July 2002
GOVERNMENT
AUDITING
STANDARDS
Answers to Independence
Standard Questions
GAO-02-870G
d02870G.book Page i Tuesday, July 2, 2002 2:11 PM
Contents
Questions 6
Relating to
Independence
Standard
Implemen-
tation and
Transition
Questions 11
Audit and Nonaudit Services 11
Concerning Overarching Principles and Safeguards 15
Certain Significance/Materiality 26
Management Functions 26
Independence Subject Matter of the Audit 28
Standard Personal Impairments 28
Underlying
Concepts
Questions 35
Bookkeeping Services 35
about Applying Financial Statement Review and Basic
the Accounting Assistance 47
Internal Audit Services 54
Independence Information Technology Services 55
Standard in Work of Specialists 59
Tax Services 62
Specific Budget Work 64
Nonaudit Human Resource Services 67
Circumstances
Page i GAO-02-870G
d02870G.book Page ii Tuesday, July 2, 2002 2:11 PM
Page ii GAO-02-870G
d02870G.book Page 1 Tuesday, July 2, 2002 2:11 PM
Comptroller General
of the United States
United States General Accounting Office
Washington, D.C. 20548
Page 1 GAO-02-870G
d02870G.book Page 2 Tuesday, July 2, 2002 2:11 PM
Page 2 GAO-02-870G
d02870G.book Page 3 Tuesday, July 2, 2002 2:11 PM
Page 3 GAO-02-870G
d02870G.book Page 4 Tuesday, July 2, 2002 2:11 PM
David M. Walker
Comptroller General
of the United States
Page 4 GAO-02-870G
d02870G.book Page 5 Tuesday, July 2, 2002 2:11 PM
Page 5 GAO-02-870G
d02870G.book Page 6 Tuesday, July 2, 2002 2:11 PM
Questions Relating to
Independence Standard
Implementation and Transition
On January 25, 2002, we issued an amendment to
Government Auditing Standards (1994 revision),
Amendment No. 3, Independence. As provided in this
amendment, the Government Auditing Standards’
second general standard is as follows:
Page 6 GAO-02-870G
d02870G.book Page 7 Tuesday, July 2, 2002 2:11 PM
Page 7 GAO-02-870G
d02870G.book Page 8 Tuesday, July 2, 2002 2:11 PM
Page 8 GAO-02-870G
d02870G.book Page 9 Tuesday, July 2, 2002 2:11 PM
Page 9 GAO-02-870G
d02870G.book Page 10 Tuesday, July 2, 2002 2:11 PM
Page 10 GAO-02-870G
d02870G.book Page 11 Tuesday, July 2, 2002 2:11 PM
Page 11 GAO-02-870G
d02870G.book Page 12 Tuesday, July 2, 2002 2:11 PM
Audit and Nonaudit 10. Because of the significant and differing effects
Services audit and nonaudit services can have on audit
organization independence, how can an audit
organization distinguish between them?
Page 12 GAO-02-870G
d02870G.book Page 13 Tuesday, July 2, 2002 2:11 PM
Page 13 GAO-02-870G
d02870G.book Page 14 Tuesday, July 2, 2002 2:11 PM
Page 14 GAO-02-870G
d02870G.book Page 15 Tuesday, July 2, 2002 2:11 PM
Page 16 GAO-02-870G
d02870G.book Page 17 Tuesday, July 2, 2002 2:11 PM
Yes. In this case, both units are still part of the same
organization. Therefore, the independence
standard’s overarching principles and safeguards
would apply.
Page 17 GAO-02-870G
d02870G.book Page 18 Tuesday, July 2, 2002 2:11 PM
Page 18 GAO-02-870G
d02870G.book Page 19 Tuesday, July 2, 2002 2:11 PM
Page 19 GAO-02-870G
d02870G.book Page 20 Tuesday, July 2, 2002 2:11 PM
Page 20 GAO-02-870G
d02870G.book Page 21 Tuesday, July 2, 2002 2:11 PM
Page 21 GAO-02-870G
d02870G.book Page 22 Tuesday, July 2, 2002 2:11 PM
Page 22 GAO-02-870G
d02870G.book Page 23 Tuesday, July 2, 2002 2:11 PM
Yes.
Page 23 GAO-02-870G
d02870G.book Page 24 Tuesday, July 2, 2002 2:11 PM
Page 24 GAO-02-870G
d02870G.book Page 25 Tuesday, July 2, 2002 2:11 PM
Page 25 GAO-02-870G
d02870G.book Page 26 Tuesday, July 2, 2002 2:11 PM
Page 26 GAO-02-870G
d02870G.book Page 27 Tuesday, July 2, 2002 2:11 PM
Page 27 GAO-02-870G
d02870G.book Page 28 Tuesday, July 2, 2002 2:11 PM
Subject Matter of 36. For a performance audit, what does the phrase
the Audit “subject matter of the audit” mean? What
does this phrase mean for a financial statement
audit?
