The Government Accountability Office (GAO) issues Government Auditing Standards, commonly called generally accepted government auditing standards (GAGAS) or the Yellow Book. These standards support accountability for public resources through objective, evidence-based work performed by competent, independent auditors.
An engagement's scope and governing requirements follow the applicable law, regulation, contract, grant agreement, or voluntary adoption of GAGAS. Government ownership, private ownership, and receipt of federal funding are facts to investigate; none independently determines every engagement requirement.
- A state law can require a municipality's financial statement audit to follow GAGAS even without federal awards.
- A privately operated nonprofit can need a GAGAS engagement because its grant agreement expressly requires that work.
- A government-related engagement can follow another framework when neither a governing requirement nor voluntary adoption establishes GAGAS applicability.
GAGAS financial audits incorporate the financial auditing standards of the American Institute of Certified Public Accountants (AICPA) and add government requirements. An engagement's scope determines which additional requirements apply; the Yellow Book does not replace the underlying financial audit objective.
Common mistakes
- Wrong expenditure base. Comparing $1,100,000 received with the threshold ignores the controlling fact when only $850,000 was expended during the fiscal year.
- Largest program mistaken for only. Spending 95% of federal awards in one program does not satisfy the general one-program election when the remainder belongs to an unrelated program.
- Review scope overstated. A limited-assurance review of grant compliance is unavailable merely because the engagement letter cites GAGAS.
Bottom line
- GAGAS applicability arises from governing requirements or voluntary adoption, with engagement objectives determining the relevant standards and scope.
- Financial audits and examinations provide reasonable assurance, eligible reviews provide limited assurance, and agreed-upon procedures report findings without an assurance conclusion.
- Performance audits use sufficient appropriate evidence to answer selected economy, efficiency, effectiveness, internal control, compliance, or other performance questions.
- Ordinary GAGAS financial audits report on internal control and compliance work without automatically expressing opinions on those subjects.
Exam shortcut
The requested output identifies the engagement path. Financial statement fairness, a criteria-based opinion, a limited-assurance conclusion, specified findings, and operational results point to different engagement paths. The federal entry test precedes the scope choice. The auditor establishes entity eligibility and awards expended, then evaluates the fact that permits or blocks a program-specific election. In a same-facts comparison, the changed condition controls the analysis.
The full lesson (about 3,910 words, 26 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- I.C2
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