Governmental audit: definition and audit meaning

Definition

A governmental audit is an audit of a state or local government, such as a county, city, school district, or special district. The auditor follows GAAS and typically GAGAS, tests compliance with GASB standards, and reports on opinion units: governmental activities, business-type activities, discretely presented component units, each major fund, and the aggregate remaining fund information. Many governments publish an annual comprehensive financial report, now often called an ACFR. A government that spends enough federal money will also need a single audit.

Why it matters in an audit or review

Governmental audits have features private company audits lack: budgetary compliance, restricted fund balances, legal compliance, and statutes that set audit rules, which vary by state. Independence follows GAGAS, which restricts some nonattest services. Auditors also address pensions, other postemployment benefits, and capital assets, and they report on internal control and compliance.

Example

Illustrative: a county's general fund and its water utility are separate opinion units. The auditor concludes on each, then on the government-wide statements. A misstatement in the water utility does not change the general fund opinion.

Common mistakes

Applying FASB guidance or private company materiality without considering each opinion unit.

FAQ

Is a governmental audit always a single audit?

No. A single audit is required only when federal awards expended in a fiscal year reach $1,000,000, for fiscal years beginning on or after October 1, 2024 (2 CFR 200.501).

Sources

GAO, Government Auditing Standards: 2024 Revision (GAO-24-106786)
GASB, Statement No. 34
eCFR, 2 CFR 200.501, Audit requirements: https://www.ecfr.gov/current/title-2/part-200/section-200.501

Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error

The Governmental Accounting Standards Board sets accounting and financial reporting standards for US state and local governments, which auditors of governmental entities apply as GAAP alongside the GAAS or GAGAS audit requirements.

GASB Statement No. 34

GASB Statement 34 created the modern financial reporting model for state and local governments, adding government-wide statements, fund statements, management's discussion and analysis, and required supplementary information.

GAGAS (Yellow Book)

GAGAS, published by the GAO as Government Auditing Standards or the Yellow Book, adds requirements on top of GAAS for audits of governments, entities receiving government funds, and single audits.

Single audit

A single audit is the combined financial statement and federal compliance audit required under 2 CFR 200 Subpart F when a nonfederal entity expends $1,000,000 or more in federal awards in a fiscal year.

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Governmental audit