diff --git a/.github/workflows/verifyAudit.yml b/.github/workflows/verifyAudit.yml
index 84c05492..38aadf56 100644
--- a/.github/workflows/verifyAudit.yml
+++ b/.github/workflows/verifyAudit.yml
@@ -16,6 +16,122 @@ on:
     types: [opened, synchronize, reopened]
 
 jobs:
+  check-if-audit-required:
+    # will only run once the PR is in "Ready for Review" state
+    if: ${{ github.event.pull_request.draft == false }}
+    runs-on: ubuntu-latest
+    env:
+      GITHUB_TOKEN: ${{ secrets.GIT_ACTIONS_BOT_PAT_CLASSIC }}
+    permissions:
+      pull-requests: write
+    steps:
+      - name: Checkout repository
+        uses: actions/checkout@v4
+        with:
+          fetch-depth: 0 ##### Fetch all history for all branches
+
+      - name: Check PR for changes for protected folders ('src/*')
+        id: check_if_audit_is_required
+        run: |
+
+
+          ##### Get all files modified by this PR
+          FILES=$(git diff --name-only origin/main HEAD)
+
+          ##### Make sure that there are modified files
+          if [[ -z $FILES ]]; then
+            echo -e "\033[31mNo files found. This should not happen. Please check the code of the Github action. Aborting now.\033[0m"
+            echo "CONTINUE=false" >> "$GITHUB_ENV"
+          fi
+
+          ##### Initialize empty variables
+          PROTECTED_CONTRACTS=""
+
+          ##### Go through all modified file names/paths and identify contracts with path 'src/*'
+          while IFS= read -r FILE; do
+            if echo "$FILE" | grep -E '^src/.*\.sol$'; then
+              ##### Contract found
+              PROTECTED_CONTRACTS="${PROTECTED_CONTRACTS}${FILE}"$'\n'
+            fi
+          done <<< "$FILES"
+
+          ##### Determine if audit is required
+          if [[ -z "$PROTECTED_CONTRACTS" ]]; then
+            echo -e "\033[32mNo protected contracts found in this PR.\033[0m"
+            echo "AUDIT_REQUIRED=false" >> "$GITHUB_ENV"
+          else
+            echo -e "\033[31mProtected contracts found in this PR.\033[0m"
+            echo "PROTECTED_CONTRACTS: $PROTECTED_CONTRACTS"
+            echo "AUDIT_REQUIRED=true" >> "$GITHUB_ENV"
+            echo -e "$PROTECTED_CONTRACTS" > protected_contracts.txt
+          fi
+
+      - name: Assign, update, and verify labels based on check outcome
+        uses: actions/github-script@v7
+        env:
+          AUDIT_REQUIRED: ${{ env.AUDIT_REQUIRED }}
+        with:
+          script: |
+            const { execSync } = require('child_process');
+            // ANSI escape codes for colors (used for colored output in Git action console)
+            const colors = {
+              reset: "\033[0m",
+              red: "\033[31m",
+              green: "\033[32m",
+            };
+
+            // Fetch currently assigned labels from GitHub using GitHub CLI
+            let assignedLabels = [];
+            try {
+              // Fetch the labels directly from the pull request
+              const labelsOutput = execSync(`gh pr view ${{ github.event.pull_request.number }} --json labels --jq '.labels[].name'`).toString();
+
+              // Split the labels output into an array and trim each label
+              assignedLabels = labelsOutput.split('\n').map(label => label.trim()).filter(Boolean);
+            } catch (error) {
+              console.error(`${colors.red}Error fetching assigned labels: ${error.message}${colors.reset}`);
+              process.exit(1);
+            }
+
+            // check if audit is required (determined by previous step)
+            const auditRequired = process.env.AUDIT_REQUIRED === 'true';
+
+            // determine which label should be assigned and which should be removed
+            const labelToAssign = auditRequired ? 'AuditRequired' : 'AuditNotRequired';
+            const oppositeLabel = auditRequired ? 'AuditNotRequired' : 'AuditRequired';
+
+            console.log(`Currently assigned labels: ${JSON.stringify(assignedLabels)}`);
+            console.log(`Label '${labelToAssign}' has to be assigned to this PR`);
+            console.log(`Label '${oppositeLabel}' will be removed, if currently present`);
+
+            // Assign the required label if not already present
+            if (!assignedLabels.includes(labelToAssign)) {
+              console.log(`Assigning label: ${labelToAssign}`);
+              execSync(`gh pr edit ${{ github.event.pull_request.number }} --add-label "${labelToAssign}"`, { stdio: 'inherit' });
+            } else {
+              console.log(`${colors.green}Label "${labelToAssign}" is already assigned. No action needed.${colors.reset}`);
+            }
+
+            // Remove the opposite label if it is present
+            if (assignedLabels.includes(oppositeLabel)) {
+              console.log(`Removing opposite label: ${oppositeLabel}`);
+              execSync(`gh pr edit ${{ github.event.pull_request.number }} --remove-label "${oppositeLabel}"`, { stdio: 'inherit' });
+            } else {
+              console.log(`${colors.green}Opposite label "${oppositeLabel}" is not assigned. No action needed.${colors.reset}`);
+            }
+
+            // Verify that exactly one of the two labels is assigned
+            const requiredLabelCount = assignedLabels.filter(label => label === 'AuditRequired').length;
+            const notRequiredLabelCount = assignedLabels.filter(label => label === 'AuditNotRequired').length;
+            const totalLabelsAssigned = requiredLabelCount + notRequiredLabelCount;
+
+            if (totalLabelsAssigned !== 1) {
+              console.error(`${colors.red}Error: Exactly one of the two protected labels should be assigned but found ${totalLabelsAssigned} assigned labels.${colors.reset}`);
+              process.exit(1);
+            } else {
+              console.log(`${colors.green}Verified that exactly one label is assigned. Check passed :)${colors.reset}`);
+            }
+
   verify-audit:
     # will only run once the PR is in "Ready for Review" state
     if: ${{ github.event.pull_request.draft == false }}
@@ -343,10 +459,10 @@ jobs:
           done <<< "$PROTECTED_CONTRACTS"
 
       - name: Assign label "AuditCompleted" if all checks passed
-        if: ${{ env.CONTINUE == 'true' }}
+        if: ${{ env.AUDIT_REQUIRED == 'true' && env.CONTINUE == 'true' }}
         uses: actions-ecosystem/action-add-labels@v1
         id: assign_label
         with:
-          github_token: ${{ secrets.GIT_ACTIONS_BOT_PAT_CLASSIC }} # we use the token of the git action user so the label protection check will pass
+          github_token: ${{ secrets.GIT_ACTIONS_BOT_PAT_CLASSIC }} # we use the token of the lifi-action-bot so the label protection check will pass
           labels: 'AuditCompleted'
           number: ${{ env.PR_NUMBER }}