Defense Primer: Understanding the Process for Auditing the Department of Defense Page: 2 of 2
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Defense Primer: Understanding the Process for Auditing the Department of Defense
including certain evaluation tools created specifically for
federal government entities.
Types of Audit Opinions
Auditors form audit opinions by first examining the types
of risks an organization might face and the types of controls
that exist to mitigate those risks. Once the risks and controls
to mitigate those risks have been determined, the auditors
will examine the supporting evidence and determine if
management is presenting the financial statements fairly in
all material respects. Although many entities in the federal
government will usually receive an unqualified opinion, the
auditor may express other types of opinions based on the
circumstances. There are four different types of audit
opinions an auditor may express:
Unqualified Opinion. An unqualified opinion states that the
financial statements present fairly, in all material respects,
the consolidated balance sheets, the related consolidated
statements of net cost and changes in net position, the
combined statements of budgetary resources, and the
related notes to the consolidated financial statements in
accordance with GAAP. This is the opinion expressed in
the standard report. In certain circumstances, explanatory
language might be added to the auditor's standard report,
while not affecting the auditor's unqualified opinion on the
Qualified Opinion. A qualified opinion states that, except
for the effects of the matter(s) to which the qualification
relates, the financial statements present fairly in all material
respects in conformity with GAAP.
Adverse Opinion. An adverse opinion states that the
financial statement(s) do not present fairly in accordance
Disclaimer of Opinion. A disclaimer of opinion states that
the auditor does not express an opinion on the financial
statements. The auditor's report should give all of the
substantive reasons for the disclaimer. Some of the reasons
for a disclaimer of opinion include, financial statements not
conforming to GAAP and financial management and feeder
systems that are unable to provide sufficient evidence for
the auditor to express an opinion.
Limitation of Audits
Independent audit opinions do not fully guarantee that
financial statements are presented fairly in all material
respects, but provide reasonable assurance for the following
" Auditors use statistical methods for random sampling
and look at only a fraction of economic events or
documents during an audit. It is cost- and time-
prohibitive to recreate or sample all economic events.
" Some line items on the financial statements involve
subjective decisions or a degree of uncertainty as a
result of using estimates.
" Audit procedures cannot eliminate potential fraud,
though it is possible an auditor may find fraud during
the audit process.
Considerations for Congress
The United States government is currently unable to receive
an unqualified opinion on its unitary Financial Report of the
United States Government since agencies with significant
assets and budgetary costs such as the DOD, Department of
Housing and Urban Development, and Railroad Retirement
Board each received a disclaimer of opinion on their
FY2017 financial statements.
DOD is not generally expected to receive an unqualified
opinion on its first-ever, agency-wide audit in FY2018;
many organizations do not receive an unqualified audit
opinion during the initial audit. Instead, it is anticipated that
the November 2018 audit report will identify areas for
corrective action, help inform DOD decision-making, and
reveal needed process improvements.
The Department's assets total more than $2 trillion,
making this likely the largest financial audit ever
undertaken. Along with sheer size, there exists
significant complexity. However, these are not reasons
to delay the audit; they are reasons to begin. Where
we find problems, we will also find opportunities.
Remediating audit findings is at the center of our
financial improvement strategy."
David L. Norquist, Under Secretary of Defense
As an organization improves its financial reporting process,
it can achieve an unqualified opinion if it dedicates
sufficient resources and management focus to the effort.
Congress may consider reviewing the results of the FY2018
DOD audit and using the findings to enhance oversight of
DOD's remediations. Steps could include implementation
of process improvements, investments in information
technology systems, and changes in accounting practices.
CRS Report R44894, Accounting and Auditing Regulatory
Structure: U.S. and International, by Raj Gnanarajah
CRS In Focus IF10701, Introduction to Financial Services:
Accounting and Auditing Regulatory Structure, U.S. and
International, by Raj Gnanarajah
Office of the Under Secretary of Defense (Comptroller)/
Chief Financial Officer, Financial Improvement and Audit
Readiness (FIAR) Plan Status Report, November 2017
Office of the Under Secretary of Defense (Comptroller)/
Chief Financial Officer, Defense Budget Overview, Fiscal
Year 2019 Budget Request, February 13, 2018
U.S. Government Accountability Office, High-Risk Series,
GAO-17-317, February 15, 2017, p. 282
Moshe Schwartz, firstname.lastname@example.org, 7-1463
Raj Gnanarajah, email@example.com, 7-2175
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Schwartz, Moshe & Gnanarajah, Raj. Defense Primer: Understanding the Process for Auditing the Department of Defense, report, June 26, 2018; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc1213109/m1/2/?q=%22executive%20departments%22: accessed March 18, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.