There is one GAGAS requirement that contractors should be aware of because it could affect the outcome of an audit. The requirement is the first of the "General Standards" found in Section 3.02 of the GAO Yellow Book (a.k.a GAGAS). The General Standards establish a foundation for the credibility of the auditors' work. The first standard is the Independence standard and requires that in all matters relating to the audit work, the organization and the individual auditor, whether government or public, must be independent.
Independence comprises independence of mind and independence in appearance. Independence of mind is the state of mind that permits the performance of an audit without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism.
Independence in appearance is the absence of circumstances that would cause a reasonable and informed third party, having knowledge of the relevant information, to reasonably conclude that the integrity, objectivity, or professional skepticism of audit organization or member of the audit team had been compromised.
There are many threats to audit independence including
- Self-interest (or the presence of financial interest)
- Familiarity and complacency
- Social bonding
- Economic bonds
- Management and employment
Auditors are required to self-assess their independence with every audit they perform. Often times, such self-assessments are perfunctory and there could be situations where contractors are very aware of threats to an auditor's independence. One contractor brought up the fact that it employed a close relative of an auditor assigned to perform an audit. While the auditor may have been independent in mind, she certainly was not independent in appearance (and she was re-assigned to another audit).
Contractors should be aware of the GAGAS independence requirements and question any impairments or potential impairments by any audit organization.
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