From the U.S. Government Accountability Office, www.gao.gov

Transcript for:Yellow Book Updates

Description: GAO’s ‘how-to’ book for auditing is known as the Yellow 
Book. Hear what it is, who it’s for, and what’s changed with new 
revisions.  

Related GAO Work: GAO-18-568G: Government Auditing Standards: 2018 
Revision

Released: July 2018


[ Background Music ]

[ Jim Dalkin: ] Before it was all pure text, now it is text with a 
little more direction.

[ Matt Oldham: ] Welcome to GAO's Watchdog Report, your source for news 
and information from the U.S. Government Accountability Office. I'm 
Matt Oldham. GAO publishes a book called "Government Auditing 
Standards." It's also known as the Yellow Book and it's a how to manual 
for auditors and auditing agencies. It was last revised in 2011, until 
now that is. I'm with Jim Dalkin, a director in our Financial 
Management and Assurance team to talk about the Yellow Book and its 
changes. Jim, who uses the Yellow Book?

[ Jim Dalkin: ] Well really there's a wide variety of users of the 
Yellow Book. Principally those that receive federal funds, those that 
are required by law regulation to follow the Yellow Book. So you see 
that both in the federal environment, state and local as well as a fair 
number of not-for-profit organizations.

[ Matt Oldham: ] And what does the Yellow Book do? Is it a loose set of 
guidelines? Does it lay out step by step how to conduct an audit?

[ Jim Dalkin: ] It's really a set of standards and I think of the set 
of standards as guidelines. It is not prescriptive in terms of how you 
get there, but it tells you to get to that journey what you need to do, 
what are the basic requirements. It also provides some application 
guidance which talks about how you might meet some of those 
requirements in the Yellow Book.

[ Matt Oldham: ] So GAO has been publishing this book of government 
auditing standards for more than four decades. How has it changed over 
the years?

[ Jim Dalkin: ] Auditing essentially has remained the same. Some of the 
basic concepts, but over a period of time where there's additional 
complexities have been added in to the auditing environment. The use of 
IT, internal controls or revisions to internal controls. So we try to 
keep up to date with those changes. We also align with the commercial 
auditing standards that are used and to the extent they change, we have 
to evaluate and determine what is appropriate in the governmental 
environment.

[ Background Music ]

[ Matt Oldham: ] So it sounds like the Yellow Book is used not only by 
GAO auditors, but also by other federal, state and local government 
auditing agencies. And as you pointed out, some overseas auditing 
agencies. So Jim what's new with this year's revisions?

[ Jim Dalkin: ] Well I think there's about five key areas where we've 
had substantial revisions and one is essentially the structure. We have 
filed a structure where we've outlines the requirements and we've set 
those aside. And we've also outlined the application guidance which how 
you meet those. Before, it was all pure text. Now it is text with a 
little more direction. The second area is in the area of independence. 
We've really focused on the certain challenging independence issues, 
particularly when auditors also prepare the financial statements of 
their auditee. The third big area is peer review and peer reviews are 
required by the audit organizations and so we've added some 
clarification in terms of what are some of the baseline requirements 
for peer review. And there's certain audit organizations that we are 
accepting for peer review and their program. And so that will be a 
substantial change for some. Probably one of the more interesting areas 
is in the area of waste and in the past we hadn't defined waste. If you 
think of waste, fraud, and abuse, those are typically three words you 
associate with the Yellow Book providing some guidance on those. So we 
actually took the step of defining waste and we re-characterized what 
the auditors’ responsibilities were if the auditor were to detect waste 
or abuse. And in looking at that, those issues in terms of internal 
controls and how an auditor may report those for an organization that 
he or she's auditing. There was one other area of revision and that 
relates to performance audits. And in performance audits, which have 
been used or is a component of the Yellow Book, had been used for many 
years. We also have really focused on internal controls when those 
internal controls are very important to the objectives of the financial 
or the performance audit.

[ Matt Oldham: ] Finally, what's the bottom line of this new revision?

[ Jim Dalkin: ] Well I think we're keeping up with the times, we're 
keeping up with changes in both the international auditing standards as 
well as the U.S. and I think this will provide a good set of guidelines 
and standards for practitioners in the governmental space.

[ Matt Oldham: ] Jim Dalkin is a director in our Financial Management 
and Assurance team and we were talking about changes to GAO's Yellow 
Book. Thank you for your time Jim.

[ Jim Dalkin: ] Thank you.

[ Background Music ]

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[ Background Music ]

[ Matt Oldham: ] For more from the congressional watchdog, the U.S. 
Government Accountability Office, visit us at gao.gov.