GAO Issues Technical Amendments to 2018 Yellow Book

They may not be of significant substance to garner great attention from the audit community, but recent technical amendments to the Government Accountability Office’s (GAO) Generally Accepted Government Auditing Standards (GAGAS), also known as the Yellow Book, are somewhat noteworthy.

The Yellow Book provides standards and guidance for auditors and audit organizations, outlining the requirements for audit reports, professional qualifications for auditors, and audit organization quality control. Auditors of federal, state and local government programs use these standards to perform their audits and produce their reports. GAGAS was most recently updated in 2018, and is effective for financial audits, attestation engagements and reviews of financial statements for periods ending on or after June 30, 2020, and for performance audits beginning on or after July 1, 2019.

GAO made changes to eight paragraphs within the 2018 Yellow Book, and has listed them in a special chart at the beginning of its updated version comparing both the 2018 language and the revised language. The first three changes affect standards referring to government services and programs under paragraphs 1.02, 1.03 and 1.23, now adding that public services and public resources under programs should be provided equitably.

The standard at paragraph 8.42 also has been rewritten for improved clarity. It now states: “If internal control is significant to the audit objectives, auditors determine which of the five components of internal control are significant to the audit objectives, as all components of internal control are generally relevant, but not all components may be significant to the audit objectives. This determination can also identify the underlying principles, control objectives or specific controls that are significant to the audit objectives. Determining which internal control components, principles, control objectives and/or specific controls are significant to the audit objectives is a matter of professional judgment.” Also in that chapter, paragraph 8.49 has been updated to read: “If internal control is determined to be significant to the audit objectives, auditors should plan and perform audit procedures to assess internal control to the extent necessary to address the audit objectives.”

Two paragraphs in Chapter 9 also were revised. Paragraph 9.30 now states; “When reporting on the scope of their work on internal control, auditors should identify the scope of internal control assessed to the extent necessary for report users to reasonably interpret the findings, conclusions, and recommendations in the audit report.” Also, paragraph 9.32 provides more detail to explain that: “Auditors may identify the control components, underlying principles, control objectives or specific controls assessed in describing the scope of their work on internal control. Auditors may also identify the level of internal control assessment performed, as discussed in paragraph 8.50. Control components and underlying principles that are not considered significant to the audit objectives may be identified in the scope if, in the auditors’ professional judgment, doing so is necessary to preclude a misunderstanding of the breadth of the conclusions of the audit report and to clarify that control effectiveness has not been evaluated as a whole. Auditors may also identify and describe the five components of internal control so that report users understand the scope of the work within the context of the entity’s internal control system.”

Auditors should take note of the revised provisions as they rely an the Yellow Book for future audit engagements.

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