Deck 13: Auditing, Tax-Exempt Organizations, and Evaluating Performance

Question 1

The Government Accountability Office has authority for issuing Governmental Auditing Standards.

Answer 1

True

Question 2

The Single Audit Act is intended to provide assurance to the federal government that federal funds are protected through a system of internal controls and sound financial management practices.

Answer 2

True

Question 3

While the Sarbanes-Oxley Act applies only to corporations filing with the Securities and Exchange Commission,several provisions of the Act already existed in governmental auditing standards,and others are being voluntarily adopted by not-for-profit organizations.

Answer 3

True

Question 4

Governmental Auditing Standards identifies four categories of professional engagements:
financial audits,performance audits,attestation engagements,and non-audit services.

Question 5

Government financial audits are subject to both GAAS and GAGAS.

Question 6

The Government Accounting Standards Board has authority for issuing Governmental Auditing Standards,but not auditing standards for private companies and not-for-profits.

Question 7

Governmental attestation engagements must comply with both the Government Auditing Standards and with the AICPA's attestation standards.

Question 8

Entities receiving $ 500,000 or more of federal funds are generally required to have a single audit.

Question 9

The Single Audit Act is intended to provide assurance to the federal government that federal funds have been expended in accordance with laws and regulations,but does not include a report on internal controls.

Question 10

If a government failed to report infrastructure assets,the auditor could still express an unqualified opinion on the fund level financial statements.

Question 11

The purpose of audits conducted under the Single Audit Act is to provide assurance that federal and state funds are expended in accordance with grant agreements,and with financial management and other standards promulgated by the federal government.

Question 12

The use of opinion units allows an auditor to issue different opinions on different statements,instead of issuing a single opinion.

Question 13

The Sarbanes Oxley Act is intended to provide assurance to the federal government that federal funds are protected through a system of internal controls and sound financial management practices.

Question 14

Assuming an auditee is considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 50 percent of federal funds expended by the auditee.

Question 15

Governments and other nonprofits receiving federal funds follow Governmental Auditing Standards and do not have to comply with AICPA Statements of Auditing Standards.

Question 16

In a governmental audit the auditor is only required to report to the board or audit committee.

Question 17

The single audit requirements apply only to state and local governments.Private not-for-profits do not have to comply with these requirements,even if they receive federal grants.

Question 18

While the principal users of corporate audit reports are investors and creditors,the main user of Single Audit reports is the federal government.

Question 19

Governmental attestation engagements must comply with the Government Auditing Standards but are exempt from compliance with the AICPA's attestation standards.

Question 20

In a governmental audit the auditor is required to report directly to appropriate officials in addition to the board or audit committee.

Question 21

If a tax-exempt organization is found by the IRS to have paid excessive benefits,the organization must pay a tax penalty of 25% of the excess benefit and the employee must pay a 10% penalty,but the employee is entitled to keep the benefits.

Question 22

A disclaimer of opinion is the appropriate audit opinion when the auditor is not independent.

Question 23

Assuming an auditee is not considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 50 percent of federal funds expended by the auditee.

Question 24

Entities that are tax-exempt under IRS Section 501(c)3 are prohibited from having surpluses (revenues exceed expenses).

Question 25

Entities that are tax-exempt under IRS Section 501(c)3 with gross receipts less than $500,000 may file Form 990-N (electronic postcard).

Question 26

Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unrelated to the entity's tax-exempt purposes.

Question 27

Entities that are tax-exempt under Section 501(c)3 of the Internal Revenue Code do not have to pay income taxes,even if some of their activities compete with commercial enterprises.

Question 28

The purpose of the Unrelated Business Income Tax is to eliminate advantages that tax-exempt organizations have over commercial enterprises providing goods or services for sale.

Question 29

Tax-exempt organizations are required to disclose the compensation of its officers,directors,trustees,highest paid employees and independent contractors in the Form 990.

Question 30

The Taxpayer Bill of Rights requires tax-exempt organizations to provide copies,upon request,of the three most recent annual form 990s.

Question 31

In a disclaimer of opinion,the auditor states that no opinion is being expressed.

Question 32

Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unless the money is used to carry out the entity's tax-exempt purposes.

Question 33

Assuming an auditee is considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 25 percent of federal funds expended by the auditee.

Question 34

The classification of Net Assets for tax-exempt organizations are consistent with FASB standards for not-for-profit organizations.

Question 35

Entities that are tax-exempt under IRS Section 501(c)3 with gross receipts less than $ 500,000 and total assets less than $ 2.5 million may file Form 990-EZ

Question 36

Beginning in 2012,entities that are tax-exempt under IRS Section 501(c)3 with gross receipts less than $ 50,000 may file Form 990-N (electronic postcard).

Question 37

Governmental Audit Reports are due nine months after the end of the fiscal year.

Question 38

Assuming an auditee is not considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 90 percent of federal funds expended by the auditee.

Question 39

Unrelated Business Income Tax is an excise tax,applied to the gross receipts of a business activity.Therefore allocations of expenses incurred in generating the income are irrelevant.

Question 40

Churches are exempt from Form 990 filing requirements.

Question 41

Section 501(c)(3),exempt organizations are prohibited from supporting political candidates or campaigning to influence legislation.

Question 42

The program expense ratio is calculated as Program service expenses / Total expenses.

Question 43

Entities that are tax-exempt under IRS Section 501(c)3 are permitted to endorse political candidates or attempt to influence legislation.

Question 44

Bonds which carry the full faith and credit of a government are called general obligation bonds.

Question 45

When computing Unrelated Business Income Tax,charities are permitted to deduct ordinary and necessary business related expenses and the first $1,000 of income is not taxed.

