Accounting and Financial Reporting

Government Auditing Standards

Audits in both the public and private sectors are conducted in accordance with generally accepted auditing standards (GAAS). GAAS are established in the private sector by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) following extensive due process.

Public-sector officials have long recognized the need to supplement GAAS to meet the special needs of grantors and other users of state and local government audit reports. Accordingly, the U.S. General Accounting Office (GAO) has established generally accepted government auditing standards (GAGAS) to supplement GAAS requirements concerning the independent auditor's reporting responsibilities for compliance and internal controls.

The Government Finance Officers Association (GFOA) believes the public sector has been well served by both GAAS and GAGAS. We believe that the federal government should continue to revise GAGAS as needed to meet the special needs of grantors of federal financial assistance. At the same time, however, we believe it is essential that the basic standards governing the conduct of financial statement audits continue to be established by the AICPA in accordance with due process involving all interested parties, including federal, state and local governments.

Concerns have been raised about the effectiveness of some single audit engagements. Indeed, there have been some proposals to remedy problems through changes either in the Single Audit Act itself or in federal circulars or other related guidance. While some changes could undoubtedly be beneficial, we believe it is essential to distinguish weaknesses in existing standards from the perceived failure of some audits to meet the needs of grantors of federal financial assistance.

Grantors of federal financial assistance, like other users of audit services, are free to prescribe the level of assurance desired from audit professionals. However, it is not appropriate for users of audit services to attempt to dictate to auditors how they achieve that level of assurance. As professionals, auditors must rely upon their experience and judgment in applying professional standards.

Furthermore, to the extent that grantors of federal financial assistance desire a level of assurance beyond that provided in a financial statement audit, they should pay for the cost of providing such additional assurance.

Therefore, the GFOA believes:

  • Grantors of federal financial assistance should continue to rely upon GAAS for basic standards governing audits of both financial statements and federal financial assistance. If changes are needed in GAAS, they should be accomplished by means of the AICPA's existing due-process procedures.
  • Specific federal requirements should in no way preempt or otherwise limit the proper exercise of auditor judgment.
  • Grantors of federal financial assistance should compensate grant recipients for the cost of providing a level of assurance beyond that provided by a financial statement audit.

  • Publication date: May 1993