Abstract: Gives examples of a number of organizations, committees, and commissions which have

promoted both internal auditing and audit committees during the past two decades. Explores the
need for a close working relationship between the internal auditor and the audit committee.
Examines: (1) the evolution of both internal auditing and audit committees; (2) the Treadway
Commission recommendations regarding the importance and role of audit committees and
internal auditors; (3) ways in which internal auditors can work with audit committees; and (4)
benefits gained from this relationship. Shows how, recently, internal auditors have been
transformed from a financial enforcer to a respected member of the management decision-
making process, and audit committees have also assumed more oversight responsibilities in the
areas of financial reporting and internal control. Thus, a close and effective working relationship
between the audit committee and the internal auditor will be beneficial not only to the company
which they serve but also to society as a whole.

Reporting Auditors' Compliance with GAGAS

5.05 When auditors comply with all applicable GAGAS requirements, they should
include a statement in the auditors' report that they performed the audit in accordance
with GAGAS. (See paragraphs 1.12 and 1.13 for additional requirements on citing
compliance with GAGAS.)
5.06 An audited entity receiving a GAGAS audit report may also request auditors to
issue a financial audit report for purposes other than complying with requirements for a
GAGAS audit. For example, the audited entity may need audited financial statements to
issue bonds or for other financing purposes. GAGAS do not prohibit auditors from
issuing a separate report conforming only to AICPA or other standards.

Reporting on Internal Control and Compliance with

Laws, Regulations, and Provisions of Contracts or
Grant Agreements
5.07 When providing an opinion or a disclaimer on financial statements, auditors must
also report on internal control over financial reporting and on compliance with laws,
regulations, and provisions of contracts or grant agreements.
5.08 Auditors should include either in the same or in separate report(s) a description of
the scope of the auditors' testing of internal control over financial reporting and
compliance with laws, regulations, and provisions of contracts or grant agreements. If
the auditors issue separate reports, they should include a reference to the separate
reports in the report on financial statements. Auditors should state in the reports
whether the tests they performed provided sufficient, appropriate evidence to support an
opinion on the effectiveness of internal control over financial reporting and on
compliance with laws, regulations, and provisions of contracts or grant agreements. The
internal control reporting standard under GAGAS differs from the objective of an
examination of internal control in accordance with the AICPA Statement on Standards
for Attestation Engagements (SSAE), which is to express an opinion on the design or
the design and operating effectiveness of an entity's internal control, as applicable. To
form a basis for expressing such an opinion, the auditor must plan and perform the
examination to obtain reasonable assurance about whether the entity maintained, in all
material respects, effective internal control as of a point in time or for a specified period
of time.
5.09 When auditors report separately (including separate reports bound in the same
document) on internal control over financial reporting and compliance with laws and
regulations and provisions of contracts or grant agreements, they should state in the
financial statement audit report that they are issuing those additional reports. They
should include a reference to the separate reports63 and also state that the reports on
internal control over financial reporting and compliance with laws and regulations and
provisions of contracts or grant agreements are an integral part of a GAGAS audit and
important for assessing the results of the audit. If auditors issued or intend to issue a
management letter, they should refer to that management letter in the reports.

Reporting Deficiencies in Internal Control, Fraud,

Illegal Acts, Violations of Provisions of Contracts or
Grant Agreements, and Abuse
5.10 For financial audits, including audits of financial statements in which auditors
provide an opinion or disclaimer, auditors should report, as applicable to the objectives
of the audit, and based upon the audit work performed, (1) significant deficiencies in
internal control, identifying those considered to be material weaknesses; (2) all
instances of fraud and illegal acts unless