While I’m not a good baker, when I talk to CPAs who are new to the governmental auditing area and need to understand what the “Yellow Book” is, I often explain using the analogy of a multi-layered cake. The bottom layer of the cake is the AICPA auditing standards, which are the basis for most Yellow Book audits. The second layer of the cake (let’s make it a yellow layer!) adds standards issued by the Government Accountability Office (GAO), known as the “Yellow Book” or Generally Accepted Government Auditing Standards (GAGAS) that build upon the AICPA rules. Finally, if your client gets federal funds, there may be a third layer of the cake that consists of compliance auditing requirements.
The big news for auditors right now is that the GAO has issued a 2018 revision to the Yellow Book which will change the ingredients for the middle layer of the cake. If you audit federal, state or local governments, or not-for-profits, whose audits are subject to the Yellow Book, you should begin updating your recipe card so your cake turns out right.