A Yellow Book audit is an audit performed in accordance with Generally Accepted Government Auditing Standards, commonly called GAGAS. These standards are issued by the U.S. Government Accountability Office and are designed to promote accountability, transparency, independence, and quality in audits involving government entities and public funds.
Not every organization that receives government funding automatically needs a Yellow Book audit. The requirement may come from a law, regulation, grant agreement, contract, government agency, or pass-through entity.
A Yellow Book audit is also required as part of a Single Audit. For fiscal years beginning on or after October 1, 2024, a nonfederal entity that expends $1 million or more in federal awards generally must undergo a Single Audit.
However, an organization that spends less than $1 million in federal awards may still need a Yellow Book audit if its funding agreement or another applicable requirement calls for an audit conducted under GAGAS.
What Is the Yellow Book?
The Yellow Book is the common name for the Government Auditing Standards published by the U.S. Government Accountability Office. These standards explain how auditors should plan, perform, document, and report on audits involving government entities, programs, activities, and organizations that receive government awards.
The Yellow Book is not a single type of audit. It is a set of professional standards that can apply to several kinds of audit and assurance engagements.
An engagement performed under the Yellow Book may include additional requirements beyond those found in a standard financial statement audit. These requirements address areas such as:
- Auditor independence
- Ethical conduct
- Professional judgment
- Auditor competence and continuing education
- Quality management within the audit firm
- Audit documentation
- Internal control
- Compliance with laws, regulations, contracts, and grant agreements
- Reporting identified findings
A standard financial statement audit primarily provides an opinion on whether an organization’s financial statements are fairly presented. A Yellow Book financial audit also includes additional attention to internal control and compliance matters relevant to the audit objectives.
When Is a Yellow Book Audit Required?
There is no universal dollar threshold that automatically triggers every Yellow Book audit. Instead, the requirement generally comes from the law, award, agreement, or government program governing the organization’s funding.
The following are some of the most common situations in which a Yellow Book audit may be required.
1. The Organization Requires a Single Audit
A Single Audit is required when a state, local government, Indian Tribe, institution of higher education, or nonprofit organization expends $1 million or more in federal awards during its fiscal year.
The $1 million threshold applies to fiscal years beginning on or after October 1, 2024. The previous threshold was $750,000.
It is important to calculate federal awards expended, not simply the amount awarded, received, or remaining in the organization’s bank account.
A Single Audit must be performed under both:
- The Uniform Guidance in 2 CFR Part 200, Subpart F
- Generally Accepted Government Auditing Standards, or the Yellow Book
Therefore, every Single Audit includes Yellow Book requirements, but not every Yellow Book audit is a Single Audit.
Organizations approaching the threshold should review their federal expenditures before year-end and consult with an auditor early. Learn more about the current Single Audit requirements.
2. A Grant or Funding Agreement Requires GAGAS
An organization may be required to undergo a Yellow Book audit even when it spends less than $1 million in federal awards.
Federal, state, and local grant agreements may require the recipient or subrecipient to obtain an audit performed in accordance with GAGAS. The agreement may require:
- An organization-wide financial statement audit
- An audit of a particular program
- A compliance audit
- An attestation engagement
- Agreed-upon procedures related to specific requirements
Organizations should review the audit provisions in every grant and subaward agreement instead of relying solely on the Single Audit threshold.
3. State or Local Law Requires It
State agencies, municipalities, counties, school districts, and other public entities may be subject to audit requirements established by state statutes, local ordinances, regulators, or oversight agencies.
These requirements vary by jurisdiction. A state or local requirement may call for a Yellow Book audit regardless of the amount of federal funding involved.
Organizations receiving both federal and state funding should evaluate each source separately. Meeting the federal Single Audit requirements does not necessarily satisfy every state or local audit obligation.
4. A Government Contract Requires It
Some government contracts require the contractor to submit audited financial statements, compliance reports, or other information prepared under GAGAS.
Receiving payments under a government contract does not automatically create a Single Audit requirement. Under the Uniform Guidance, payments received for providing goods or services as a contractor are generally treated differently from federal awards received as a recipient or subrecipient.
However, the contract itself may still require a Yellow Book audit or another form of independent examination.
Determining whether an organization is acting as a contractor or subrecipient is therefore an important part of assessing its audit requirements.
5. A Loan or Debt Agreement Requires It
Government-backed loans, bond agreements, lender requirements, or other debt arrangements may require audited financial statements prepared under Yellow Book standards.
The organization should review the full agreement, including amendments and compliance provisions, to identify:
- The required type of audit
- The applicable auditing standards
- Submission deadlines
- Reporting requirements
- Required recipients of the report
6. A Government or Pass-Through Agency Requires Additional Oversight
A federal agency, state agency, or pass-through entity may establish additional audit or monitoring requirements for a particular award.
This may happen because of:
- The terms and conditions of the award
- Program-specific regulations
- The organization’s risk classification
- Previous audit findings
- Concerns identified during grant monitoring
- Additional conditions imposed on the award
These requirements should be evaluated separately from the federal Single Audit threshold.
Does Receiving a Government Grant Automatically Require a Yellow Book Audit?
No. Receiving a government grant does not automatically mean an organization needs a Yellow Book audit.
The organization should examine:
- Whether the funds are federal, state, local, or a combination.
- Whether it is a recipient, subrecipient, or contractor.
- How much in federal awards it expended during the fiscal year.
- What the grant agreement says about audits.
- Whether a state, local, agency, or program-specific requirement applies.
- Whether another agreement, such as a loan covenant, requires GAGAS.
If the agreement states that the audit must follow “Government Auditing Standards,” “Generally Accepted Government Auditing Standards,” or “GAGAS,” it is referring to the Yellow Book.
Yellow Book Audit vs. Single Audit
Yellow Book audits and Single Audits are closely related, but they are not interchangeable.
| Area | Yellow Book Audit | Single Audit |
|---|---|---|
| Governing standards | Generally Accepted Government Auditing Standards | Uniform Guidance and Generally Accepted Government Auditing Standards |
| Primary authority | U.S. Government Accountability Office | Single Audit Act and 2 CFR Part 200, Subpart F |
| Trigger | Law, regulation, grant, contract, agency requirement, or other agreement | $1 million or more in federal awards expended during the fiscal year |
| Scope | Depends on the engagement and the applicable requirement | Financial statements and compliance for selected major federal programs |
| Applicable organizations | Government entities and other organizations subject to GAGAS | Certain states, local governments, Tribes, higher education institutions, and nonprofits |
| Universal dollar threshold | No | Yes |
| Federal Audit Clearinghouse submission | Not always | Generally required |
The most important distinction is that the Yellow Book establishes auditing standards, while the Single Audit is a specific audit required under federal law.
An organization may need:
- A standard financial statement audit
- A Yellow Book financial audit
- A Single Audit
- A program-specific audit
- Another attestation or compliance engagement
The correct answer depends on the organization’s funding, expenditures, classification, and applicable agreements.
