GAO surprised me with its recently issued exposure draft of what appears to be a wholesale revision of the Government Auditing Standards. The reason it's a surprise is that previous word from the GAO and the Audit Standards Advisory Council was that the standards would be revised on an issue-by-issue basis as was done with the recently adopted standard on independence. Under such a process, it's reasonable to assume that occasionally there would be a need to reissue the entire document to codify previously adopted amendments and make editorial revisions to allow for consistency of terminology and format. But this is no mere codification. Among the changes proposed are incorporation of an entirely new chapter on attestation engagements, a change in the definition of performance auditing and the extension of generally accepted government auditing standards to cover prospective analyses such as assessing program or policy alternatives or analyzing budget proposals.
But fine, maybe this is the time to have a spirited, wide-ranging discussion about government auditing similar to the one that we had in 1992 and '93 that resulted in the current version of the Yellow Book. At the time the thing was issued in June 1994, many of us said something like "Whew, I never want to go through that again!" But what the heck, it's been a long time, a complete blood-letting (aka spirited discussion) every decade is probably necessary to clear the air.
We're passionate about the standards because we know they are important. They literally define the nature of auditing. There are deep divisions among us with regard to what we believe to be the proper role and function of auditing and these divisions are rarely addressed squarely. One aim of discussions about the standards should be to clarify these underlying issues.
We ought to consider two issues as we re-think who we are, what we do and why it matters. What is going on in the international audit community? Performance auditing is thriving in many countries throughout the world. An excellent window through which to view the work of these other countries is the International Organization of Supreme Audit Institutions (INTOSAI). Central government agencies, equivalent to the GAO in the United States, are referred to generically as "supreme audit institutions." Many of these audit organizations do excellent performance audit work.
Their reports are often available through their individual audit organization web sites, which can be accessed through the membership directory section of the INTOSAI web site, at intosai.org. In addition, INTOSAI publishes the International Journal of Government Auditing, which has interesting and informative articles on auditing and audit issues.
The impression of knowledgeable observers is that government audit organizations in many countries get more media coverage, are taken more seriously in policy discussions, and get more action on their recommendations than equivalent American audit organizations. If we can get past "not invented here" we can learn from audit organizations and scholars in the international community.
What is the role of commercial auditors? We need to rethink the role of commercial auditors in the overall framework of government auditing and accountability. The Enron-Andersen affair exposes to the world many of the flaws that those of us within the profession have been aware of for years. Commercial auditors have an important role to play but to characterize them as the "independent" auditors (and thus the rest of us as not independent) is a gross error. They have no particular lock on independence in auditing; they are private firms in the business of earning profits. They sell audits to make money the way Ford sells cars. Each type of audit organization has strengths and weaknesses with regard to independence and those weaknesses must be acknowledged and accounted for. Both the AICPA and GAO promulgate standards for audit but the purpose of the AICPA is to help the member firms make more money. The purpose of the GAO is to serve the public interest.
Max Frankel, a former executive editor of the New York Times, writes "Since a free and open society is, by definition, a constantly self-correcting organism, it is constantly nourished by news that exposes flaws and failures." Auditing, particularly government auditing, is a vital source of such news. As we think about the revisions to the audit standards, we need to make sure it stays that way.
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Funkhouser on Auditing