Study Unit 20: questions

Question 1

According to an additional requirement in Government Auditing Standards, the elements of a finding for a financial audit include

Answer 1

Condition, cause, and effect.

The elements needed for a finding depend on the objectives of the audit but include criteria, condition, cause, and effect or potential effect. The criteria element is the required or desired state (e.g., law or contract) or expectation with respect to the program or operation. The condition element is a situation that exists. The cause element is the reason or explanation for the condition. The effect or potential effect element is a clear, logical link to establish the impact or potential impact of the difference between the situation that exists (condition) and the required or desired state (criteria).

Question 2

Reporting on internal control under Government Auditing Standards differs from reporting under generally accepted auditing standards in that Government Auditing Standards requires a

Answer 2

Written report included with the audit report on financial statements describing significant deficiencies and material weaknesses in internal control.

According to Government Auditing Standards, the report on the financial statements or a separate report should present any significant deficiencies and material weaknesses in internal control. However, the report need not provide any assurance on internal control design or effectiveness.

Question 3

Shouse the auditor express limited or positive assurance of IC and Compliance with Laws and Regulations in a GAGAS?

Answer 3

No, no assurance is required. just reports.

Question 4

Which body issues standards for audits of recipients of federal awards?

Answer 4

GAO: The federal agency concerned with accounting and auditing standards for U.S. government programs and services is the Government Accounting Office. the GAO issues generally accepted government auditing stanards.

Question 5

The report (or separate reports) on financial statements should describe the scope of the auditor’s testing of internal control over financial reporting and compliance with laws and regulations and grant or contract provisions. The report also should:

Answer 5

(1) state whether the tests provided sufficient appropriate evidence to support opinions on internal control and on compliance and
(2) include significant deficiencies and material weaknesses in internal control. But an opinion on internal control is not expressed unless sufficient appropriate evidence is obtained.

Question 6

The report on financial statements (or separate reports) should describe the scope of:

Answer 6

scope of the auditor’s testing of internal control over financial reporting and compliance with laws and regulations and grant or contract provisions. Auditors also should state whether their tests provided sufficient appropriate evidence for opinions on the effectiveness of internal control and compliance.

Question 7

Which of the following statements is a standard applicable to financial statement audits in accordance withGovernment Auditing Standards (the Yellow Book)?

A.An auditor should report the views of the public about the auditor’s findings.

B.Internal control activities designed to detect or prevent fraud should be reported to the inspector general.

C.An auditor should report on the scope of the auditor’s testing of internal controls.

D.An auditor should report all instances of fraud, noncompliance with laws and regulations, violations of provisions of contracts or grant agreements, and abuse.

Answer 7

An auditor should report on the scope of the auditor’s testing of internal controls.

Question 8

Government Auditing Standards relates to which of the services provided to government entities, programs, activities, and functions?

Financial Audits

Nonaudit Services

Performance Audits

Answer 8

GAGAS do not relate to nonaudit services

Question 9

Attestation engagements under Government Auditing Standards include

Answer 9

Reporting on the reliability of performance measures.

Attestation engagements involve examining, reviewing, or performing agreed-upon procedures on a subject matter or an assertion about a subject matter that is the responsibility of another party. Examples include reporting on (1) an entity’s internal control over financial reporting; (2) an entity’s compliance with requirements of specified laws, regulations, policies, contracts, or grants; (3) management discussion and analysis (MD&A); (4) prospective financial or performance information; (5) the accuracy or reliability of performance measures; (6) allowable, reasonable, or final contract cost; or (7) the quantity, condition, or valuation of inventory or assets.

Question 10

Performance audits include economy and efficiency audits. The objectives of these audits are to determine:

Answer 10

(1) whether the entity is acquiring, protecting, and using its resources economically and efficiently;
(2) the causes of any inefficiencies; and
(3) whether the entity has complied with laws and regulations concerning matters of economy and efficiency.

Question 11

The report on internal control under GAS should be included in either:

Answer 11

either the report on the financial statements or in a separate report.

Question 12

According to the additional requirements for financial audits in Government Auditing Standards, the auditors should report the views of responsible officials if their report discloses:

Answer 12

The auditors should report the views of responsible officials if their report discloses fraud.

Question 13

The report on financial statements (or separate reports) should describe the scope of the auditor’s testing of internal control over financial reporting and compliance with laws and regulations and grant or contract provisions. Auditors also should state whether their tests provided:

Answer 13

Auditors also should state whether their tests provided sufficient appropriate evidence for opinions on the effectiveness of internal control and compliance.

Question 14

An auditor’s report, in accordance with Government Auditing Standards, should present

Answer 14

(1) significant deficiencies and material weaknesses in internal control;
(2) instances of fraud and noncompliance with provisions of laws or regulations that have a material effect on the audit and any other instances that warrant the attention of those charged with governance;
(3) noncompliance with provisions of contracts or grant agreements that has a material effect on the audit; and
(4) abuse that has a material effect on the audit.

Question 15

According to the general standards in Government Auditing Standards,

Answer 15

An audit organization must be free of the appearance of an impairment to independence.

Auditors must be independent in mind and appearance.

Question 16

An auditor who is engaged to audit the financial statements of a governmental entity should

Answer 16

Obtain an understanding of the possible financial statement effects of laws and regulations having direct and material effects on amounts reported.

