Spring 2012 issue of Horizons

Public Sector - continued

An addition to the independence standards is the period of time in which an auditor must be free of impairments to independence. This is defined as: • The period of the professional relationship includes the period covered by the financial statements or subject matter of the audit; AND • The date the auditors sign the engagement letter (or other similar agreement to complete attest work) through the entire duration of the professional relationship until the later of the date the auditor or audited entity gives notification of terminating the professional relationship or until the audit report is issued. For example, independence must remain unimpaired during the period after the prior year audit report is issued and before the signing of a new engagement letter because the professional relationship is ongoing. communication of certain internal control deficiencies and noncompliance. There is a new emphasis placed on early communication of any deficiencies. Therefore, as an auditee, you should expect to hear from your auditors earlier in the audit process, such as at the conclusion of interim fieldwork, about any deficiencies identified. The new guidance removes the documentation requirements for auditors to communicate inconsequential internal control deficiencies and instances of noncompliance with provisions of contracts or grant agreements or abuse that do not warrant the attention of those charged with governance. Previously, this was considered a matter of professional judgment, but the auditors were required to document any communication about these inconsequential items. Depending on your entity’s situation, this may mean a reduction in the reporting of audit “findings” in the Schedule of Findings and Questioned Costs; however, the auditor may still consider it important to include these items in a management letter. Finally, the revised guide includes changes in documentation requirements related to

direction of internal audit activities, performing procedures that form part of the internal control and determining the scope of the internal audit function and resulting work. • Providing valuation services that would have a material effect, separately or in the aggregate, on the financial statements or other information that is subject to an audit, and the valuation involves a significant degree of subjectivity. • Disbursement activities such as authorizing, signing or maintaining disbursements or bank accounts • Benefit plan administration • Investment advisory or management services • Corporate finance activities, either consulting or advisory • Business risk consulting If a service is not specifically listed as prohibited, it still may impair the auditor’s independence and should not be performed by him or her. A revision to the Yellow Book to address this is the inclusion of a conceptual framework model to use when assessing auditor independence. Oftentimes, the determination of independence is not clear nor is the unique situation specifically addressed in the Yellow Book guidance. The new conceptual framework should provide a better tool for auditors to make this determination.

Raise Your Expectations

37