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1 [1] (April 5, 2024)

handle is hein.crs/goveoxc0001 and id is 1 raw text is: Con gressios Informing the legi il Research Service itive debate since 1914 April 5, 2024 Defense Primer: FY2023 Department of Defense Audit Results The Chief Financial Officers Act of 1990 (CFO Act, P.L. 101-576) requires annual audits of financial statements for federal agencies. Under the CFO Act, audits of federal agencies are the responsibility of the agency's inspector general (IG), but the IG may contract with one or more external auditors to perform the audit. The Department of Defense (DOD) released the results of its sixth annual audit, FY2023, on November 15, 2023. DOD received a disclaimer of opinion, meaning auditors could not express an opinion on the financial statements because the financial information was not sufficiently reliable. The DOD's IG coordinated the agency-wide financial audit of DOD, covering $3.8 trillion in assets and $4.0 trillion in liabilities. The agency-wide audit was conducted by Independent Public Accounting (IPA) firms contracted by DOD IG. The IPAs conducted 29 separate audits within DOD. Generally, the process and standards used to audit DOD are the same as those used to audit other federal agencies. Understanding why and how the DOD audit was conducted can help Congress evaluate the audit results and usefulness of the audit. Why an Audit? Government entities, including the United States government as a unitary entity, issue annual reports that present their current financial position and condition, and discuss key financial topics and trends. An audit of the government's financial information provides accountability over government agencies' use of public resources to Congress, oversight bodies, and the public. Financial audits aim to provide reasonable assurance that the audited entity's financial statements are free of material misstatements whether caused by error or fraud. DOD audits can provide critical insight into (1) the reliability of its financial data; (2) the efficiency and effectiveness of internal operations; and (3) its compliance with statutes and financial regulations. With such information, DOD and Congress could take steps to improve DOD's performance in these areas. DOD's financial management has been on the Government Accountability Office's (GAO's) High-Risk list (HRL) since 1995. The HRL identifies areas that might be subject to fraud, waste, abuse, and mismanagement. In addition to the financial management, other aspects of DOD's operations that could affect the financial management are on the GAO's April 2023 HRL. How Are Audits Done? For each line item on a financial statement and notes to the financial statement, an auditor examines a sample of underlying economic events to determine the accuracy of the information reported. The auditor is expected to give an unbiased opinion on whether the financial statements and related disclosures are fairly stated in all material respects for a given period of time in accordance with Generally Accepted Accounting Principles (GAAP). While the Federal Accounting Standards Advisory Board (FASAB) sets the financial reporting and accounting standards for the federal government, GAO is responsible for establishing auditing standards for federal agencies, including for federal grant recipients in state and local governments. Material misstatement in financial reporting can be defined as information on a financial statement that could potentially affect the reader's decision or the conclusions drawn by a reader about the financial status of an agency Auditing Standards GAO issues the Generally Accepted Government Auditing Standards (GAGAS), also commonly known as the Yellow Book, which provides a framework for conducting federal government audits. Similar to the requirements in the private sector, GAGAS requires federal financial reporting to disclose compliance with laws, regulations, contracts, and grant agreements that have a material effect on the entities' financial statements. The GAGAS requires auditors to consider the visibility and sensitivity of government programs in determining the materiality threshold. Some organizations within the federal government use a hybrid of external and internal auditors. Whether external or internal auditors perform the function, they are required to adhere to the standards established under GAGAS. In addition to examining financial information, an audit evaluates management's assertion of internal control over financial reporting. Audit of internal control includes audit of computer systems at the entity-wide, system, and application levels. GAGAS recommends using specific frameworks for internal control policies and procedures, including certain evaluation tools created specifically for federal government entities. Types of Aud it Opinions Auditors form opinions by examining the types of risks an organization might face and the types of controls that exist to mitigate those risks. Once the risks and controls to mitigate those risks have been determined, the auditors will 0

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