The 2024 Yellow Book Released
Changes are on the horizon for all government auditors and organizations that receive government funding, impacting the standards audit organizations are required to follow. On February 1, 2024, the U.S. Government Accountability Office (GAO) released an updated version of its Yellow Book (the 2024 Yellow Book) that will eventually replace the current version (the 2018 Yellow Book).
What is the Yellow Book?
The Yellow Book is a set of standards and requirements for auditors who perform audits of government entities, as well as audits for entities that receive government awards. These Yellow Book audits are standard in the nonprofit industry where funds are received directly from the federal government, funds are disbursed from a state agency, or funds are passed down from another nonprofit organization. The Yellow Book aims to ensure high-quality audit work is completed with greater accountability to auditors and audit organizations around concepts such as integrity, objectivity, and independence. It also includes requirements for competency and continuing professional education, as well as reporting of audit results. The GAO first introduced these standards back in 1972, and they have gone through numerous revisions and updates since that time, with the last time occurring in 2018.
What has Changed?
The changes included in the 2024 Yellow Book focus and enhance how an audit organization manages its audit quality and reflect a shift in the approach an audit organization takes from “quality control” to “quality management.” This shift involves the incorporation of a risk assessment process that will be used by audit organizations to identify, evaluate, and mitigate risks to their audit quality. There is also an increased emphasis included in the 2024 Yellow Book for how leadership manages quality and its responsibility for doing so.
Most of the changes occur within Chapter 5, now titled “Quality Management, Engagement Quality Reviews, and Peer Review.” As described by the GAO, this chapter addresses the audit organization’s responsibilities for designing, implementing, and operating a system of quality management. Unlike previous versions of the Yellow Book, the 2024 Yellow Book includes scalability considerations based upon the unique nature and circumstances of the audit organization (such as size, number of offices, etc.). Also included is the requirement for an annual evaluation of quality management performed by a senior-level official assigned the responsibility and accountability for the audit organization’s system of quality management. Further, enhanced requirements around the Engagement Quality Review process are included, including certain required documentation matters. Lastly, the requirements surrounding peer reviews were mostly unchanged.
New Yellow Book Implementation
The 2024 Yellow Book is effective for periods beginning on or after December 15, 2025. A system of quality management that complies with the Yellow Book is required to be designed and implemented by December 15, 2025, and an audit organization should complete an evaluation of the system of quality management by December 15, 2026. Early implementation of the 2024 Yellow Book is permitted, and until the implementation of the 2024 Yellow Book, auditors should continue to follow the 2018 Yellow Book.
There are many changes and nuances included in the new 2024 Yellow Book beyond the scope of this article. A copy of the 2024 (and 2018) Yellow Book can be found here. We encourage those that are impacted by the Yellow Book take a closer look at the changes and contact a member of the McKonly & Asbury Nonprofit team with further questions.