Question 17

In a financial audit under Government Auditing Standards, procedures have disclosed material instances of noncompliance with regulations. The report should

Answer 17

Place the findings in proper perspective.

To give the reader a basis for judging the prevalence and consequences of deficiencies in internal control, fraud, noncompliance, and abuse, the instances identified should be related to the population or the number of cases examined and be quantified in terms of monetary amounts, if appropriate.

Question 18

The ethical principles that guide the work of auditors who conduct audits in accordance with GAGAS are:

Answer 18

(1) the public interest;
(2) integrity;
(3) objectivity;
(4) proper use of government information, resources, and positions; and
(5) professional behavior.

Question 19

What is management’s and auditor’s responsibility for ensuring compliance with laws and regulations?

Answer 19

Management is responsible for ensuring compliance with laws and regulations. The auditor’s responsibility is to understand the possible effects of laws and regulations having direct and material effects on the financial statements and to assess whether management has identified such laws and regulations.

Question 20

According to GAS, an audit organization conducting an audit in accordance with these standards must have an appropriate internal quality control system in place and undergo an external peer review at least every:

Answer 20

3 years. For example, a CPA seeking to enter into a contract to perform an audit should provide the CPA’s most recent external peer review report to the party contracting for the audit.

Question 21

Question: 49A government internal audit function is presumed to be free from organizational independence impairments for reporting internally when the head of the organization

Answer 21

Is sufficiently removed from political pressures to conduct audits objectively, without fear of political reprisal.

Question 22

In a compliance audit, the auditor’s primary objective is to

Answer 22

Obtain sufficient appropriate evidence to form an opinion on compliance.

The auditor’s objective in a compliance audit is to obtain sufficient appropriate evidence to form an opinion and report at the level specified in the governmental audit requirement on whether the entity complied, in all material respects, with the applicable compliance requirements.

Question 23

The auditor obtains written representations from management about its responsibilities for:

Answer 23

(1) understanding and complying with the compliance requirements and
(2) establishing and maintaining controls that provide reasonable assurance that the entity administers government programs in accordance with the compliance requirements.

Among other things, the auditor also requests representations that management has disclosed all known noncompliance with the applicable compliance requirements, including that subsequent to the period covered by the auditor’s report.

Question 24

When an auditor is performing a compliance audit and identifies pervasive risks of material noncompliance, the auditor should

Answer 24

Develop an overall response to such risks.

The auditor should develop an overall response to such risks. For example, the auditor may use more experienced staff or increase supervision.

Question 25

A material weakness in internal control over compliance arises when

Answer 25

A reasonable possibility exists that material noncompliance will not be prevented or timely detected and corrected.

A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance that results in a reasonable possibility that material noncompliance with a compliance requirement will not be prevented, or detected and corrected, on a timely basis.

Question 26

In a compliance audit, the auditor’s primary objective is to

Answer 26

Express an opinion whether the entity maintained compliance with applicable requirements.

Question 27

In an audit of compliance, an auditor would be expected to follow which standard?

Answer 27

GAAS adopted to meet the circumstances of a compliance audit. The auditor should use judgment in adapting and applying GAAS for financial statement audits to compliance audits.

Question 28

Under the Single Audit Act, the auditor must report a schedule of findings and questioned costs. Questioned costs result from an audit finding of :

Answer 28

(1) a violation or possible violation of a law, regulation, contract, grant, or agreement or document governing the use of federal funds, including matching funds;
(2) inadequate documentation of costs at the time of the audit; or (3) costs that appear unreasonable and do not reflect the actions a prudent person would take in the circumstances.

Question 29

The concept of materiality for financial statements audited under the Single Audit Act differs from materiality in an audit in accordance with generally accepted auditing standards. Under the act, materiality is

Answer 29

Determined separately for each major federal program.

The objective of the Single Audit Act is to permit one audit to encompass the entity’s financial statements, its compliance with the terms of federal programs, and internal control. The audit should consider each major federal program individually to determine whether the program is in compliance with applicable laws and regulations. Thus, materiality should be considered at an individual program level.

Question 30

Under the Single Audit Act, the auditor should express an opinion on compliance with requirements having a direct and material effect on a major federal program or state that an opinion cannot be expressed. When the compliance audit detects noncompliance with those requirements that the auditor believes have a direct and material effect on the program, the auditor should express a:

Answer 30

qualified or adverse opinion. The auditor should state the basis for such an opinion in the report.

Question 31

The auditor’s responsibilities under the Single Audit Act include

Answer 31

Reporting on compliance with grant requirements.

Under the Single Audit Act, audit reporting should include an opinion on the fairness of the financial statements, a report on internal control, and a report on compliance with grant requirements.

Question 32

What is a subrecipient?

Answer 32

OMB Audit Requirements for Federal Awards (2 CFR 200) defines a subrecipient as a nonfederal entity that expends federal awards received from another entity, often another governmental body, to carry out a federal program.

Question 33

Is an auditor is auditing a nonfederal entity’s administration of a federal award pursuant to a major program under the Single Audit Act required to obtain evidence related to compliance and express or disclaim an opinion on compliance?

Answer 33

Yes to both.