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Quarterly: Winter 2019 - Harriet Richardson

Meeting the 2018 yellow book competency and cpe requirements


By Harriet Richardson

Got CPE? We all get Continuing Professional Education (CPE) because we know the Yellow Book requires it, but are we getting the right CPE? The 2018 Generally Accepted Government Auditing Standards (“GAGAS” or “Yellow Book”) has been out for over a year now, and we were just able to start implementing it in July. Hopefully, most of you have dug through it enough now to understand the many changes in it, including key changes regarding auditor competence and continuing professional education (CPE). This article is to help you understand those requirements, the interrelationship between them, and how to apply them.

The 2018 Yellow Book more closely links the relationship between competence and CPE by putting them in their own chapter. The CPE revisions clarify and streamline application guidance that was previously in the Government Accountability Office’s (GAO) separate publication, Government Auditing Standards: Guidance on GAGAS Requirements for Continuing Professional Education, but not applicable to the 2018 Yellow Book).

 

COMPETENCE

Competence is an auditor’s knowledge, skills, and abilities to perform their assigned work. The audit organization’s management must assign auditors who collectively possess the technical knowledge, skills, and experience necessary to be competent for the type of work being performed before beginning work on an audit. It must also assign individual auditors who possess the competence needed for their assigned roles on the engagement.

The application guidance helps us understand what roles an auditor can be assigned based on the difficulty of the work to be performed and the auditor’s level of proficiency. As shown in the table below, the descriptions are generic enough that they can be applied within any audit organization regardless of the job titles used for the actual positions within the organization.

 

Auditor Job Level

Role

Difficulty of Work

Auditor Proficiency

Nonsupervisory

Plan or perform engagement procedures

Low levels of ambiguity, complexity, and uncertainty

Basic

Supervisory

Plan engagements, perform engagement procedures, or direct engagements

Moderate levels of ambiguity, complexity, and uncertainty

Intermediate

Partners or Directors

Plan engagements, perform engagement procedures, or direct or report on engagements

May review engagement quality, sign report, or both

High levels of ambiguity, complexity, and uncertainty

Advanced

 

Competence is obtained from a combination of the education and experience necessary for the assigned role and type of work being performed and is not necessarily measured by years of audit experience. Rather, knowledge, skills, and abilities may be acquired through prior experience, completing CPE, or obtaining degrees or certifications related to the subject matter or type of engagement.

The application guidance also defines the different types of work for each role in a GAGAS engagement:

 

Planning

  • Determining engagement objectives, scope, and methodology
  • Establishing audit criteria
  • Coordinating the work of other audit organizations
  • Specifically excludes auditors whose role is limited to gathering information used in planning the engagement

Directing

  • Supervising others who are involved in accomplishing the engagement objectives
  • Reviewing work to determine if those objectives were met

Performing Engagement Procedures

  • Performing the tests and procedures necessary to accomplish engagement objectives in accordance with GAGAS

Reporting

  • Determining the report content and substance
  • Reviewing reports to determine if engagement objectives have been accomplished
  • Reviewing reports prior to issuance to determine that evidence supports the report’s technical content and substance
  • Signing the report

 

Specialists

The engagement team is required to determine that specialists assisting on a GAGAS engagement are qualified and competent in their areas of specialization. Specialists are individuals with special skill or knowledge in fields other than accounting or auditing. The initial evaluation of the specialist’s qualifications and competence may need to be reconsidered as the engagement progresses. Specialists’ competence relates to qualifications such as:

  • Professional certifications

  • Reputation

  • Previous work in the subject matter

  • Knowledge of technical performance, professional, or industry standards in the specialist’s field

  • Ethical standards and membership requirements of a professional body or industry association

  • Accreditation standards of a licensing body

  • Legal or regulatory requirements

 

CONTINUING PROFESSIONAL EDUCATION (CPE)

The Yellow Book states, “Maintaining competence through a commitment to learning and development throughout auditors’ professional lives is an important element for auditors.” It requires auditors who plan, direct, perform engagement procedures for, or report on GAGAS engagements to develop and maintain their professional competence by completing at least 80 hours of CPE in every two-year period. Internal specialists who are part of the engagement team and perform work in accordance with the standards and information technology auditors are subject to the CPE requirements. However, internal specialists who are not involved in planning, directing, performing engagement procedures, or reporting on a GAGAS engagement and external specialists are not.

