March
10, 2003 -- On January 25, 2002 , in an effort to better
serve the public interest and to maintain a high degree of
integrity, objectivity, and independence for audits of government
entities, the United States General Accounting Office (GAO)
issued Amendment No. 3 to the Government Auditing Standards.
The amendment includes a principle-based approach to addressing
independence issues supplemented with certain safeguards and
significantly affects standards associated with nonaudit or
consulting services.
The new independence standard for nonaudit services is based
on two overreaching principles:
- Audit organizations should not provide nonaudit services
that involve performing management functions or making management
decisions; and
- Audit organizations should not audit their own work
or provide nonaudit services in situations where the nonaudit
services are significant/material to the subject matter of
the audits.
In addition to complying with the two principles, audit organizations
must follow certain safeguards prior to performing any nonaudit
service.
Nonaudit services offered by audit organizations to audit
clients that may create independence impairment issues include
bookkeeping services, payroll services, information technology
services, appraisal and valuation services, and human resources
services.
Services provided by audit organizations that are not subject
to the list of safeguards include providing routine advice
to assist in the establishment of internal controls, answering
technical questions, providing training, and providing tools
and methodologies (best practice guides, internal control
assessments, benchmarking studies) that can be used by management.
Amendment No. 3 is applicable to all audits for periods beginning
on or after January 1, 2003.
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