February 6, 2024
By Tricia Katebini, CPA, MBA, Partner, Audit
The long anticipated 2024 Yellow Book, which supersedes the 2018 Yellow Book, was released Thursday, February 1, 2024, by the United States Government Accountability Office (GAO). The revisions to the Yellow Book reflect major developments in the auditing and accountability professions and emphasize specific considerations applicable to the government environment. The 2024 revision is effective for financial audits, attestation engagements, and reviews of financial statements for periods beginning on or after December 15, 2025, as well as performance audits beginning on or after December 15, 2025.
Changes in the 2024 Revision
Major changes in the 2024 revision, according to the GAO, include the following:
- An emphasis on the responsibility of an audit organization’s leadership for proactively managing quality on its engagements,
- An approach that promotes scalability of the system of quality management for use by audit organizations differing in size and complexity,
- A risk-based process for achieving the objectives of quality management,
- A change in approach from quality control to quality management,
- Flexibility for audit organizations subject to other quality management standards to avoid the burden of designing, implementing, and operating separate systems of quality management,
- Promotion of proactive and effective monitoring activities and increased emphasis on tailoring monitoring activities,
- Provisions for optional engagement quality reviews of GAGAS engagements, and
- Application guidance on key audit matters for when they may apply to financial audits of government entities and entities that receive government financial assistance.
“This latest update enhances and modernizes the standards to perform high-quality audit work with competence, integrity, objectivity, and independence using a proactive and risk-based approach,” said Gene L. Dodaro, Comptroller General of the United States, and the head of the GAO. “Implementation of these standards leads to greater accountability of government spending and improved services and operations.”
Quality Management
To align with the upcoming standards issued for financial statement audits, the 2024 Yellow Book also includes the requirement of a system of quality management. The 2024 revision considers that the nature, extent, and formality of an audit organization’s system of quality management will vary based on its circumstances. These include its size, its number of offices and geographic dispersion, the knowledge and experience of its personnel, the nature and complexity of its engagement work, and cost-benefit considerations. Audit organizations will be required to design and implement a system of quality management that complies with the Government Auditing Standards by December 15, 2025. An evaluation of the system must be completed within one year of the required implementation date. Early implementation is permitted.
Proposed Changes for the Next Compliance Supplement
As audit organizations are looking at the 2024 Yellow Book, they may also be pondering what the next 2024 Compliance Supplement might have in store. Audit organizations are highly optimistic that certain proposed changes will be voted upon and accepted for audits required under the 2024 Compliance Supplement and beyond. Some of the proposed changes include:
- Various increases to add flexibility, such as raising the threshold for equipment from $5,000 to $10,000,
- Raising the de minimis indirect rate from 10% to 15%,
- Raising the Single Audit requirement threshold from $750,000 to $1,000,000,
- Revising the headings of Title 2 CFR and Subtitle A and Chapter I to replace “Grants and Agreements” with “Federal Financial Assistance”,
- Including a requirement for pass-through entities to confirm that potential subrecipients are not suspended, debarred, or otherwise excluded from receiving Federal funds, and
- Removing the prior written approval requirements for ten items.
The proposed changes were published in the Federal Register on October 5, 2023, which started a 60-day comment period ending December 4, 2023. The comments received are expected to inform the final changes, which are expected to be published in 2024.
Next Steps
Stay tuned for updates. GRF’s audit team is actively monitoring the Federal Register for publication of the final regulations and will share when they are available.
Contact
