1. Why Audit Quality is
Important to Auditees
Cam Matheny, CPA, CGMA
RCM Consulting LLC

2. Key Topics to be Covered
Importance of Having a Quality Audit
Auditee Factors Affecting Audit Quality
5 Steps to Improve Quality
BONUS Yellow Book Independence Update!

3. Importance of Having a Quality Audit
The public and other stakeholders place significant reliance on
governmental entities and not-for-profits organizations to
always act in an ethical manner and to take steps to ensure
the proper use of public funds.
If you are responsible for or take part in the process to
procure auditing services for your organization you have a vital
fiduciary responsibility to ensure that your audit is of the
highest quality.
Independent audits of organizations like yours, including your
financial statement and compliance audits (also commonly
referred to as Yellow Book audits if performed under
Government Auditing Standards and single audits when
performed under Office of Management and Budget Circular
A-133), are an important accountability mechanism.

4. Importance of Having a QualityAudit (Cont.)
These audits provide a form of assurance to your
management as well as regulators, taxpayers and donors that
your entity is in compliance with certain laws and regulations
governing the assistance you receive or programs in which you
participate.

5. Importance of Having a QualityAudit (Cont.)
Quality financial statement and compliance audits can help
you:
Fulfill your fiduciary responsibility;
Obtain assurance related to the financial integrity of
funded programs;
Identify possible non-compliance and other issues early
to avoid interruption of current funding;
Lower the risk of future non-compliance;
Build goodwill among taxpayers, donors and other key
stakeholders; and
Strengthen your ability to secure additional funding in
the future.

6. Auditor Factors AffectingAudit Quality
Taking the following factors in account collectively when
selecting an independent auditor will contribute to receiving a
quality audit:
Demonstration of the audit organization’s qualifications
in response to your request for proposal (RFP);
Experienced, qualified staff with appropriate technical
abilities, particularly with Yellow Book and single audits
if applicable to your audit engagement;
Extent of the audit organization’s practice with
organizations like yours (for example, governments or
not-for-profits);

7. Auditee FactorsAffectingAudit Quality (Cont.)
Taking the following factors in account collectively when
selecting an independent auditor will contribute to receiving a
quality audit (Cont.):
Results of the audit organization’s external peer review;
and
Participation by the audit organization in quality
improvement programs (for example, membership in the
AICPA Governmental Audit Quality Center).

8. 5 Steps to Improve Audit Quality
1. Make sure the audit organization has qualified,
knowledgeable staff with the right skills for your financial
statement, Yellow Book or single audits.
2. Grant your auditor access to all the necessary financial and
program records and be sure to identify all governmental
financial assistance and federal programs in which you
participate
3. Ensure that key staff personnel are available to your auditor.
4. Be actively involved – take the initiative to understand what
your auditor is doing and ask questions when you don’t.
5. Make the most out of the exit process –ask questions about
your auditor’s work, the audit opinion, and other
compliance reports.

9. BONUS!
Yellow Book Independence Update!
What is the Yellow Book? (Best to make sure everyone is on
the same page!)
Generally Accepted Government Auditing Standards (GAGAS) as
produced by the Government Accountability Office (GAO).
The standards apply to both financial and performance audits of
local government entities and non-profits subject to
governmental auditing standards.
Covers 5 general standards:
Independence
Due care
Continuing professional education (CPE)
Supervision
Quality control

10. BONUS!
Yellow Book Independence Update!
New Independence Language:
Auditors should assess and document whether management
possesses suitable skill, knowledge, or experience to over see
the non-audit service.
Do your auditors provide you with any non-audit services?
Preparation of financial statements and related notes.
Preparation of IRS Form 990 (For those of you organized as non-
profits)

11. BONUS!
Yellow Book Independence Update!
What are the major factor’s used in assessing management’s
SKILL, KNOWLEDGE, AND EXPERTISE?
Understanding of the nature of the service
Knowledge of the audited entity’s mission and operations
General business knowledge
Education
Position at the audited entity

12. BONUS!
Yellow Book Independence Update!
Sufficiency of SKILL, KNOWLEDGE, AND EXPERTISE may be
judged in part based on:
The ability of the identified client personnel to identify
material errors or misstatements in a non-audit service work
product (Would they know if the financial statements were
not prepared in accordance with Generally Accepted
Accounting Principals?)
The ability of the client with the sufficient background to
understand the nature and results of the non-audit service.
The ability of management to take responsibility and
understand the work.

13. BONUS!
Yellow Book Independence Update!
Client prepared material in poor condition may indicate the
client is not capable of taking responsibility for the service.
Significant audit findings and adjustments may also be
indicative of this issue.

14. BONUS!
Yellow Book Independence Update!
So tell us Cam, what in the world does that mean?
The auditor is not independent if management does not
possess the Skill, Knowldege, and Expertise to take
responsibility for the non-audit services.
The auditor can not perform your audit if they are not
independent.

15. WhyAudit Quality is Important toAuditees
Discussion/Questions

16. Helpful Links
Please go to the NADO website to download this presentation
and important links
Government Accountability Office – Government Auditing
Standards (Yellow Book)
http://gao.gov/products/GAO-12-331G
American Institute of Certified Public Accountants (AICPA) –
Audit Resource Center
http://www.aicpa.org/InterestAreas/GovernmentalAuditQuality/
Resources/AuditeeResourceCenter/Pages/AuditeeResourceCenter
.aspx
AICPA – Not-for-Profit Audit Committee Toolkit
http://www.aicpa.org/InterestAreas/BusinessIndustryAndGovern
ment/Resources/NotForProfitResourceCenter/Pages/AICPANot-
for-ProfitAuditCommitteeToolkitDownloads.aspx