On April 5, 2017, the GAO released a document entitled Government Auditing Standards 2017 Exposure Draft (the 2017 Yellow Book ED) which contained a July 6, 2017 comment deadline. When issued in its final form, the 2017 Yellow Book ED will supersede the current Yellow Book. One of the areas that the 2017 Yellow Book ED proposes to make changes is the addition of auditor responsibilities related to waste.
The 2017 Yellow Book ED states that “Waste is the act of using or expending resources carelessly, extravagantly, or to no purpose. Waste involves the taxpayers not receiving reasonable value for money in connection with any government-funded activities because of an inappropriate act or omission by parties with control over or access to government resources. Importantly, waste can include activities that do not include abuse and does not necessarily involve a violation of law. Rather, waste relates primarily to mismanagement, inappropriate actions, and inadequate oversight.”
As proposed under the 2017 Yellow Book ED, if auditors become aware of waste that could be quantitatively or qualitatively material to the financial statements or other financial data significant to the audit objectives, auditors would be required to perform audit procedures to ascertain the potential effect on the financial statements or other financial data significant to the audit objectives. Also, if auditors become aware of waste that could be significant to the entity’s operations, they would be required to consider the potential effect on the entity’s operations.
Under the 2017 Yellow Book ED, when auditors find waste that is material, either quantitatively or qualitatively, to the financial statements or to other financial data that are significant to the audit objectives or to the entity’s operations, they would include a finding in their report on internal control over financial reporting and on compliawnce and other matters.
The 2017 Yellow Book ED states that auditors should communicate waste findings in writing to audited entity officials when they detect potential instances of waste that have an effect on the financial statements or other financial data significant to the audit objectives that are less than material but warrant the attention of those charged with governance.
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Charlie Blanton, CPA is Senior Director of Governmental and Nonprofit Content for Surgent CPE, where he authors Surgent’s government and not-for-profit CPE courses and is a frequent webinar instructor. Charlie has over 25 years of experience in auditing and industry having worked at KPMG, the Texas Society of CPAs, Taylor Publishing, Texas Wesleyan University, and the AICPA.