Yellow Book & Government Audit Services
Yellow Book audit services in California for public agencies, special districts and grant-funded entities: GAGAS audits, GASB reporting and independence.
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Audits Built for Public Accountability
When public money is involved, the audit often has to meet a higher standard. Many governmental entities, and some nonprofits that administer government programs, must have their audits performed under Government Auditing Standards, issued by the U.S. Government Accountability Office (GAO) and commonly called the Yellow Book. RTN CPA provides Yellow Book audit services to California organizations and other eligible entities, subject to independence and engagement-acceptance requirements.
Our assurance practice specializes in nonprofit and governmental organizations, including grant-funded and mission-driven entities. Below, we explain what public sector auditing under GAGAS involves and how to prepare. For a broader overview, see our Nonprofit Auditing Services page.
What Is a Yellow Book Audit?
Government Auditing Standards, also known as generally accepted government auditing standards (GAGAS), are the standards GAO issues for auditors of government entities and of entities that receive government awards. GAGAS engagements provide information used for oversight, accountability, and transparency.
A Yellow Book audit is an engagement conducted under GAGAS, and the Yellow Book requirements reach beyond the engagement to the auditors and audit organization performing it:
- Independence, applied through a conceptual framework for identifying and addressing threats
- Competence and continuing professional education (CPE), including government-specific subject matter
- Quality management at the audit-organization level, supported by external peer review
- Additional fieldwork and reporting requirements that vary by engagement type
The 2024 revision. GAO's 2024 Yellow Book (GAO-24-106786) is effective for financial audits, attestation engagements, and reviews of financial statements for periods beginning on or after December 15, 2025, and for performance audits beginning on or after that date. Early implementation is permitted. For a government with a June 30 year-end, the fiscal year beginning July 1, 2026 is generally the first that must be audited under the 2024 revision.
Who May Need a Yellow Book Audit?
GAGAS applies when a law, regulation, contract, grant agreement, or policy requires it, or when it is voluntarily adopted. The Single Audit Act requires GAGAS for Single Audits of state and local governments and nonprofits, and state and local laws, debt agreements, and grants can impose it too.
Not every government-related engagement requires GAGAS, and public funding alone does not mean a nonprofit needs a Yellow Book audit. In California, local agencies and special districts also have state-law audit and reporting obligations that vary by entity type. Start with the document that creates the requirement and the deadline it sets.
How GAGAS Builds on Financial Audit Standards
For financial audits, GAGAS incorporates the AICPA's Statements on Auditing Standards by reference and adds its own requirements. A GAGAS audit therefore includes the work of an audit under generally accepted auditing standards plus steps such as:
- Evaluating whether corrective action has been taken on findings from previous audits
- Inquiring about investigations or legal proceedings affecting the period under audit
- Communicating required matters to those charged with governance, such as a board, council, or commission
- Developing findings around their criteria, condition, cause, and effect
Auditors may also find lower materiality levels appropriate, given public accountability and the visibility of government programs. For nonprofits that need a standard audit rather than a government audit, see our Financial Statement Audit Services page.
- Cities, counties, and other local governments
- Special districts, such as water, fire protection, and community services districts
- Joint powers authorities, housing authorities, and other public authorities
- Nonprofits whose government grants or contracts call for GAGAS
Governmental Accounting Considerations
State and local governments that follow generally accepted accounting principles (GAAP) report under standards set by the Governmental Accounting Standards Board (GASB); nonprofits follow GAAP set by the Financial Accounting Standards Board (FASB). Auditing standards and accounting frameworks are separate questions: a Yellow Book audit of a nonprofit still evaluates FASB-based statements, and some governments report under a special purpose framework, such as a regulatory or modified cash basis.
A required summary reconciliation explains the differences between the two, such as capital outlay, depreciation, and long-term debt. Governmental fund balances are classified as nonspendable, restricted, committed, assigned, or unassigned under GASB Statement No. 54. Government audits also commonly focus on pension and other postemployment benefit (OPEB) liabilities, leases, subscription-based IT arrangements, and whether component units are properly included in the reporting entity.
