FIRST AMENDMENT TO 1994 YELLOW BOOK

The U. S. General Accounting Office, instead of following its past practice of periodically revising Government Auditing Standards (the Yellow Book) in its entirety, has begun to issue amendments to the 1994 version. Amendment No. 1 issued in May 1999, "Documentation Requirements When Assessing Control Risk at Maximum for Controls Significantly Dependent Upon Computerized Information Systems," is effective for audits of periods ending on or after September 30, 1999.

It is thought that by using amendments, the process of keeping the Yellow Book current and up-to-date will be easier. Amendments present the section being revised in its entirety, as well as an appendix which lists the material that was changed or deleted. The Government Auditing Standards Internet page (www.gao.gov/govaud/ybk01.htm) contains a new electronic version of the Yellow Book, giving full effect to the amendment.

The effect of the amendment is to add to Government Auditing Standards a documentation requirement that goes beyond GAAS. It requires that the auditor in a financial statement audit under the Yellow Book must give specific information in the working papers when the decision is made to assess control risk at the maximum if the entity is significantly dependent upon computerized information systems. The auditor is required to address either the ineffectiveness of the design and operation of the controls or the reasons why it would be ineffective to test the controls.

The reason for the requirement is so that the auditor will document whether the decision was made as a matter of audit efficiency or because there were perceived weaknesses in computer controls. From the regulator's perspective, there is a big difference between the two reasons, and it is important to know why the choice not to rely on controls was made. The GAO also believes the documentation requirement will focus the auditor's attention on the nature of computer controls and whether some benefit might be obtained by a test of those controls.

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