Subpart E: Cost principles 2024 Uniform Guidance · effective Oct 1, 2024

2 CFR 200.425: Audit services

2 CFR 200.425 sets 3 requirements for organizations that receive federal grants and cooperative agreements. Applies when you build your application and budget, and to every cost you charge after award.

Shows up in your application: Budget: other direct costsIndirect costsBudget justificationBudget: contractual

What 2 CFR 200.425 requires

1. Allowable costs

What you must do

Only a reasonably proportionate share of Single Audit costs is allowable, and only when the audit is required by the Single Audit Act (31 U.S.C. 7501–7507) and performed in accordance with subpart F; audit costs are unallowable when the required audit was not conducted or was conducted out of compliance, or when the entity is exempt because it expends less than $1,000,000 under Federal awards during its fiscal year (except as provided in § 200.425(c)).

When it applies

Budget or indirect cost pool includes audit costs

Budget: other direct costsIndirect costsBudget justification
2. Allowable costs

What you must do

The cost of a financial statement audit of a recipient or subrecipient that does not currently have a Federal award may be included in the indirect cost pool for a cost allocation plan or indirect cost proposal, not charged as a direct cost of an award.

When it applies

An entity without a current Federal award includes financial-statement audit costs in its cost allocation plan or indirect cost proposal

Indirect costs
3. Allowable costs

What you must do

A pass-through entity may charge Federal awards for agreed-upon-procedures engagements to monitor Single-Audit-exempt subrecipients (per §§ 200.331–333) only if the engagement is: (1) conducted in accordance with GAGAS or applicable international attestation standards; (2) paid for and arranged by the pass-through entity; and (3) limited in scope to one or more of: activities allowed or unallowed; allowable costs/cost principles; eligibility; and reporting.

When it applies

Applicant is a pass-through entity budgeting subrecipient-monitoring agreed-upon-procedures engagement costs

Budget: other direct costsBudget: contractualBudget justification
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Sections 2 CFR 200.425 refers to

Sections that refer to 2 CFR 200.425

Regulation text of 2 CFR 200.425

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(a) A reasonably proportionate share of the costs of audits required by and performed in accordance with the Single Audit Act Amendments of 1996 (31 U.S.C. 7501-7507), and the requirements of this part are allowable. However, the following audit costs are unallowable:

(1) Any costs when audits required by the Single Audit Act and subpart F of this part have not been conducted, or have been conducted but not in accordance with the requirements; and

(2) Except as provided for in paragraph (c) of this section, any costs of auditing a non-Federal entity that is exempted from having an audit conducted under the Single Audit Act and subpart F of this part because its expenditures under Federal awards are less than $1,000,000 during its fiscal year.”

(b) The costs of a financial statement audit of a recipient or subrecipient that does not currently have a Federal award may be included in the indirect cost pool for a cost allocation plan or indirect cost proposal.

(c) Pass-through entities may charge Federal awards for the cost of agreed-upon procedures engagements to monitor subrecipients (in accordance with §§ 200.331-333) exempt from having an audit conducted under the Single Audit Act and the requirements of this part. This cost is allowable only if the agreed-upon procedures engagements are:

(1) Conducted in accordance with GAGAS or applicable international attestation standards, as appropriate;

(2) Paid for and arranged by the pass-through entity; and

(3) Limited in scope to one or more of the following types of compliance requirements: activities allowed or unallowed; allowable costs/cost principles; eligibility; and reporting.

Source: eCFR · checked Sep 17, 2026

Questions about 2 CFR 200.425

What does 2 CFR 200.425 require?

Only a reasonably proportionate share of Single Audit costs is allowable, and only when the audit is required by the Single Audit Act (31 U.S.C. 7501–7507) and performed in accordance with subpart F; audit costs are unallowable when the required audit was not conducted or was conducted out of compliance, or when the entity is exempt because it expends less than $1,000,000 under Federal awards during its fiscal year (except as provided in § 200.425(c)). The cost of a financial statement audit of a recipient or subrecipient that does not currently have a Federal award may be included in the indirect cost pool for a cost allocation plan or indirect cost proposal, not charged as a direct cost of an award. A pass-through entity may charge Federal awards for agreed-upon-procedures engagements to monitor Single-Audit-exempt subrecipients (per §§ 200.331–333) only if the engagement is: (1) conducted in accordance with GAGAS or applicable international attestation standards; (2) paid for and arranged by the pass-through entity; and (3) limited in scope to one or more of: activities allowed or unallowed; allowable costs/cost principles; eligibility; and reporting.

When does 2 CFR 200.425 apply?

Budget or indirect cost pool includes audit costs. An entity without a current Federal award includes financial-statement audit costs in its cost allocation plan or indirect cost proposal. Applicant is a pass-through entity budgeting subrecipient-monitoring agreed-upon-procedures engagement costs.

Plain-English summaries for information only, not legal advice. Always check the regulation text, your award terms and your agency’s guidance.