01-20-04 Regular Meeting - Laserfiche WebLink

Browse Search

How should the independent auditor be selected? The quality of auditors, like that of other profes- sionals, can vary substantially from one practi- tioner to another. Some audit firms perform high quality audits of state and local governments, while others lack the specialized experience and expertise needed to successfully complete such engagements. Therefore, it is critical that gov- ernments select their auditors carefully to en- sure that they obtain the high quality audits they need. A study by the General Accounting Office indi- cates that there is a clear correlation between the quality of a government's audit procurement process and the quality of the audit it receives.5 According to that study, to avoid a substandard audit a government's audit procurement process should possess several characteristics. First, governments should make sure that the audit procurement process is open and competi- tive. An open and competitive audit procurement process is likely to encourage greater participa- tion by high quality audit firms. Second, a government should prepare a compre- hensive request for proposals (RFP). A sound RFP should obtain from proposers all of the in- formation needed to evaluate their technical qualifications to perform the audit. It also should provide proposers with a detailed description of the government, its specific audit needs, and the government's audit procurement process. SCPA Audit Quality: A Framework for Procuring Audit Services (August 1987). 42 AN ELECTED OFFICIAL'S GUIDE Are there limitations on the types of services that independent auditors can perform for their audit clients without impairing their independence? Under GAGAS, there are two overarching princi- ples governing the types of consulting or nonaudit services that independent auditors may provide to their audit clients: o Auditors may not perform management func- tions or make management decisions; and o Auditors may not audit their own work or pro- vide nonaudit services in situations where the amounts or services involved are significant or material to the subject matter of the audit. Thus, for example, auditors may provide advice on the design of an accounting system for an audit client, but they may not actually design, develop, or install the system, nor may they op- erate or supervise the operation of the system. Similarly, auditors may prepare draft financial statements based on management's chart of accounts and trial balance, but they may not maintain the basic financial records or post transactions. In the same way, auditors may help management to assess the qualifications of job applicants, but they may not recommend a single individual for a single position, or conduct an executive search or a recruiting program for their audit clients. Of course, auditors may provide advice on estab- lishing internal controls and implementing audit recommendations without jeopardizing their in- dependence. Likewise, they are free to answer their audit clients' technical questions, offer TO AUDITING 7