Auditing and Attestation - Certified Public Accountant (CPA) Practice Exam 2026 - Free CPA Practice Questions and Study Guide

In audit engagements, particularly when government entities or related funding is involved, auditors may need to comply with specific regulatory requirements. Government Auditing Standards (GAGAS), also known as the Yellow Book, is designed to provide a framework for conducting audits of government organizations, programs, activities, and functions.

When an auditor is performing audits on government entities or using federal funds, they must adhere to not only Generally Accepted Auditing Standards (GAAS) but also to GAGAS. This adherence is necessary because GAGAS includes additional requirements for ethical behavior, independence, and reporting compared to GAAS.

While International Standards on Auditing (ISA) and PCAOB Standards are relevant under different circumstances, they do not inherently cover the unique requirements of government audits. Thus, option C correctly highlights that in certain audit situations, particularly those involving government entities, compliance with both GAAS and GAGAS is necessary.