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What are the requirements for Yellow Book continuing professional education (CPE)?
Below we will address (1) who is subject to the Yellow Book CPE requirements and (2) what CPE classes satisfy those requirements.
First realize there are two rules:
Then you must answer:
The 24 Hour Rule – Who is Subject?
The answer: each auditor performing work on a Yellow Book audit; if as an auditor you work on the engagement, you are subject to this rule. If your audit report contains a Yellow Book report (usually located just after the notes to the financial statements), then that engagement is subject to generally accepted government auditing standards (GAGAS).
The 80-Hour Rule – Who is Subject?
The answer: Auditors who are involved in any amount of:
2. Directing, or
3. Reporting on GAGAS assignments
4. Those auditors who are not involved in those activities but charge 20 percent or more of their time annually to GAGAS assignments.
I interpret 1., 2. and 3. as mainly partners, managers, and in-charges. 4. relates to staff who support the audit.
So a staff person that does not meet the criteria in 4., but still works on a Yellow Book engagement must still satisfy the 24-hour rule (but not the 80-hour rule).
What Classes Qualify?
The Yellow Book states, “Determining what subjects are appropriate for individual auditors to satisfy both the 80-hour and the 24-hour requirements is a matter of professional judgment to be exercised by auditors in consultation with appropriate officials in their audit organizations.”
First we see that there is judgment in what qualifies (no bright yellow lines). But there are differences in the 80-hour rule and the 24-hour rule; otherwise, there would be only one category.
The 80-Hour Rule – Classes that Qualify
The 80-hour rule is broad (encompassing any CPE that enhances the auditor’s professional proficiency); so, for example, CPE classes about writing skills or using Excel would qualify. (Taxation CPE usually does not qualify unless the class addresses audit-related issues. For example, a 1040 tax class does not qualify.)
For those subject to the 80 hour rule, at least 20 hours of CPE should be taken in each year of the two-year period; a total of 80 hours is to be taken in the two-year period.
The 24-Hour Rule – Classes that Qualify
Each auditor performing work under GAGAS should complete, every 2 years, at least 24 hours of CPE that directly relates to government auditing, the government environment, or the specific or unique environment in which the audited entity operates.
The 24-hour rule is specific to:
(1) Government auditing,
(2) The government environment or
(3) To the specific or unique environment in which the audited entity operates.
Classes directly related to standards used in governmental auditing qualify; since GAGAS incorporates the AICPA statements on auditing standards (SASs) for field work and reporting, then audit classes that include a study of the SASs as they relate to the audit of your governmental entity would qualify. The same is true of pronouncements issued by the FASB. Single Audit classes also obviously qualify.
CPE dealing with Governmental Accounting Standards (GASB pronouncements) will qualify for the 24-hour rule since the class focuses on accounting standards in the government environment.
If you audit a county or a city, then most any CPE dealing with GASB pronouncements or governmental issues (e.g., sales taxes) will satisfy the 24-hour rule; also classes dealing with compliance with laws and regulations qualify.
Classes addressing economic conditions, fiscal trends, and pressures facing the governmental entity qualify.
Specific or Unique Environment in Which the Audited Entity Operates
Suppose you audit electric membership corporations (EMCs) subject to the Yellow Book; a CPE class about electrical supply grids qualifies. Or if you audit banks subject to Yellow Book requirements (e.g., FHA loans), then a CPE class dealing with lending qualifies. These classes address issues in the unique environment in which the audited entity operates.
An audit organization can adopt a standard 2-year period for all of its auditors to simplify administration of the CPE requirements.
Auditors are not allowed to carry over hours taken in excess of the 24-hour or 80-hour rule to the next reporting period.
Proration of Hours for New-Hires (or Those Newly Assigned to a Yellow Book Audit)
You will prorate the hourly requirements based on the remaining 6-month intervals in your two-year reporting period. For example, you hire someone on May 1, 2013 and your two-year cycle ends December 31, 2013. There is only one remaining 6-month period. If you are subject to the 24 hour rule, then you will multiply 25% (one six-month period divided by the four six-month periods in the two-year cycle) times 24 to compute the hours required: 6 hours.
Click here for the April 2005 GAO publication: Government Auditing Standards, Guidance on GAGAS Requirements for Continuing Professional Education.
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Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
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