The Government Accountability Office (GAO) publishes Government Auditing Standards, commonly called generally accepted government auditing standards (GAGAS) or the Yellow Book. The Department of Labor (DOL) establishes additional independence requirements for employee benefit plan audits within its jurisdiction.
For a nonissuer government entity, the external accountant also applies the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct, together with applicable additional independence requirements.
Government ownership or receipt of federal funds alone does not establish that a particular engagement follows GAGAS. For a government entity or an entity receiving federal awards, the auditor identifies the applicable requirement or commitment before selecting the independence framework.
Auditors must understand ethical obligations under GAGAS because public accountability extends beyond satisfying the officials who engage the audit organization. These principles guide conduct during an audit or attestation engagement for a government entity and during applicable engagements involving federal award recipients.
Independence of mind means reaching professional judgments without influences that compromise integrity, objectivity, or skepticism during the engagement.
Common mistakes
- Wrong applicability trigger. A federal grant does not by itself establish GAGAS applicability; the engagement's legal, contractual, or voluntary basis must be identified.
- Oversight treated as expertise. A grants director may oversee a service without being able to prepare the same financial statements independently.
- Review offered for management. A second reviewer cannot make the firm's authority to approve county disbursements permissible.
Bottom line
- GAGAS applies through an applicable requirement or commitment, rather than government ownership or federal funding alone.
- Government ethical principles address the public interest, integrity, objectivity, proper use of information and resources, and professional behavior.
- GAGAS requires independence of mind and appearance, with threats evaluated individually and together and effective safeguards documented when required.
- Management responsibility is prohibited; competent oversight alone does not resolve the significant threat from preparing financial statements in their entirety.
Exam shortcut
Circle the framework and underline the verb describing the accountant's role. Recommend and evaluate point toward threat analysis; decide, authorize, direct, and maintain can establish prohibited responsibilities. For a plan question, mark the holder, the plan or sponsor connection, and the type of interest before considering its amount. Draw the audited period first, then place disposal, planning, and agreement dates on the same line.
The full lesson (about 4,850 words, 32 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- I.A3
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