About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

LOG IN
LOG IN


1 [1] (April 28, 2026)

handle is hein.crs/goveudc0001 and id is 1 raw text is: Congressionol Research Service nforming the IegisI9tive debate since 1914 Updated April 28, 2026 Defense Primer: FY2025 Department of Defense Audit Results The Chief Financial Officers Act of 1990 (P.L. 101-576) requires annual audits of financial statements for federal executive agencies, among other requirements. Under the act, audits of federal agencies are the responsibility of each agency's inspector general (IG), but the IG may contract with one or more external auditors to perform the audit. The Department of Defense (DOD)-which is using a secondary Department of War designation under Executive Order 14347 dated September 5, 2025-released the results of its eighth annual audit, for FY2025, on December 18, 2025. DOD received a disclaimer of opinion for the eighth time, meaning auditors could not express overall opinions on the financial statements because the financial information was not sufficiently reliable. DOD's IG coordinated the agency-wide financial audit, covering $4.65 trillion in reported assets and $4.73 trillion in reported liabilities. The agency-wide audit was conducted by independent public accounting (IPA) firms contracted by DOD IG. The IPAs conducted 26 separate entity-level audits within the DOD. The entities receiving disclaimers of opinion combined accounted for 43% of DOD's total assets and at least 64% of DOD's total budgetary resources. Additional statutory requirements related to DOD's audited financial statements are contained in Title 10 of the U.S. Code, Chapter 9A. Generally, the process and standards used to audit DOD are the same as those used to audit other federal agencies. Understanding why and how the DOD audit was conducted may help Congress evaluate the audit results and usefulness of the audit. Why an Audit? Government entities, including the U.S. government as a unitary entity, issue annual reports that present their current financial position and condition and discuss key financial topics and trends. An audit of the government's financial information provides accountability over government agencies' use of public resources to Congress, oversight bodies, and the public. Financial audits aim to provide reasonable assurance that the audited entities' financial statements are free of material misstatements whether caused by error or fraud. DOD audits can provide critical insight into (1) the reliability of the agency's financial data, (2) the efficiency and effectiveness of its internal operations, and (3) its compliance with statutes and financial regulations. With such information, Congress conducts oversight, and DOD could take steps to improve DOD's performance in these areas. DOD's financial management has been on the Government Accountability Office's (GAO's) High-Risk List (HRL) since 1995. The HRL identifies areas that might be subject to fraud, waste, abuse, and mismanagement. In addition to financial management, GAO's February 2025 HRL includes other aspects of DOD's operations that could affect financial management. How Are Audits Done? For each line item on a financial statement and notes to the financial statement, an auditor examines a sample of underlying economic events to determine the accuracy of the information reported. The auditor is expected to give an unbiased opinion on whether the financial statements and related disclosures are fairly stated in all material respects for a given period of time in accordance with generally accepted accounting principles (GAAP). While the Federal Accounting Standards Advisory Board sets the financial reporting and accounting standards for the federal government, GAO is responsible for establishing auditing standards for federal agencies, including for federal grant recipients in state and local governments. Material misstatement in financial reporting can be defined as information on a financial statement that could potentially affect the reader's decision or the conclusions drawn by a reader about the financial status of an agency. Auditing Standards GAO issues the generally accepted government auditing standards (GAGAS), also commonly known as the Yellow Book, which provides a framework for conducting federal government audits. Similar to the requirements in the private sector, GAGAS requires federal financial reports to disclose compliance with laws, regulations, contracts, and grant agreements that have a material effect on the entities' financial statements. GAGAS requires auditors to consider the visibility and sensitivity of government programs in determining the materiality threshold. Some organizations within the federal government use both external and internal auditors. Whether external or internal auditors perform the function, they are required to adhere to the standards established under GAGAS. In addition to examining financial information, an audit evaluates management's assertion of internal control over financial reporting. Audit of internal control includes audit of computer systems at the entity-wide, system, and application levels. GAGAS recommends using specific frameworks for internal control policies and procedures, including certain evaluation tools created specifically for federal government entities.