Yellow Book

The Yellow Book (also called Government Auditing Standards) is issued by the Government Accountability Office (GAO). These standards are also referred to as generally accepted government auditing standards (GAGAS).

It was updated in 2018 and provides guidance to auditors. As you would expect this guidance is for those that audit governmental entities. So are the Yellow Book requirements applicable to all governments? The answer is no. These types of audits are performed when:

  • Required by law or regulation
  • A Single Audit is performed
  • Grant agreements require it
  • Agreements require it (entities can engage an auditor to perform an audit in accordance with the Yellow Book)

Persons that use the Yellow Book include:

  • Certified Public Accountants
  • Federal inspectors general
  • Federal agency internal auditors
  • Municipal auditors
  • State auditors

A Yellow Book report is issued by the auditor in addition to the standard audit opinion. That report provides information about internal controls weaknesses and noncompliance with laws and regulations.

So if an auditor noted noncompliance regarding the use of special sales tax funds, he or she would report the noncompliance in the Yellow Book report or in an attached page. Additionally, significant deficiencies and material weaknesses in internal controls are reported here as well.

Auditors performing GAGAS engagements are subject to particular continuing education requirements. A total of 80 hours is required every two years with 24 of those hours in subject matter directly related to the governmental environment, government auditing, or the specific or unique environment in which the audited entity operates. The remaining 56 hours should be in areas that enhance the auditor’s professional expertise.

The Yellow Book provides information with regard to:

  • Ethics, independence, and professional judgment
  • Competence and continuing professional education
  • Quality control and peer review
  • Financial audit standards
  • Attestation engagement standards
  • Reviews of financial statements
  • Performance audits

AICPA peer reviewers examine these types of engagements to ensure that CPAs are performing them correctly. They are higher risk than standard audit engagements. Why? GAGAS has more requirements, so there is a greater chance that auditors might not perform the engagement in accordance with those standards.

The purpose of Government Auditing Standards is to enhance the quality of governmental audits.