New for Many Governments: GASB Statement No. 103
GASB Statement No. 103, Financial Reporting Model Improvements, is effective for fiscal years beginning after June 15, 2025, which for a June 30 government is the year ending June 30, 2026. It changes the required content of management's discussion and analysis, requires separate presentation of unusual or infrequent items, defines operating and nonoperating items for proprietary funds, and requires budgetary comparison information as required supplementary information.
- Government-wide statements (statement of net position and statement of activities) use the economic resources measurement focus and accrual basis, so they report capital assets and long-term liabilities.
- Governmental fund statements use the current financial resources measurement focus and modified accrual basis, focusing on near-term resources. Proprietary and fiduciary funds use the economic resources measurement focus and accrual basis.
Internal Control and Compliance Reporting
A GAGAS financial statement audit produces more than the opinion on the financial statements. The auditor also reports on internal control over financial reporting and on compliance with laws, regulations, contracts, and grant agreements, whether or not problems were found. That report describes the scope of the testing and states whether it provided sufficient evidence to support opinions on internal control and compliance. Unless an engagement is designed to provide them, those opinions are not expressed.
Management remains responsible for the financial statements, internal control, and responses to findings. For engagements focused on specific grant or regulatory requirements, see our Compliance Audit Services page.
Auditor Independence Under the Yellow Book
GAGAS requires auditors to be independent of the audited entity in mind and in appearance, both for the period covered and throughout the engagement. Auditors apply a conceptual framework to identify threats to independence, such as self-review or management participation, evaluate their significance, and apply safeguards that eliminate the threats or reduce them to an acceptable level.
Nonaudit services receive particular attention. Before providing them, auditors must determine that management has designated an individual with suitable skill, knowledge, or experience to oversee the services. Some services, such as authorizing transactions, impair independence outright. Preparing financial statements in their entirety from a trial balance creates significant threats that must be documented and reduced with safeguards, or the service must be declined.
In practice, a government's finance team should plan to own its financial statements, schedules, and notes, and settle any request for auditor assistance during planning.
- Significant deficiencies and material weaknesses in internal control, reported as findings
- Noncompliance or fraud that is material to the financial statements
- The views of responsible officials, including planned corrective actions
Yellow Book Audit vs. Single Audit
Yellow Book refers to the standards an audit follows. A Single Audit is a federal requirement under 2 CFR Part 200, Subpart F, for non-federal entities that expend $1,000,000 or more in federal awards in a fiscal year beginning on or after October 1, 2024 ($750,000 for earlier fiscal years).
Every Single Audit must follow GAGAS, but it goes further: it adds reporting on the schedule of expenditures of federal awards (SEFA), testing of internal control over compliance for major programs, an opinion on major program compliance, and a schedule of findings and questioned costs. A GAGAS financial statement audit alone does not include that federal program work, and an organization can need a Yellow Book audit without needing a Single Audit. For federal award audits, see our Uniform Guidance & Single Audit Services page.
Our Yellow Book Audit Services in California
For Yellow Book engagements, our focus on nonprofit and governmental organizations shapes how we work:
Whether you need a GAGAS financial statement audit or other government audit services, every engagement is subject to independence and engagement-acceptance requirements, and any permissible nonaudit assistance is evaluated under GAGAS before it begins.
- Requirements first. We confirm which standards, framework, and reports the engagement must cover.
- Clear communication. We explain findings and new GASB requirements to finance staff, boards, and councils in plain English.
- Year-round responsiveness. We remain available between audits, within the limits independence rules set.
- Practical recommendations. We aim for control improvements that fit your staffing, systems, and budget.
Engagement Types Under GAGAS
GAGAS classifies engagements by their objectives, and the objective determines which standards apply.
