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 ] [ Matt Oldham: ] And thank you for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts. [ Background Music ] [ Matt Oldham: ] For more from the congressional watchdog, the U.S. Government Accountability Office, visit us at gao.gov.