Page 28 GAO-02-870G
d02870G.book Page 29 Tuesday, July 2, 2002 2:11 PM
Page 29 GAO-02-870G
d02870G.book Page 30 Tuesday, July 2, 2002 2:11 PM
As discussed in GAGAS:
Page 30 GAO-02-870G
d02870G.book Page 31 Tuesday, July 2, 2002 2:11 PM
Page 31 GAO-02-870G
d02870G.book Page 32 Tuesday, July 2, 2002 2:11 PM
Page 32 GAO-02-870G
d02870G.book Page 33 Tuesday, July 2, 2002 2:11 PM
Page 33 GAO-02-870G
d02870G.book Page 34 Tuesday, July 2, 2002 2:11 PM
Page 34 GAO-02-870G
d02870G.book Page 35 Tuesday, July 2, 2002 2:11 PM
Page 35 GAO-02-870G
d02870G.book Page 36 Tuesday, July 2, 2002 2:11 PM
Page 36 GAO-02-870G
d02870G.book Page 37 Tuesday, July 2, 2002 2:11 PM
Page 39 GAO-02-870G
d02870G.book Page 40 Tuesday, July 2, 2002 2:11 PM
Page 40 GAO-02-870G
d02870G.book Page 41 Tuesday, July 2, 2002 2:11 PM
Page 41 GAO-02-870G
d02870G.book Page 42 Tuesday, July 2, 2002 2:11 PM
Page 42 GAO-02-870G
d02870G.book Page 43 Tuesday, July 2, 2002 2:11 PM
Page 43 GAO-02-870G
d02870G.book Page 44 Tuesday, July 2, 2002 2:11 PM
Page 44 GAO-02-870G
d02870G.book Page 45 Tuesday, July 2, 2002 2:11 PM
Page 45 GAO-02-870G
d02870G.book Page 46 Tuesday, July 2, 2002 2:11 PM
Page 46 GAO-02-870G
d02870G.book Page 47 Tuesday, July 2, 2002 2:11 PM
Page 47 GAO-02-870G
d02870G.book Page 48 Tuesday, July 2, 2002 2:11 PM
Page 49 GAO-02-870G
d02870G.book Page 50 Tuesday, July 2, 2002 2:11 PM
Page 50 GAO-02-870G
d02870G.book Page 51 Tuesday, July 2, 2002 2:11 PM
Page 51 GAO-02-870G
d02870G.book Page 52 Tuesday, July 2, 2002 2:11 PM
Page 52 GAO-02-870G
d02870G.book Page 53 Tuesday, July 2, 2002 2:11 PM
Page 53 GAO-02-870G
d02870G.book Page 54 Tuesday, July 2, 2002 2:11 PM
Page 54 GAO-02-870G
d02870G.book Page 55 Tuesday, July 2, 2002 2:11 PM
Page 55 GAO-02-870G
d02870G.book Page 56 Tuesday, July 2, 2002 2:11 PM
Page 56 GAO-02-870G
d02870G.book Page 57 Tuesday, July 2, 2002 2:11 PM
Page 57 GAO-02-870G
d02870G.book Page 58 Tuesday, July 2, 2002 2:11 PM
Page 58 GAO-02-870G
d02870G.book Page 59 Tuesday, July 2, 2002 2:11 PM
Page 59 GAO-02-870G
d02870G.book Page 60 Tuesday, July 2, 2002 2:11 PM
Page 60 GAO-02-870G
d02870G.book Page 61 Tuesday, July 2, 2002 2:11 PM
Page 61 GAO-02-870G
d02870G.book Page 62 Tuesday, July 2, 2002 2:11 PM
Page 62 GAO-02-870G
d02870G.book Page 63 Tuesday, July 2, 2002 2:11 PM
Page 63 GAO-02-870G
d02870G.book Page 64 Tuesday, July 2, 2002 2:11 PM
Page 64 GAO-02-870G
d02870G.book Page 65 Tuesday, July 2, 2002 2:11 PM
Page 65 GAO-02-870G
d02870G.book Page 66 Tuesday, July 2, 2002 2:11 PM
Page 66 GAO-02-870G
d02870G.book Page 67 Tuesday, July 2, 2002 2:11 PM
Page 67 GAO-02-870G
d02870G.book Page 68 Tuesday, July 2, 2002 2:11 PM
GAO’s Mission The General Accounting Office, the investigative arm of Congress,
exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and
accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other
assistance to help Congress make informed oversight, policy, and
funding decisions. GAO’s commitment to good government is reflected
in its core values of accountability, integrity, and reliability.
Obtaining Copies of The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO’s Web site (www.gao.gov) contains
GAO Reports and abstracts and full-text files of current reports and testimony and an
Testimony expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases.
You can print these documents in their entirety, including charts and
other graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as “Today’s Reports,” on
its Web site daily. The list contains links to the full-text document files.
To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select “Subscribe to daily
E-mail alert for newly released products” under the GAO Reports
heading.
Order by Mail or Phone The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the
Superintendent of Documents. GAO also accepts VISA and
Mastercard. Orders for 100 or more copies mailed to a single address
are discounted 25 percent. Orders should be sent to:
U.S. General Accounting Office
441 G Street NW, Room LM
Washington, D.C. 20548
To order by Phone: Voice: (202) 512-6000
TDD: (202) 512-2537
Fax: (202) 512-6061