Review of Audit Quality of Certified Public Accountants

Pursuant to a congressional request, GAO discussed on the quality of audits of federal grants to state and local governments, specifically: (1) the role that inspectors general (IG) play in the audit quality review process; and (2) the extent to which certified public accountants (CPA) comply with professional auditing standards. GAO noted that the Inspector General Act of 1978 requires IG take appropriate steps to ensure that any work performed by nonfederal auditors complies with Comptroller General standards, but the act does not specify the steps the IG must take. GAO found that: (1) regional inspectors general (RIG) have audit quality review systems that are primarily designed to detect and correct problems of unacceptable work on individual audits; (2) the accuracy of RIG individual reviews was adequately reviewed based on correspondence between the RIG and CPA firms; (3) desk reviews did not generally enable RIG to identify problems; and (4) there were numerous instances where auditors failed to report, or inadequately reported findings of noncompliance with laws and regulations. GAO also found that: (1) some reports did not include statements on internal accounting controls; (2) there were instances where auditors' reports contained financial statements with unexplained inaccuracies or inadequate descriptions of the scope of audit work; (3) RIG did not usually select audits for quality control review on a random basis, but judgmentally selected them; and (4) the audits that were not accepted often involved failure to obtain and document sufficient evidence to support audit conclusions.