CAARO Update Issue #2026-13

Annual Audit Requirements

Section 39 of AB 126 (Chapter 65, Statutes of 2026) amended EC Section 41020. Among those changes include the following:

• Charter schools have been added to the annual audit and resolution process outlined in EC 41020. Subdivision (v) defines “local educational agency” as a school district, educational joint powers authority, county superintendent of schools, or charter school.
• LEAs are required to post their annual audit on their website. (Subdivision (b)).
• Charter schools that are included in the school district or county office of education audit shall be presented separately in one of the following manners (Subdivision (c)(2)):
  • As a major fund, when applicable
  • As a supplementary balance sheet and state of revenues, expenditures, and changes in fund balance
  • As supplementary combining statements for charter schools that are accounted for in the general fund or when multiple charter schools are included in the charter school fund
• If an audit contract is terminated or denied for renewal, the LEA and auditor must notify the chartering authority or the County Office of Education (COE), as applicable, the CDE, and the SCO. (Subdivision (i)(6))
• Each chartering authority shall certify to the county superintendent of schools of the county in which the charter school is located that the chartering authority has done all of the following for the prior fiscal year: (Subdivision (m)(2))
  • (i) Reviewed all audits of charter schools under its jurisdiction.
  • (ii) Reviewed all exceptions that the charter school was required to review were reviewed, and that all of those exceptions, except as otherwise noted in the certification, have been corrected by the charter school or that an acceptable plan of correction has been submitted to the chartering authority.
  • (iii) Ensured that the charter schools they authorize have corrected or developed a plan of correction for exceptions identified in the audit report.
  • (iv) Identified any attendance-related audit exception or exceptions involving state funds and required the charter school to submit appropriate reporting forms for processing by the Superintendent
• If the county board of the county in which the charter school is located is the chartering authority, the county board of education shall instead certify to the Superintendent that the county superintendent of schools has done items (i) through (iv) above.
• The county superintendent of schools shall either consult with the charter school to resolve unresolved audit exceptions or require the chartering authority to follow up with the charter school. (Subdivision (m)(3)(B)(ii))
• For county board authorized charters, the CDE shall either consult with the charter to resolve unresolved audit exceptions or require the county authorizer to follow up with the charter school. (Subdivision (m)(3)(C)(ii))
• COE corrective actions are due to CDE within 60 days of CDE management decision letter, but no later than June 15. (Subdivision (n)(2)(B)).

Key Dates for 2025-26 and 2026-27 Kindergarten Through Grade Twelve (K–12) Annual Audit

AB 126 (Chapter 65, Statutes of 2026) amended the annual audit and audit resolution timeline in EC Section 41020. The annual audit report filing deadline has been extended from December 15 to January 31. Corresponding amendments have also been made to the audit review and resolution timeline.

• The key dates for the K-12 Annual Audit process have been updated on our Audit Resolution website.
• CAARO Update Issue #2026-10 provided a comprehensive summary of the key date changes.

Annual Audit Report Extensions and Late Audits

Section 40 of AB 126 (Chapter 65, Statutes of 2026) amended EC Section 41020.2 strengthening oversight over the annual audit report extension and late audit process. Among those changes include the following:

• Charter schools have been added to the annual audit extension and late audit process outlined in EC 41020.2. Subdivision (h) defines “local educational agency” as a school district, educational joint powers authority, county superintendent of schools, or charter school.
• If the annual audit of a charter school has not been filed on or before the due date, the chartering authority shall investigate the causes for the delay and initiate one of the actions described in subdivision (c) that will provide the required audit in the most effective manner. (Subdivision (a)(2))
• If the annual audit of a COE has not been filed on or before the due date, the CDE shall investigate the causes for the delay and initiate one of the actions described in subdivision (c) that will provide the required audit in the most effective manner. (Subdivision (a)(3))
• The chartering authority may, after consultation with the governing body of the charter school and the auditors under contract to the charter school, and with the consent of the COE, SCO, and CDE, grant an appropriate extension for the completion of the annual audit. (Subdivision (b)(1))
• The SCO may, after consultation with the county superintendent of schools and the auditors under contract for a charter school where the county board of education of the county in which the charter school is located is the chartering authority, and with the consent of CDE, grant an appropriate extension for the completion of the audit and the filing of the audited financial statements. (Subdivision (b)(1))
• Extensions shall be in increments of no longer than 30 calendar days and not be granted past March 31 following the deadline. (Subdivision (b)(2))
• Subdivision (e) requires an LEA and auditors under contract with the LEA, to notify no later than 15 calendar days from the due date, the chartering authority, the county superintendent of schools, the CDE, and SCO when an audit filing is delayed and an extension has not been requested or granted. The notice must identify the reason for the delay and the estimated filing date.

Annual Audit Guide

Section 43 of AB 126 (Chapter 65, Statutes of 2026) added EC Section 41020.6 establishing additional audit procedures and reporting requirements commencing with the 2027-28 Audit Guide. Among the new requirements are:

• The reporting of additional schedules:
  • Pupil enrollment and attendance for each school month
  • Largest 25 aggregate payments or transfers of assets to individuals or organizations
  • For school districts and COEs, pupil-to-teacher ratios for independent study
  • Loans with related entities or employees
  • For charter schools, governing body members and related entities
  • The five highest-paid employees
• Chartering authority input for audits of a charter school. (Subdivision (b)(5)(A))
• County office of education input for audits of a school district or educational joint powers authority. (Subdivision (b)(5)(B))
• Department input for audits of a county office of education. (Subdivision (b)(5)(C))
• The determination if a related entity or similar third party with financial economic, or controlling membership interests exists with the charter school, and if so, evaluate the level of the relationship to determine if it is material. (Subdivision (b)(6)(A))
• Identify any transfers of funds or assets to other individuals or organizations that exceed one million dollars or 10 percent of the LEA’s total revenue and other sources, whichever is less, together with a written explanation from the LEA regarding the purpose for each of those transfers of funds or assets. (Subdivision (b)(8))
• Ensure the chartering authority has documentation of completing the oversight tasks in EC Section 47604.32 and teacher assignment monitoring pursuant to EC Section 44258.9. (Subdivision (b)(9))
• For schools that offer grades 10, 11, or 12, inclusive, at LEAs, perform an analytical procedure and identify unusual enrollment patterns between consecutive grade levels and pupils that change grade levels during the school year for that school and report as a note that shall not include personally identifiable information for any pupil. (Subdivision (b)(10)(A))
• Identify if a pupil advanced to grade 12 without completing a California Assessment of Student Performance and Progress assessment in English language arts/literacy and mathematics using pupil cohort data and assessment data and report the number of such pupils as a note. Report the total number of pupils disenrolled from the school after census day, in a note. (Subdivision (b)(10)(A))

Additionally, Section 105 of AB 126 (Chapter 65, Statutes of 2026) added EC Section 51827, requiring auditors to determine whether LEAs complied with the contracting requirements and governing board policies adopted pursuant to subdivision (a).

These statutory changes will result in expanded audit procedures, revised audit timelines, additional reporting requirements, and enhanced oversight responsibilities for LEAs. LEAs should review the new requirements and prepare for implementation of the provisions affecting future audit cycles.