The operative words in the requirements are, “a commitment to learning and development throughout auditors’ professional lives” and “develop and maintain their professional competence.” The word “develop” is new in the 2018 Yellow Book to acknowledge that it is not sufficient to simply complete 80 hours of CPE. Auditors need to ensure the CPE they complete provides professional growth and development for the type of engagements they perform.

To determine appropriate subjects for individual auditors, consider the types of knowledge, skills, abilities, and level of proficiency necessary for auditors to be competent for their assigned roles and probable future engagements. Continuously improving their knowledge, skills, and abilities should, in turn, make auditors competent to take on more complex roles and grow within the audit profession. Fulfilling the intent of the CPE requirements also helps to ensure that when an audit organization includes the GAGAS compliance statement in an audit, the auditors who conducted the audit possessed the competence for their assigned roles.

The basic requirements for obtaining 80 hours of CPE did not change in the 2018 Yellow Book:

  • 24 hours in subject matter directly related to the government environment, government auditing, or the specific or unique environment in which the audited entity operates

  • 56 hours in subject matter that directly enhance auditors’ professional expertise to conduct engagements

  • At least 20 of the 80 CPE hours should be completed in each year of the two-year period

The audit organization may exempt auditors from a portion of the CPE requirement for extended absences and extenuating circumstances. Auditors who charge less than 20 percent of their time annually to GAGAS engagements or only perform engagement procedures but do not plan, direct, or report on the engagement may be exempted from the 56-hour requirement, but not the 24-hour requirement. Nonsupervisory auditors who charge less than 40 hours annually to GAGAS engagements may be exempted from all CPE requirements. Reasons for specific exemptions should be documented.

It is up to the audit organization, not the individual auditor, to grant an exemption, but exemptions may not be granted due to workload, budget, or travel constraints. The combination of exemption restrictions and the stated purpose of CPE means, for example, that an auditor who is also a Certified Public Accountant but conducts only performance audits should not buy an inexpensive financial accounting CPE package based on having a limited office budget and count it as Yellow Book CPE.

The Yellow Book lists examples of CPE that can satisfy the 24‑hour and 56‑hour requirements. The GAO refined the lists of appropriate topics from what was in the GAO’s 2005 publication, Government Auditing Standards: Guidance on GAGAS Requirements for Continuing Professional Education, particularly regarding topics that qualify for the 24-hour requirement. Auditors use professional judgment, in consultation with appropriate officials in their audit organization, to determine appropriate CPE topics.

 

24-Hour Requirement

Three categories of CPE subject matter can qualify for the 24-hour requirement: the government environment, government auditing, and the government’s specific or unique environment.

  • The government environment includes general government topics, such as legislative policies and procedures; fraud, waste, and abuse in government; topics related to the nature of government, such as financing and operations; and economic or other conditions and pressures facing governments.

  • Government auditing includes topics related to standards used when auditing a government entity. This includes standards not specifically written for government but that are used when auditing in a specific government. For example, if a government entity or auditors in that government entity use COSO’s Internal Control - Integrated Framework, auditors can count CPE courses related to that framework toward the 24-hour requirement. If neither uses that framework, the CPE would count toward the 56-hour requirement.

  • The specific or unique environment in which the government entity operates relates to specific topics of audit engagements, such as permitting processes, homelessness, and public safety, as well as specific functions in a government entity, such as utilities, transit, health, human services, and land use.

The CPE content, not the sponsoring organization, the presenter, or whether the sponsor has been certified by the National Association of State Boards of Accountancy (NASBA), will determine if the CPE can count toward the 24-hour requirement. For example, although ALGA is an organization for government auditors, that does not mean that all training ALGA provides can count toward the 24-hour requirement.

 

56-Hour Requirement

Topics in this category are broad and include subjects that directly enhance auditor’s professional expertise to conduct GAGAS engagements. Examples include oral and written communication, information technology, economics, and social and political sciences, as well as any topics that satisfy the 24-hour requirement.

Many the topics under the 56-hour requirement can apply toward the 24-hour requirement, but only if they are tailored specifically toward the government environment, government auditing, or the specific or unique environment in which the government entity operates. For example, a general writing class would count toward the 56-hour requirement, but if it focuses on writing findings that meet the government auditing standards, it can count toward the 24-hour requirement. However, CPE may not be double-counted; if it is counted toward the 24-hour requirement, it cannot also be counted toward the 56-hour requirement, and vice-versa.

