GAO lays down the law: auditors of agencies can’t be consultants

Auditors who review federal agencies can no longer provide their clients with certain consulting services, according to new requirements in government auditing standards. The new rules, released Friday by the General Accounting Office, are designed to make sure auditors who review federal agencies do not perform management functions or make management decisions, GAO said. The rules expressly prohibit auditing organizations from providing bookkeeping, recordkeeping and payroll services. Auditors can continue to provide routine advice and answer technical questions, GAO said. Many state and local governments have adopted similar standards, according to GAO. Government auditing standards, which differ from the auditing standards for private firms, were first published in 1972 and cover federal agencies and organizations receiving federal money. The changes, which take effect Oct. 1, are designed to ensure integrity and objectivity in the federal auditing process, according to Comptroller General David Walker, who heads GAO. "The changes take a new approach to dealing with the issue of independence in auditing," Walker said. "Hopefully this will raise auditing standards in general." The activities banned by the new rule are permitted under the auditing standards of the American Institute of Certified Public Accountants (AICPA). Although the new standard has been in the works for three years, Friday's announcement arrived in the midst of the Enron scandal. Accounting firm Andersen audited Enron's financial statements and is accused of shredding important documents related to the investigation. Although Walker acknowledged that "Enron caused a lot of people to come around to our way of thinking," he said the changes in the auditing standards were in the works before the current scandal broke. Some small accounting firms argued during the drafting of the new rule that the changes to federal auditing standards would impose a hardship on auditors and their clients, who would be deprived of certain consulting services permitted under AICPA rules. But Walker said protecting the public interest and maintaining objectivity in the auditing process took precedence over such considerations. "People who review and analyze this [rule] will come to the same conclusion that it's the right thing to do and the right time to do it," Walker said. The new rule applies to any auditor who reviews the financial statements and performance of federal agencies and organizations. That includes GAO itself, agency inspectors general and major private auditing firms, such as Andersen and PricewaterhouseCoopers.

The new standard will restrict the fairly common practice of auditors providing their federal clients with consulting services, Walker said. "The inspectors general do it, GAO does it, and private sector firms also currently try to provide some kind of consulting." GAO also announced Friday that the 24 major agencies covered under the 1990 Chief Financial Officers Act must form audit committees, but officials are still hammering out the details of that mandate. "The scope, structure and timing of this new requirement will be determined over the next several months," GAO said in a statement.

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
Close [ x ] More from GovExec

Thank you for subscribing to newsletters from
We think these reports might interest you:

  • Forecasting Cloud's Future

    Conversations with Federal, State, and Local Technology Leaders on Cloud-Driven Digital Transformation

  • The Big Data Campaign Trail

    With everyone so focused on security following recent breaches at federal, state and local government and education institutions, there has been little emphasis on the need for better operations. This report breaks down some of the biggest operational challenges in IT management and provides insight into how agencies and leaders can successfully solve some of the biggest lingering government IT issues.

  • Communicating Innovation in Federal Government

    Federal Government spending on ‘obsolete technology’ continues to increase. Supporting the twin pillars of improved digital service delivery for citizens on the one hand, and the increasingly optimized and flexible working practices for federal employees on the other, are neither easy nor inexpensive tasks. This whitepaper explores how federal agencies can leverage the value of existing agency technology assets while offering IT leaders the ability to implement the kind of employee productivity, citizen service improvements and security demanded by federal oversight.

  • IT Transformation Trends: Flash Storage as a Strategic IT Asset

    MIT Technology Review: Flash Storage As a Strategic IT Asset For the first time in decades, IT leaders now consider all-flash storage as a strategic IT asset. IT has become a new operating model that enables self-service with high performance, density and resiliency. It also offers the self-service agility of the public cloud combined with the security, performance, and cost-effectiveness of a private cloud. Download this MIT Technology Review paper to learn more about how all-flash storage is transforming the data center.

  • Ongoing Efforts in Veterans Health Care Modernization

    This report discusses the current state of veterans health care


When you download a report, your information may be shared with the underwriters of that document.