Significant Changes Introduced by the 2018 Yellow Book

In July of 2018, the long-anticipated revision of the Government Accountability Office’s (GAO’s) Generally Accepted Government Auditing Standards (GAGAS), commonly referred to as The Yellow Book, was released. It provides auditors with professional qualification guidelines and generally accepted government auditing standards for performing audits, including reporting and quality control.

The 2018 Yellow Book includes significant changes designed to help government auditors at the Federal, state, and local levels produce high-quality audits that reflect competence, integrity, objectivity, and independence. Auditing delivers accountability and transparency of government programs to assure taxpayers that government funds are being used effectively and efficiently. The objective analysis and data that are produced by GAGAS audits are crucial to future decisions.

Each chapter of The Yellow Book covers requirements and guidance for specific areas. Chapter content and significant changes include:

Chapter 1: Foundation and Principles for the Use and Application of Government Auditing Standards

Explains engagements, auditors, audit organizations, engagements, and terminology of GAGAS.

  • Format – The chapters have been reorganized in the 2018 version. Each chapter now contains distinct requirements and application guidance, eliminating the need for a supplemental guidance appendix.

Chapter 2: General Requirements for Complying with Government Auditing Standards

Describes how auditors conduct engagements – identifying and applying GAGAS and other standards’ requirements for auditing and reporting.

Chapter 3: Ethics, Independence, and Professional Judgment

Provides fundamental ethical principles and independence standards with application guidance for auditors (and audit organizations) using professional judgment while conducting financial audits, attestation engagements, reviews of financial statements, and performance audits under GAGAS.

  • Auditor independence – The standards guide auditors who prepare the financial statements of audited entities whose services may impair their independence or pose a threat.
  • Attestation engagements – Updated standards apply to attestation engagements that end on or after 6/30/2020.

Chapter 4: Competence and Continuing Professional Education

Describes the competency and continuing professional education (CPE) requirements of GAGAS.

  • Competencies – The standards provide guidance for determining internal and external specialists, auditors, and engagement or audit team qualifications and competencies based on their levels of involvement.
  • Continuing Professional Education (CPE) – The standards provide examples of topics and subjects that qualify for CPE requirements and other modifications.

Chapter 5: Quality Control and Peer Review

Explains the requirements and guidance for quality control, assurance, and administration in addition to peer review planning, performing, and reporting for GAGAS.

  • Quality control – Multiple quality control requirements, including monitoring, are introduced in these standards.
  • Peer review – In addition to GAGAS peer review requirements for risk assessment, report ratings, and public access, audit organizations must also comply with their respective affiliated organization’s peer review requirements. If no affiliations exist, additional GAGAS requirements for peer review scope, intervals, written agreements, teams, and report content and responses apply.

Chapter 6: Standards for Financial Audits

Describes the requirements and guidance for financial audits under GAGAS and the American Institute of Certified Public Accountants’ (AICPA) Statements on Auditing Standards (SAS).

  • Waste – The standards provide guidance for identifying and addressing waste and abuse.

Chapter 7: Standards for Attestation Engagements and Reviews of Financial Statements

Provides requirements and guidance for conducting and reporting on attestation engagements and reviews of financial statements in compliance with GAGAS, AICPA Statements on Standards for Attestation Engagements (SSAE), and AICPA AR-C section 90 with references to the AICPA Code of Professional Conduct.

  • Financial statement reviews – Updated standards provide new requirements and application guidance for developing cause, licensing and certification, noncompliance, reporting GAGAS compliance, and distribution of reports. These changes apply to financial statement reviews that end on or after 6/30/2020.

Chapter 8: Fieldwork Standards for Performance Audits

Explains GAGAS fieldwork requirements and guidance for planning and performing performance audits that obtain sufficient evidence to support findings and conclusions of audit objectives.

  • Financial audits – Updated standards provide new requirement and application guidance for developing cause apply to financial audits that end on or after 6/30/2020.
  • Examination engagements – Updated standards provide new requirement and application guidance for developing cause apply to internal control of examination engagements.

Chapter 9: Reporting Standards for Performance Audits

Describes GAGAS reporting requirements and guidance for communicating performance audit results.

  • Performance audits – Specific guidance is provided for management assertions and situations where performance audit objectives that have significant internal control issues and begin on or after 7/1/2019.

The Yellow Book represents a framework of standards for performing high-quality audit work with competence, integrity, objectivity, and independence. These standards reinforce the principles of transparency and accountability, strengthening government audit framework to ensure that public resources are used responsibly and efficiently.

Do any of these items relate to your work? Be sure that you fully understand and can apply these requirements as soon as they are applicable. To review a detailed explanation of 2018 Yellow Book Updates, refer to one of these reliable resources:

Will you be attending an industry event soon? Stop by and visit us to learn how we can help you increase your knowledge of Federal financial managementGAGAS, and many other topics so you can accelerate your career advancement.

Written by:
Natalie Komitsky
Financial Management



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