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

Question 1

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

Answer 1

True

Question 2

The Sarbanes Oxley Act is intended to improve corporate governance and limit the services accounting firms may provide to their audit clients.

Answer 2

True

Question 3

Government financial audits are subject only to GAGAS.

Answer 3

False

Question 4

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

Question 5

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 6

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

Question 7

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

Question 8

While the Sarbanes-Oxley Act applies to corporations filing with the Securities and Exchange Commission,several provisions of the Act already existed in governmental auditing standards and now are also mandated for not-for-profit organizations.

Question 9

If a government failed to report infrastructure assets,the auditor would have to express an adverse opinion on the fund level financial statements.

Question 10

Entities that expend $500,000 or less of federal funds are generally required to have a single audit.

Question 11

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

Question 12

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

Question 13

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

Question 14

The Government Accountability Office has authority for issuing Generally Accepted Auditing Standards.

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

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 17

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 18

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.

Question 19

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 20

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

Question 21

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

Question 22

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 23

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 24

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 25

If a tax-exempt organization is found by the IRS to have paid unreasonable benefits,the individual must pay a tax penalty of 25% of the excess benefit and the individuals who approved the benefits must pay a 10% penalty.

Question 26

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 27

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

Question 28

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

Question 29

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

Question 30

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 31

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 32

Beginning in 2012,entities that are tax-exempt under IRS Section 501(c)(3)with gross receipts less than $75,000 may file Form 990-N (electronic postcard).

Question 33

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

Question 34

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 35

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

Question 36

Churches must file a Form 990.

Question 37

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 38

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 39

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 40

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 purpose.

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

According to GASB,Service Efforts and Accomplishments Reporting is to provide more complete information about a governmental entity's performance.

Question 49

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

Question 50

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 51

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

Question 52

Tax-exempt organizations are required to file Form 990 by the 15th day of the 9th month following the organization's taxable year.

Question 53

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

Question 54

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 55

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

Question 56

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

Question 57

Debt service coverage can only be directly measured from proprietary fund statements.

Question 58

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

Question 59

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

Question 60

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

Question 61

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

Question 62

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

Question 63

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 64

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 65

Government auditing standards are commonly known as:

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

Question 66

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

Question 67

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 68

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 69

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) Nonaudit services.
D) Financial Audit.

Question 70

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 71

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

Question 72

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 73

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

Question 74

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 75

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 76

The use of opinion units allows the auditor to

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

Question 77

Service Efforts and Accomplishments Reporting is mandatory for government organizations.

Question 78

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 79

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 80

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

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