Posting entries that management has approved to the client’s trial balance and.Preparing certain line items or sections of the financial statements based on information in the client’s trial balance.Recording transactions for which management has determined or approved the appropriate account classification or posting coded transactions to a client’s general ledger.Paragraph 3.89 states that a firm providing other preparation of accounting records and financial statement services should document its evaluation of threats to independence - even if the firm concludes that the threats are not significant - for the following activities:
An independent party (from inside or outside the firm) performs a second review of the preparation of accounting records and financial statement work.Ī firm that cannot apply effective safeguards that reduce the threats to an acceptable level should not perform the preparation of accounting records and financial statement services during the period covered by the financial statements (or other subject matter of the engagement) and the period of professional engagement, as independence would be considered impaired.Separate personnel perform the audit and preparation of accounting records and financial statement services.Paragraph 3.69 provides examples of possible safeguards the firm could apply that could be effective for the potential threats that may exist: A firm that will apply effective safeguards should document the evaluation of threats to independence and describe the safeguards applied. Threats are at an acceptable level when a reasonable and informed third party would conclude that the firm could perform the audit without compromising its professional judgment. Under the Yellow Book’s conceptual framework approach (Paragraphs 3.26–3.63), when a firm encounters significant threats to independence, the firm should apply safeguards to eliminate or reduce the threats to an acceptable level.
Paragraph 3.88 states that when preparing a client’s financial statements in their entirety from the client’s trial balance or underlying accounting records, firms should conclude that significant threats to independence exist. If significant, the documentation should include a description of the safeguards applied to reduce any significant threat(s) to an acceptable level.Ĭlarifications appear in the following paragraphs of the new Yellow Book: A firm should also document the evaluation and how threats were effectively addressed.įor other permissible services involving preparation of accounting records and financial statements, firms should document the evaluation of the threat(s) to determine significance. While the 2011 rules required firms to consider these possibilities, the 2018 Yellow Book clarifies that preparing the financial statements in their entirety creates a significant threat to independence that should be reduced to an acceptable level by safeguards.
Unless specifically prohibited under the Yellow Book (see the sidebar “ Prohibited Bookkeeping Services”), a firm preparing accounting records and financial statements for an audit client creates threats to independence that either will or may require the firm to apply safeguards to maintain its independence. Independence standards appear in Paragraphs 3.17–3.108 of the revised Yellow Book. The revised standards (also known as the “Yellow Book,” or GAS) were restructured by the GAO to separate the standard’s requirements from the application guidance (see the sidebar “ Restructured Yellow Book”).
Government Accountability Office (GAO) in July 2018. Auditors performing engagements under generally accepted government auditing standards (GAGAS) are subject to new rules reinforcing the principles of transparency and accountability under revisions published by the U.S.