Numbered Letter 2002-07 (Revised)

Effective Date: October 7, 2002 (Revised Date December 19, 2024)

New GAO Independence Standards versus AICPA Independence Standards

The required audit standards that must be followed to satisfy the requirements of Act 2 PA 1968, as amended, are stated in section 7 of the act.

Sec. 7 (1) The state treasurer shall prescribe minimum auditing procedures and standards and these shall conform as nearly as practicable to generally accepted auditing standards established by the American Institute of Certified Public Accountants.

The required audit standards that must be followed to satisfy the requirements of audits of Federal financial assistance are contained in Government Auditing Standards (Yellow Book) issued by the United States General Accounting Office (GAO).  The independence standards in the Yellow Book are currently more restrictive than the AICPA independence standards, particularly as they relate to the provision of audit and non-audit services.

Unless specifically prohibited under the Yellow Book, 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.

According to the 2024 Yellow Book, Chapter 3 par.88 - Auditors should conclude that preparing financial statements in their entirety from a client-provided trial balance or underlying accounting records creates significant threats to auditors’ independence, and should document the threats and safeguards applied to eliminate and reduce threats to an acceptable level in accordance with paragraph 3.33 or decline to provide the services.

For more information, please visit GAO-24-106786, Government Auditing Standards 2024 Revision.

If you need further assistance, please contact our office at (517) 335-7469, or write Michigan Department of Treasury, LAFD, P.O. Box 30728, Lansing, Michigan 48909-8228 or email our office at TreasLocalGov@michigan.gov.