- Government Financial Statement Audits: An opinion on whether the financial statements are fairly presented under the applicable framework. Under GAGAS, reporting also covers internal control over financial reporting and compliance with laws, regulations, contracts, and grant agreements.
- Other Financial Audits: Narrower audits, such as an opinion on a single financial statement or specific accounts, or an audit of compliance and internal control requirements for one or more government programs.
- Attestation Engagements and Reviews: Examinations, reviews, and agreed-upon procedures on a subject matter measured against suitable criteria, plus reviews of financial statements, which provide limited assurance rather than an audit opinion.
- Performance Audits: Objective analysis, findings, and conclusions on program effectiveness, economy, efficiency, internal control, or compliance, intended to help management and oversight bodies improve programs and accountability.
Preparing for a Government Audit
Preparation is management's responsibility, and it reduces delays and follow-up requests.
- 1. Confirm the audit requirements: Gather the statutes, grant agreements, contracts, bond documents, and oversight directives that require the audit. Note the required standards, reporting framework, report recipients, and filing deadlines.
- 2. Close and reconcile the books: Complete the year-end close and reconcile cash, investments, interfund balances, and grant receivables. Resolve old or unusual reconciling items before fieldwork begins.
- 3. Prepare supporting schedules: Update capital asset, long-term debt, lease, and subscription-based IT arrangement schedules, plus pension and OPEB information. Identify new GASB pronouncements effective for the year and gather what they require.
- 4. Organize governance records: Assemble board or council minutes, adopted and amended budgets, financial policies, major contracts, and procurement records for the period under audit.
- 5. Track prior findings: List prior audit findings and recommendations with their current status, since GAGAS auditors evaluate whether corrective action has been taken.
- 6. Own the financial statements: Designate a person with suitable skill, knowledge, or experience to oversee the financial statements, and review the draft statements, notes, MD&A, and reconciliations.
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Discuss Your Government Audit Requirements
Every Yellow Book engagement starts with the same questions: what requires the audit, which standards and reporting framework apply, and who will rely on the report. Contact RTN CPA to talk through your entity, fiscal period, and audit requirements.
Frequently Asked Questions
Does every government agency or publicly funded nonprofit need a Yellow Book audit?
No. GAGAS applies when a law, regulation, contract, grant agreement, or policy requires it, or when it is voluntarily adopted. Many governmental entities must follow it, and every federal Single Audit is performed under GAGAS. A nonprofit with government funding should review its agreements and any Single Audit requirement rather than assume a Yellow Book audit is needed.
When does the 2024 Yellow Book apply to our audit?
The 2024 revision applies to financial audits, attestation engagements, and reviews of financial statements for periods beginning on or after December 15, 2025, and early implementation is permitted. For a calendar-year entity, the first required year begins January 1, 2026. For a government with a June 30 year-end, it is generally the fiscal year beginning July 1, 2026.
Can our auditor prepare our financial statements?
Under GAGAS, an auditor preparing financial statements in their entirety from a trial balance creates significant threats to independence. The auditor must document safeguards that reduce those threats to an acceptable level or decline the service, and management remains responsible for the statements. Many entities prepare their own statements or obtain help from a provider other than their auditor.
Does a Yellow Book audit include an opinion on our internal controls?
Not ordinarily. A GAGAS financial statement audit includes a report on internal control over financial reporting and on compliance that describes the scope and results of the testing. Unless the engagement is designed to do so, it does not express an opinion on internal control effectiveness. Significant deficiencies and material weaknesses identified during the audit are reported as findings.
What should we look for when selecting a Yellow Book auditor?
Look for a licensed CPA firm whose signing CPA holds California attest authority, which requires at least 500 hours of attest experience. GAGAS auditors must complete 80 hours of CPE every two years, including 24 hours directly related to government auditing or the government environment. Audit organizations must obtain external peer reviews and, when requested, give their most recent peer review report to the party contracting for the audit.
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