Are all state and local government audits required to adhere to GAGAS?

The rationale for the answer lies in the requirement for audits in state and local governments to follow Generally Accepted Government Auditing Standards (GAGAS), which are also known as the Yellow Book standards. While GAGAS provides a framework for conducting audits of government entities, adherence to these standards is not universally mandated for all audits.

Only audits that are federally funded or that require federal compliance are mandated to adhere to GAGAS. This is because federal laws or regulations will dictate the standards that must be followed when federal funds are involved. In cases where an audit is not federally required, state and local governments may choose to follow Generally Accepted Auditing Standards (GAAS) instead, which are often used for audits not involving federal funding. This flexibility allows state and local governments to comply with standards that suit their specific operational contexts while ensuring accountability and transparency in how they manage their finances.