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Advisory Council on Government Auditing Standards; Government Auditing Standards: Independence

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General Accounting Office.


Notice of document availability.


On May 4, 2001, the U.S. General Accounting office (GAO), on the recommendation of the Advisory Council on Government Auditing Standards, issued an exposure draft of a proposed revision to Government Auditing Standards (also known as the Yellow Book) titled Government Auditing Standards: Independence (GAO/GAGAS-ED-4). The proposed revision would expand the definition of personal impairments, highlight the distinction between external and internal reporting, and acknowledge the ways that organizations can be free from organizational impairments to independence. Specifically, the exposure draft proposes expanding the examples of personal impairments and adding criteria to help audit organizations understand whether the provisions of nonaudit service affect the subject matter of the audit. The exposure draft emphasizes that auditors and audit organizations have an obligation to evaluate the circumstances and relationships on each assignment to identify situations that could result in an actual or perceived impairment to independence, including whether the performance of nonaudit services affects the subject matter being audited. The exposure draft also recognizes that internal auditors play a vital role in government auditing and can be free from organizational impairments to independence. However, since internal auditors are responsible to management while external auditors are responsible to third parties outside the audited entity, a fundamental difference exists between internal and external auditors. The exposure draft acknowledges this difference by retaining the sections on internal audit in the 1994 revision of Government Auditing Standards but refocusing the discussion to organizational impairment considerations when reporting internally to management. In addition, the exposure draft expanded by two ways the criteria that define organizations that can report externally. First, the exposure draft expands the presumptive criteria by specifying additional ways for an organization to be free from organizational impairments to independence. If the audit organization meets any of the presumptive criteria listed in the exposure draft, it can be considered organizationally independent to audit externally. Second, the exposure draft recognizes that other organizational structures can provide sufficient safeguards to prevent the audited entity from interfering with the audit organization's ability to perform the work and report the results impartially. If the audit organization meets all the statutory protections listed in the exposure draft, it can be considered organizationally independent to report externally.


Comments are accepted through July 30, 2001.


A copy of the exposure draft can be obtained on the Internet on GAO's Home Page ( Additional copies of these proposed standards can be obtained from the U.S. General Accounting Office, Room 1100 700 4th Street, NW., Washington, DC 20548, or by calling (202) 512-6000.

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Marcia Buchanan, Assistant Director, Government Auditing Standards, 202-512-9321.

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To facilitate analysis of your comments, it would be helpful if you sent them both in writing and on diskette (in Word or ASCII format). To ensure that your comments are considered by the council in their deliberations, please submit them by July 30, 2001, to the following address: Government Auditing Standards Comments, Independence Exposure Draft, U.S. General Accounting Office, Room 5X16 (FMA), 441 G Street, NW., Washington, DC 20548. (31 U.S.C. 7501-7507).

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Jeffrey C. Steinhoff,

Managing Director, Financial Management and Assurance.

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[FR Doc. 01-16560 Filed 6-29-01; 8:45 am]