Is your government or nonprofit subject to the Yellow Book requirements? If yes, and your audits are not performed accordingly, you might suffer the loss of grants or be in violation of state law. This is true even if you are not aware of the requirements.
What is the Yellow Book?
The Yellow Book is issued by the U.S. Government Accountability Office (GAO) and has requirements in addition to those required by the American Institute of CPAs (AICPA). Other names for the Yellow Book are generally accepted governmental auditing standards (GAGAS) and Government Auditing Standards (GAS).
Most audits performed in the United States are done in accordance with the AICPA audit standards (known as generally accepted auditing standards). Additionally, the Yellow Book requirements apply to many governments and nonprofits. Think of the Yellow Book requirements as a layer of audit standards that sits on top of the AICPA requirements.
When your entity is audited in accordance with the AICPA and the GAO audit standards, your audit package will contain two reports:
- An opinion regarding the fairness of the financial statements in accordance with generally accepted auditing standards
- A Yellow Book report that provides information about internal control findings and noncompliance with laws and regulations, if any
Yellow Book Applicability
So how do you know if the Yellow Book standards apply to your organization?
First, if you are a local government in Georgia, you must comply with Yellow Book requirements. Georgia Code section 36-60-8 states:
Whenever an audit of the financial affairs of a county or municipal corporation or of an officer, board, department, unit, or other political subdivision of a county or municipal corporation is made pursuant to a requirement…such audits shall be conducted in conformity with generally accepted government auditing standards.
City and county audits are annually submitted to the Georgia Department of Audits. Those state auditors review governmental reports to see if the requisite GAGAS report is included and whether the report is properly presented.
Second, if your organization spends more than $750,000 in federal funds, your government or nonprofit is required to have a Single Audit. And if you are subject to Single Audit requirements, then you are also subject to Yellow Book requirements. In recent years, many Electric Membership Corporations (EMCs) have had storm damage requiring clean up. The federal government has provided federal funds to assist with those efforts. As a result, Single Audits have been required. Also, COVID-19 funds might trigger the need for future Single Audits (and Yellow Book audits).
Third, if your government or nonprofits receive grants, you might be subject to the GAGAS requirements. Grant agreements often contain Yellow Book compliance requirements. So, your organization can be subject to the Yellow Book requirements due to grant stipulations.
Fourth, debt agreements can trigger the need for Yellow Book compliance. Many EMCs must comply with the GAGAS standards due to Rural Utility Service (RUS) loan requirements. If your EMC has an outstanding loan due to RUS, then your organization must comply with the Government Auditing Standards.
Fifth, your organization can request that your audit be subject to the GAGAS standards. Your audit engagement letter can include this requirement even when a Yellow Book audit is not required by law, regulation, grant agreement, or debt agreement.
The above list is not comprehensive but highlights some of the more common Yellow Book triggers.
Not Sure About Yellow Book
If you are not sure about whether your entity is subject to the Government Auditing Standards, contact us. We will help you make that assessment.
Also, if you need a Yellow Book audit, we can assist you. Our firm does over one hundred Yellow Book audits annually. With over sixty CPAs, we are here to help.