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• What standards are used to guide the auditor? What is the optimal duration for an audit contract? Financial statement audits are conducted in ac- cordance with generally accepted auditing stan- dards (GARS). These standards historically have been established by the Auditing Standards Board of the American Institute of Certified Pub- lic Accountants (AICPA). In many cases, GARS are supplemented by additional standards set forth in the U.S. General Accounting Off`ice's (GAO) publication Government Auditing Stan- dards (also known as the "Yellow Book"). The combination of GAAS and the Yellow Book stan- dards is often referred to simply as "generally ac- ceptedgovernment auditing standards" or "GALAS." For attestation engagements, the appropriate guidelines are set by the AICPA's Attestation Standards, which are supplemented by certain additional standards for attestation engage- ments set forth in the Yellow Book. When an at- testation engagement is conducted in conformity with both the AICPA's Attestation Standards and the additional relevant Yellow Book stan- dards it is said to have been performed in accor- dance with GALAS. In the case of performance audits, all of the rele- vant standards are found in the Yellow Book and are referred to as GALAS. Failure of an external auditor to follow GAAS or GALAS is a serious matter. Substandard audits can result in disciplinary action against external auditors, including revocation of the auditor's li- cense to practice as a certified public accountant. Such failure can also expose the auditor to signif- icant legal liability. 4 AN ELECTED OFFICIAL'S GUIDE Auditors are required to gain and document an understanding of a government's framework of internal controls as part of the audit planning process. Understandably, this process is espe- cially costly in the first year of an audit, because the auditors are becoming acquainted with and documenting the internal control structure for the first time. A multi-year audit contract has the advantage of allowing auditors to recover these and similar start-up costs over a longer period of time, and so can lead to lower overall audit costs. Also, multi-year audit contracts can help to create valuable continuity in the audit process. Accord- ingly, the GAO is on record recommending the "entities should consider using multi-year agree- ments, preferably of a five-year duration, due to the potential cost savings and continuity benefits over the long-term."s Of course, governments must retain their right to terminate such multi-year contracts should the auditor's performance prove unsatisfactory. CPA Audit Quality: A Framework for Procuring Audit Services (August 1987), p. 28. TO AUDITING 45