March 2008 Single Audit Information Service Newsletter

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Auditors Should Dig a Little for a Juicy EffectBy Leita Hart-FantaThe Government Auditing Standards, also • The client has no idea what its cash po-known as the Yellow Book, asks auditors to sition is.develop five elements for each finding — the • Errors and omissions could go condition, the cause, the criteria, the effect undetected.Leita Hart-Fanta, CPA, and the recommendation.CGFM is the author of • The client has bounced 15 checks and “The Risk Assessment Let’s concentrate on the fourth item. The incurred $625 in bank fees.SASs,” and has been definition of effect or potential effect for teaching Yellow Book financial audits, as found in Chapter 4.18 Which One Is Best? standards for 10 years. During her five years of the Yellow Book, states: “The effect is a Well, the first way an auditor eliminates with the Texas State clear, logical link to establish the impact or potentially boring effects and concentrates Auditor’s Office, she potential impact of the difference between on the real hook is to take out anything that acted as both an auditor the situation that exists (condition), and the would be of interest only to auditors or ac-and a communications required or desired state (criteria). The effect countants. I would say the first bullet would specialist. Hart-Fanta led the team that or potential effect identifies the outcomes or give most accountants fits. How can they live produced a national consequences of the condition. When the au- with a ...

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• Publié par: Sawyung
• Nombre de lectures: 14
• Langue: English

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March 2008 |

Single Audit Information Service

Auditors Should Dig a Little for a

Juicy Effect

By Leita Hart-Fanta

The

Government Auditing Standards

, also

known as the Yellow Book, asks auditors to

develop five elements for each finding — the

condition, the cause, the criteria, the effect

and the recommendation.

Let’s concentrate on the fourth item. The

definition of effect or potential effect for

financial audits, as found in Chapter 4.18

of the Yellow Book, states: “The effect is a

clear, logical link to establish the impact or

potential impact of the difference between

the situation that exists (condition), and the

required or desired state (criteria). The effect

or potential effect identifies the outcomes or

consequences of the condition. When the au-

ditors’ objectives include identifying the ac-

tual or potential consequences of a condition

that varies (either positively or negatively)

from the criteria identified in the audit, ‘ef-

fect’ is a measure of those consequences.

Effect or potential effect may be used to

demonstrate the need for corrective action in

response to identified problems or relevant

risks.”

One of my audit directors defined the ef-

fect as the “Who cares?” statement. We con-

sidered it the hook in the report, the element

most likely to get attention and make folks

see the relevance of the finding.

If we could not come up with a compel-

ling effect, we would often drop the finding.

We didn’t want to bore our readers with is-

sues that we couldn’t even drum up interest

in inside our own office.

For example, let’s say an auditor is writing

a client up for not doing cash reconciliations

for a major grant for the past six months.

Here are some potential effects:

• The cash balance is misstated in the

general ledger.

• The cash balance is misstated in the

financial report.

• There is a potential for fraud.

• The client will lose the grant.

• The client has no idea what its cash po-

sition is.

• Errors and omissions could go

undetected.

• The client has bounced 15 checks and

incurred $625 in bank fees.

Which One Is Best?

Well, the first way an auditor eliminates

potentially boring effects and concentrates

on the real hook is to take out anything that

would be of interest only to auditors or ac-

countants.

I would say the first bullet would

give most accountants fits. How can they live

with a misstated cash balance in the general

ledger! But to most people, that would be a

major yawner. If the final user of the audi-

tor’s report is auditors or accountants, the

auditor should take this approach, but usually

the audit’s final reader is a board or managers

who could care less about the accuracy of the

general ledger. I would eliminate the second

bullet using similar reasoning.

Although not as boring, the fraud effect is

extreme. In general, I try to stay away from

the word fraud because it packs an emotional

wallop. It’s like the fable of the boy who

cried wolf. Twice he cried that his sheep

were being eaten by a wolf and the towns-

people ran to his aid, even though there was

no wolf. The third time, there was a wolf, but

the townsfolk refused to come. The wolf ate

the sheep and the boy! Auditors shouldn’t cry

fraud, unless they mean it.

And on that note, auditors should not put

mild threats in their findings, such as “If you

continue to act like this, you will lose your

grant.” I have seen heinous actions go unpun-

ished by the federal government, and doubt

a grantor agency would revoke an award be-

cause a grantee didn’t do cash reconciliations

for six months. Auditors should save this idle

threat for the big stuff.

Next, auditors should eliminate effects

that are vague and bureaucratic. The problem

See

Audit Effect

, p. 

Leita Hart-Fanta, CPA,

CGFM is the author of

“The Risk Assessment

SASs,” and has been

teaching Yellow Book

standards for 10 years.

During her five years

with the Texas State

Auditor’s Office, she

acted as both an auditor

and a communications

specialist. Hart-Fanta

led the team that

produced a national

award-winning report

summarizing the

financial condition of the

state. She is a certified

public accountant and

a certified government

financial manager and

serves on the conference

planning committees

of the local chapters of

the Institute of Internal

Auditors and the Texas

Society of CPAs. The

views expressed in

this article are the

author’s own and do not

necessarily reflect the

view of the

Single Audit

Information Service

.