interfering with the audit. An external audit organization, or an audit organization that reports both
8 TOP AUDITING ISSUES FOR 2013 CPE COURSE internally and externally, should have all of the following safeguards and should document how each was satisfied. Statutory protections preventing the audited entity from abolishing the audit organization Statutory protections requiring that removal of the head of the audit organization be reported to the legislative body Statutory protections preventing the audited entity from interfering with any audit, including the reporting on the audit Statutory protections requiring the audit organization to regularly report to the legislature or other independent governing body Statutory protections giving the audit organization sole hiring, retention, advancement, and dismissal authority over its staff Statutory access to records and documents and government officials or other persons related to the audited entity as necessary to conduct the audit Internal auditor independence. Internal auditors are employed to work for, and may be subject to administrative direction by, entity management. They are considered independent for purposes of reporting internally if the head of the audit organization meets all of the following criteria: Is accountable to either the head, deputy head, or those charged with governance of the government entity Reports audit results to both the head or deputy head, and those charged with governance Is outside of the staff or line management function of the unit under audit Has access to those charged with governance Is sufficiently removed from political pressures to conduct and report on audits objectively without fear of reprisal An internal audit organization can be independent when it performs an audit of an external party, such as a contractor, when no impairments to independence exist. PROVIDING NONAUDIT SERVICES Auditors have customarily provided a range of nonaudit services in connection with audit engagements. Some of these services may create threats to independence. Requirements for Performing Nonaudit Services Before providing nonaudit services, the auditor should determine whether they create threats to independence. A key component of this consideration is whether management has the ability to effectively oversee the nonaudit services. The auditor should:
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69 MODULE 2: IMPLEMENTATION ISSUES
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MODULE 2 — CHAPTER 7 — Current
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INDEX 179 Auditor’s versus manage
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INDEX 181 forming an opinion and re
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INDEX 183 Management participation
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INDEX 185 Review standards interpre
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CCH LEARNING CENTER At CCH, we reco
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