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Topic IndexTypes of Audits: US Auditing Standards

Comptroller General of the United States, Government Auditing Standards. Chapter 2: Types of Government Audits

This manual can be found at http://www.gao.gov/govaud/ybhtml/doc2.html

Purpose

2.1 This chapter describes the types of audits that government and nongovernment audit organizations conduct and that organizations arrange to have conducted, of government organizations, programs, activities, functions, and funds. This description is not intended to limit or require the types of audits that may be conducted or arranged. In conducting these types of audits, auditors should follow the applicable standards included and incorporated in the chapters which follow.

2.2 All audits begin with objectives, and those objectives determine the type of audit to be conducted and the audit standards to be followed. The types of audits, as defined by their objectives, are classified in these standards as financial audits or performance audits.

2.3 Audits may have a combination of financial and performance audit objectives or may have objectives limited to only some aspects of one audit type. For example, auditors conduct audits of government contracts and grants with private sector organizations, as well as government and nonprofit organizations, that often include both financial and performance objectives. These are commonly referred to as "contract audits" or "grant audits." Other examples of such audits include audits of specific internal controls, compliance issues, and computer-based systems. Auditors should follow the standards that are applicable to the individual objectives of the audit.

Financial Audits

2.4 Financial audits include financial statement and financial related audits.

a. Financial statement audits provide reasonable assurance about whether the financial statements of an audited entity present fairly the financial position, results of operations, and cash flows in conformity with generally accepted accounting principles.¹ Financial statement audits also include audits of financial statements prepared in conformity with any of several other bases of accounting discussed in auditing standards issued by the American Institute of Certified Public Accountants (AICPA).

b. Financial related audits include determining whether (1) financial information is presented in accordance with established or stated criteria, (2) the entity has adhered to specific financial compliance requirements, or (3) the entity's internal control structure over financial reporting and/or safeguarding assets is suitably designed and implemented to achieve the control objectives.

[NOTE 1: Three authoritative bodies for generally accepted accounting principles are the Governmental Accounting Standards Board (GASB), the Financial Accounting Standards Board (FASB), and the sponsors of the Federal Accounting Standards Advisory Board (FASAB). GASB establishes accounting principles and financial reporting standards for state and local government entities. FASB establishes accounting principles and financial reporting standards for nongovernment entities. The sponsors of FASAB--the Secretary of the Treasury, the Director of the Office of Management and Budget, and the Comptroller General--jointly establish accounting principles and financial reporting standards for the federal government, based on recommendations from FASAB.]

2.5 Financial related audits may, for example, include audits of the following items:

a. Segments of financial statements; financial information (for example, statement of revenue and expenses, statement of cash receipts and disbursements, statement of fixed assets); budget requests; and variances between estimated and actual financial performance.

b. Internal controls over compliance with laws and regulations, such as those governing the (1) bidding for, (2) accounting for, and (3) reporting on grants and contracts (including proposals, amounts billed, amounts due on termination claims, and so forth).

c. Internal controls over financial reporting and/or safeguarding assets, including controls using computer-based systems.

d. Compliance with laws and regulations and allegations of fraud.

Performance Audits

2.6 A performance audit is an objective and systematic examination of evidence for the purpose of providing an independent assessment of the performance of a government organization, program, activity, or function in order to provide information to improve public accountability and facilitate decision-making by parties with responsibility to oversee or initiate corrective action.

2.7 Performance audits include economy and efficiency and program audits.

a. Economy and efficiency audits include determining (1) whether the entity is acquiring, protecting, and using its resources (such as personnel, property, and space) economically and efficiently, (2) the causes of inefficiencies or uneconomical practices, and (3) whether the entity has complied with laws and regulations on matters of economy and efficiency.

b. Program audits include determining (1) the extent to which the desired results or benefits established by the legislature or other authorizing body are being achieved, (2) the effectiveness of organizations, programs, activities, or functions, and (3) whether the entity has complied with significant laws and regulations applicable to the program.

2.8 Economy and efficiency audits may, for example, consider whether the entity

a. is following sound procurement practices;

b. is acquiring the appropriate type, quality, and amount of resources at an appropriate cost;

c. is properly protecting and maintaining its resources;

d. is avoiding duplication of effort by employees and work that serves little or no purpose;

e. is avoiding idleness and overstaffing;

f. is using efficient operating procedures;

g. is using the optimum amount of resources (staff, equipment, and facilities) in producing or delivering the appropriate quantity and quality of goods or services in a timely manner;

h. is complying with requirements of laws and regulations that could significantly affect the acquisition, protection, and use of the entity's resources;

i. has an adequate management control system for measuring, reporting, and monitoring a program's economy and efficiency; and

j. has reported measures of economy and efficiency that are valid and reliable.

2.9 Program audits² may, for example

a. assess whether the objectives of a new, or ongoing program are proper, suitable, or relevant;

b. determine the extent to which a program achieves a desired level of program results;

c. assess the effectiveness of the program and/or of individual program components;

d. identify factors inhibiting satisfactory performance;

e. determine whether management has considered alternatives for carrying out the program that might yield desired results more effectively or at a lower cost;

f. determine whether the program complements, duplicates, overlaps, or conflicts with other related programs;

g. identify ways of making programs work better;

h. assess compliance with laws and regulations applicable to the program;

i. assess the adequacy of the management control system for measuring, reporting, and monitoring a program's effectiveness; and

j. determine whether management has reported measures of program effectiveness that are valid and reliable.

[NOTE 2: These audits may apply to services, activities, and functions as well as programs.]

Other Activities of An Audit Organization

2.10 Auditors may perform services other than audits. For example, some auditors may

a. assist a legislative body by developing questions for use at hearings,

b. develop methods and approaches to be applied in evaluating a new or a proposed program,

c. forecast potential program outcomes under various assumptions without evaluating current operations, and

d. perform investigative work.

2.11 The head of the audit organization may wish to establish policies applying standards in this statement to its employees performing these and other types of nonaudit work.

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