Differences between GAAS & Governmental Auditing Standards
Audits can be a confusing business, and one common misunderstanding stems from the differences between GAAS and governmental auditing standards. The odds are, if you’re not an accountant or CPA, you haven’t given it too much thought. Others, however, wonder why two different sets of accounting standards exist and how they differ. Here’s a basic outline of both auditing standards and how they compare.
Governmental Auditing Standards (GAGAS)
General Accepted Governmental Auditing Standards (GAGAS) are usually called the Yellow Book and are a set of auditing standards that are set forth by the Government Accountability Office (GAO). CPA firms use Yellow Book standards when they are performing financial audits that include an A-133 “single audit.” A CPA or audit firm will also use the GAGAS when conducting performance audits used to evaluate the performance of a program or project.
Generally Accepted Auditing Standards (GAAS)
Generally Accepted Accounting Standards (GAAS) are also specific guidelines governing the preparation of financial statements. GAAS gives investors and other stakeholders the assurance that a company’s financial statements are consistent across the board. These guidelines also help investors to make sense of financial reports and to quickly and easily extract useful information from these reports.
GAAS vs. Governmental Auditing
The primary and most obvious difference between the two accounting standards is the type of organization that the audit is targeting; GAAS applies to private and public businesses, while GAGAS is used for government agencies and entities. Although both audit standards are similar in nature, another critical difference is the official bodies that govern them. GAAS auditing measures are governed by the Financial Accounting Standards Board (FASB), while the Governmental Accounting Standards Board defines standards for state and local government organizations, and the Federal Accounting Standards Advisory Board regulates the financial reporting standards for federal government agencies. Lastly, and most importantly, GAGAS standards implicitly “bake in” the idea of internal controls. Under GAAS standards, a lack of internal controls within a company will prompt additional audit testing to ensure compliance, while a lack of internal controls by GAGAS standards is unacceptable.
Because private and public businesses drastically outnumber the amount of government industries, the GAAS guidelines are better known and more commonly used. However, it’s also important to have a basic knowledge of Governmental Auditing as these are the rules that govern our public institutions. Whether your organization is a non-profit or privately held company looking for a bank loan, a publicly owned company needing assistance with creating required financial documents, or a local, state, or federal government agency needing auditing and assurance services, contact The Baird Audit Group today for immediate assistance. Reach us online or by phone at 706.855.9500.