Question 46

Fund-raising efficiency is a measure of performance that expresses how much an organization spends in raising a dollar of donations.

Question 47

Supporting expenses are not included in the numerator of the program expense ratio.

Question 48

The program expense ratio is calculated as (Program service expenses + supporting service expenses)/ Total expenses.

Question 49

Tax-exempt entities are not allowed to make contributions to political campaigns or they may lose their tax-exempt status.

Question 50

Tax-exempt organizations are required to file Form 990 by the 15th day of the 5th month following the organization's taxable year.

Question 51

If one wished to compute the net debt of a government,this could be found in the governmental fund financial statements.

Question 52

A tax-exempt organization must pay income taxes on income generated from trade or business activities unrelated to the entity's tax-exempt purposes.

Question 53

Service Efforts and Accomplishments Reporting is best completed by using a variety of measures,which are reported consistently.

Question 54

The program expense ratio is calculated as follows:
Total expenses / (Program service expenses + supporting service expenses).

Question 55

To apply for tax-exempt status,an organization must complete an IRS Form 1023.

Question 56

The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to administrative expenses.

Question 57

Bonds which carry the full faith and credit of a government are called revenue bonds.

Question 58

The GASB has issued standards for Service Efforts and Accomplishments Reporting.

Question 59

The three major user groups identified by the GASB are (1)citizen groups,(2)legislative and oversight officials,and (3)investors and creditors.

Question 60

The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to program expenses.

Question 61

Which of the following is a governmental audit that is concerned with examining,reviewing,or performing agreed upon procedures on a subject matter of an assertion and reporting on the results?

A) Financial Audit.
B) Attestation Engagement.
C) Performance Audits.
D) Nonaudit Services.

Question 62

Service Efforts and Accomplishments Reporting is limited to financial measures such as revenues and expenses.

Question 63

Government auditing standards are commonly known as:

A) The Yellow book.
B) The Green Book.
C) The Blue Book.
D) The Red book.

Question 64

Service Efforts and Accomplishments Reporting is mandatory for government organizations.

Question 65

Government Auditing Standards identify which of the following categories of professional engagements:

A) Financial audits.
B) Financial audits and performance audits.
C) Financial audits, agreed-upon procedures and performance audits.
D) Financial audits, attestation engagements, performance audits, and nonaudit services.

Question 66

The use of opinion units allows the auditor to

A) Only allow one opinion for entire entity not its components.
B) Provide different opinions on different components of the reporting entity.
C) Plan the audit better and increase the effectiveness of substantive procedures.
D) Eliminate the need for Test of Controls.

Question 67

Which organization promulgates the Government Auditing Standards?

A) The American Institute of Certified Public Accountants.
B) The U.S. Office of Management and Budget.
C) The U.S. Government Accountability Office.
D) The U.S. Congressional Budget Office.

Question 68

Service Efforts and Accomplishments Reporting is voluntary for not-for-profit organizations.

Question 69

Government Auditing Standards,published in a document called the Yellow Book,incorporate the AICPA standards and provide extensions that are necessary due to the unique nature of public entities.Which of the following is not one of the extensions?

A) Higher materiality thresholds than in the private sector.
B) Public availability of audit reports.
C) Written evaluation of internal controls.
D) Requirement that auditors have knowledge of government accounting and auditing.

Question 70

Service Efforts and Accomplishments Reporting includes measures of service inputs,outputs and outcomes.

Question 71

Which of the following would be a financial audit (or a part of a financial audit)under the Government Auditing Standards?

A) An audit expressing an opinion on the basic financial statements of a state or local government audit.
B) An examination to determine whether purchasing procedures are appropriately designed to assure program supplies meet standards.
C) Both A and B above.
D) Neither A nor B above.

Question 72

Public sector audits differ from those of commercial businesses in which of the following ways?

A) The auditor is not required to be independent.
B) The auditor reports to outside agencies as well as management of the organization.
C) The auditor does not use sampling
D) All of the above.

Question 73

Which of the following is a governmental audit type that has a primary concern with providing reasonable assurance about whether financial statements are presented fairly?

A) Attestation Engagement.
B) Performance Audit.
C) Financial Audit.
D) Nonaudit services.

Question 74

The Single Audit Act intends that auditors conducting regular financial audits of state and local governments and not-for-profits organizations provide assurance to the federal government that:

A) Federal funds have been expended in accordance with laws and regulations.
B) Federal funds are protected through a system of internal controls and sound financial management practices.
C) Both A and B above.
D) Neither A nor B above.

Question 75

Government financial audits must comply with the following:

A) Generally Accepted Auditing Standards.
B) Government Auditing Standards.
C) Both A and B.
D) Generally Accepted Accounting Principles.

Question 76

Which of the following is not a type of governmental audit?

A) Attestation engagements.
B) Consulting engagements.
C) Financial audits.
D) Performance audits.

Question 77

Supporting expenses are included in the denominator of the program expense ratio.

Question 78

Which of the following is not a difference between private sector auditing and governmental auditing?

A) The public availability of audit reports.
B) Testing of compliance with laws and regulations.
C) Governmental audits require auditor knowledge of government accounting and auditing.
D) None of the above; these are all differences between private sector auditing and governmental auditing.

Question 79

What organization oversees the promulgation of Government Auditing Standards?

A) Government Accountability Office.
B) Governmental Accounting Standards Board.
C) Public Companies Accounting Oversight Board.
D) Government Accounting Oversight Committee.

Question 80

Service Efforts and Accomplishments Reporting is intended to communicate information about the effectiveness of governmental services.