GAO Issues Exposure Draft of New "Yellow Book"

Earlier this month, The GAO (Government Accountability Office) published proposed changes to its Yellow Book, also known as Generally Accepted Government Auditing Standards or GAGAS and invited public comments. These Government Auditing Standards are followed by auditors performing audits of Government programs including contract audits performed by the Defense Contract Audit Agency (DCAA). Whether Government contractors realize it or not, whenever they are being audited, the auditors are following the auditing principles embodied in GAO's "Yellow Book".

Because of the requirement for auditors to adhere to the Yellow Book, contractors should be aware of the requirements and should also become cognizant with any changes that might impact audits, especially requirements that will result in additional time and company resources. Contractor support for audits and auditors is not free. There is a cost associated with supporting an audit and those costs are usually passed on to the Government. So it is to everyone's benefit (including taxpayers) to make the audit process as efficient as possible

Here are some of the proposed changes:

1. Tightens up and clarifies independence requirements. Contractors should be alert for situations where the auditor may have "independence" issues.
2. Clarifies impairments to independence rules. Don't expect auditors to offer free advice.
3. More CPE (Continuing Professional Education) requirements - probably a good thing.
4. Enhancing peer review program - the prospect of peer reviews cause auditors to gild the lily.
5. New definition of "waste" and new requirement to report "waste". Previously, the focus was on fraud. Waste is something that cost the Government a lot of money but does not necessarily rise to the level of fraud.
6. Enhancements to the requirement for evaluating the sufficiency of internal controls. This has the potential of increasing auditor time at the contractor facility.

Read more about the changes here.