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350 GovERNImENTAL Accot Nrm, AuDRING, AND FwANaAL REPORTING
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<br />A government's responsibility for the independent audit does not end S.'.
<br />with selecting a qualified auditor and preparing an adequate audit con- y; ;
<br />tract The government also must monitor the auditor's success in meeting Audit committees
<br />deadlines, as well as assess the auditofs overall performance at the end of
<br />each year's audit. ;a
<br />Ancillary savices In practice, auditors often provide a wide range of services to their clients in .'
<br />conjunction with financial statement audits. Auditors frequently agree, for
<br />instance, to take responsibility for the fair presentation of financial data )
<br />accompanying official statements, submitted in an underroriter's letter. Simi-
<br />larly, auditors may take responsibility for special-purpose reports fur-
<br />nished to state agencies and grantors. Auditors also may provide peer
<br />review services to a government's Internal audit function or professional : a
<br />training to the government's accounting staff Similarly, auditors —may-
<br />agree to help a government prepare a CAFR for submission to the GFOA
<br />Certificate of Achievement for Excellence in Financial Reporting Program.
<br />While these ancillary services are important, they are not part of the basic ` ''+
<br />audit engagement. Governments desiring such services -should be sure to
<br />request them in the RFP for audit services and in the audit Contract. _
<br />length of the audit contract Auditors are required to gain and document an understanding of a govern-_ '
<br />ment's internal control framework as part of the audit Pig process for i
<br />the independent audit of the financial statements. Understandably, this'.-
<br />process is especially costly in the first year of an audit engagement, because
<br />the auditors are becoming acquainted with and documenting the internal y'
<br />control framework for the first time. A multi -year audit contract has the' ..
<br />advantage, of allowing auditors to recover these and similar start-up costs .,
<br />(such as the cost of responding to the RFP) over longer period of
<br />so can lead to lower overall audit costs. Also, multi -year audit contracts can ,
<br />help to create needed continuity in the audit process. The GFOA recom-`
<br />'s
<br />mends that governmental entities enter into multi -year agreements whenR
<br />obtaining the services of • independent auditors. Such multi -year agree-
<br />meets can take a variety of forms (including a series of single -year can g?',
<br />tracts), consistent with applicable legal requirements a
<br />Auditor rotation There has been considerable debate regarding whether a government,, a.; (;
<br />ought to periodically rotate its independent auditors. Those who favor i
<br />rotation often argue that ithelps to preserve auditorindependence andpro
<br />vides the benefit of a fresh perspective. Opponents of rotation typically;
<br />argue the benefits of continuity and experience, and they question the wiP ' .
<br />door of limiting the government's options by precluding consideration of:.
<br />the current auditor, which could reduce competition
<br />The GFOA espouses the following position regarding mandatory audt
<br />for rotation:`
<br />Governmental entities should periodically undertake a full-scale com-
<br />petitive process for the selection of independent auditors, consistent . t
<br />with applicable legal requirements. This process should actively seek
<br />the participation of all qualified firsts, including the current auditors, ;
<br />assuming that the past performance of the current auditors has prover-
<br />satisfactory. i•.
<br />.. 'See GFOA's:emmma d�d pncdee.'Audit prmvre twe (1996)• _ . • . a•,., n '.
<br />Auonnvc.IN'nmPusuCSscros 351
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<br />This recommendation is subject to any legal co:tstraints applicable to a par-.
<br />ticular government
<br />The independent auditor of a state or local government's financial state-*
<br />ments must be independent in fact and appearance. A properly constituted
<br />• '
<br />audit committee helps to enhance the auditor's real and perceived inde-
<br />Pendence of management by providing a direct link between the auditor
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<br />and the governing board.
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<br />An important advantage of an audit Committee is that it helps to facili-
<br />tate Communication between management the auditors, and the governing,.
<br />board. An audit committee is useful, too, in helping to focus
<br />'
<br />and document
<br />the government's process for managing the financial statement audit
<br />In recent years, the importance of audit committees has become better
<br />recognized in both the public and private sectors. Indeed, GAAS require that
<br />auditors be certain that the audit Committee (or its equivalent) is informed of
<br />various important matters related to the financial statement audit
<br />The audit Committee should act inan advisory capacity to the
<br />governing
<br />body. Management and the governing -board remain ultimately respond-
<br />ble for.fair presentation of the financial statements and for obtaining and
<br />monitoring the financial statement audit.
<br />'The GFOArecommends that every government establish an audit Corn-
<br />.
<br />t ` q mttee<�, its enabling � r This committee should be formally established by
<br />twn, or other appn�priate.legal means. '
<br />•
<br />'—`The members of the audit Committee collectively should possess the
<br />expertise and experience in accounting, auditing, and financial reporting.
<br />needed to understand and resolve issues raised by the independent audit of
<br />the financial statements: A majority of audit committee members should be
<br />.selected from outside of management, and the committee should include at
<br />least one representative each from the executive and legislative branches df
<br />+
<br />the government. An audit Committee'should be small enough to operate
<br />efficiently, yet large enough to ensure that its members possess all skills
<br />necessary to realize .the Committee's objectives. As a rule, no less than five
<br />and no more than seven members should Comprise an audit committee.
<br />The audit committee's Primary respons}bflity should be to oversee the
<br />independent audit of the government's financial
<br />statements, from selection
<br />of the independent auditor to resolution of audit findings. The audit com-
<br />mittee should have access to the reports of any internal auditors, as well as
<br />access to any annual internal audit work. plans 0° The audit Committee
<br />should resent#_ the
<br />P governing board and management anannual written
<br />report of how the Committee has discharged its duties and met its responsi_
<br />bilities It is further recommended that this report be made public. i
<br />rtsttrUxMANCE AUDITING .
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<br />.Performance audits foram the aewtd basic category of audits encountered
<br />inthe.publicsecton.The. of•,a
<br />.goal perfoiaiaiieeauditistoestabifshwieftier
<br />f goventniient programs and: activities are. meeting their stated goals
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