The application guidance gives examples of programs and activities that qualify and do not qualify for CPE hours under GAGAS. The “under GAGAS” part of that is important because CPE that may qualify for other purposes, such as state licensing bodies or professional organization certifications, may not necessarily count as Yellow Book CPE. For example:

  • An organization on NASBA’s registry may provide training that counts as CPE for a Certified Public Accountant’s state licensing requirements, but that same training might not count as Yellow Book CPE.

  • The Institute of Internal Auditors allows auditors to earn CPE for conducting an external quality control review, and although ALGA has encouraged the GAO to also allow CPE for this, the Yellow Book specifically excludes it as a qualifying CPE activity.

  • The Institute of Internal Auditors provides CPE credit for passing their professional certification examinations, but the Yellow Book specifically disallows CPE for sitting for those examinations. However, CPE is allowed for segments of review courses that that directly enhance auditors’ professional expertise to conduct GAGAS engagements.

Other examples of activities that do not qualify for CPE hours under GAGAS include on-the-job training, personal development training, training on the audit organization’s administrative operations, and business sessions at professional organization conferences. Although it is not a requirement, the 2018 Yellow Book recommends obtaining GAGAS-specific CPE during years in which the Yellow Book is revised “to assist auditors in maintaining the competence necessary to conduct GAGAS engagements.”

The methods that can be used to obtain CPE are broad and include internal training programs, conferences, seminars, webinars, audio conferences, accredited college and university courses, and correspondence courses. The primary requirement for a method to qualify is that it be a structured educational program with a learning objective designed to maintain or enhance the auditor’s competence to perform work in accordance with GAGAS or to address engagement objectives.

 

Measuring CPE

Prior to the 2018 Yellow Book revision, a full hour of CPE had to be earned before a fractional hour could be earned during the same learning activity. That limitation no longer exists, and a CPE hour may be granted for any combination of 50 minutes of participation in qualifying learning activities. This change allows auditors to earn CPE through a variety of methods, including nano learning programs, which offer training in 10-to-20-minute increments through electronic media. 1

The Yellow Book provides options for how to establish the two-year CPE periods, such as set two-year periods (e.g., 2020-2021, 2022-2023, etc.) or rolling two-year periods (e.g., 2020-2021, 2021-2022). The audit organization can choose the start date for each two-year period, such as January 1 for calendar-year periods, or July 1 for fiscal-year periods. The two-year periods do not have to be the same for every auditor in an organization, but it simplifies monitoring if they are.

The Yellow Book does not require auditors or audit organizations to report completed CPE to anyone, but it does require the audit organization to maintain documentation of each auditor’s CPE. Peer review teams review the documentation to ensure that the requirements have been met. The audit organization may delegate responsibility for documentation to individual auditors, but if it does, it should have procedures to ensure the documentation adequately supports the CPE hours earned. Suggested documentation includes:

  • Name of the organization providing the CPE

  • Title of the training program and field of study 2

  • Training dates

  • Number of CPE hours earned toward the 56-hour or 24-hour requirements

  • Evidence of completion, such as a certificate, course material, copy of published article, or written statement by discussion leaders

 

TECHNICAL ASSISTANCE IS AVAILABLE

If you have questions about CPE or other Yellow Book requirements, the GAO is always willing to help. They may not tell you specifically if a topic is appropriate for the CPE you need based on your audit organization and the government environment in which you operate, but they will direct you to the paragraphs in the Yellow Book where you can look for guidance. You can email your question to them at yellowbook@gao.gov, or call them at 202.512.9535. Asking questions is actually helpful to the GAO because they track all questions received and use them as a basis for determining where clarification is needed in future Yellow Book revisions.

 

RESOURCES


1 Nano learning programs are an acceptable learning method in the American Institute of Certified Public Accountants’ (AICPA) and NASBA’s The Statement on Standards for Continuing Professional Education (CPE) Programs, revised in August 2016. Those standards are available at https://www.nasbaregistry.org/__media/Documents/Others/Statement_on_Standards_for_CPE_Programs-2016.pdf.

2 NASBA’s Fields of Study document identifies 13 technical categories and 7 nontechnical categories, including detailed descriptions of each, for Certified Public Accountants to use when classifying their CPE and is available at https://www.nasbaregistry.org/__media/Documents/RegistryPolicies/FieldsOfStudy2016.pdf.

 

ABOUT THE AUTHOR

Harriet Richardson was recently appointed by California Governor Gavin Newsom to be the first Inspector General for BART. She is a long-time contributor to ALGA, including being a past president, chair of the Professional Issues Committee, and frequent presenter for ALGA conferences and webinars. She currently serves as a local government representative on the GAO's Government Auditing Standards Advisory Council.