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

Question 1

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.

Answer 1

False
Explanation: The single audit provides assurance to the federal government that federal funds are expended in accordance with grant agreements and with financial management and other standards promulgated by the federal government. Governmental auditing standards require auditors to report deficiencies in the design or operation of internal controls.

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

Question 3

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

Answer 3

False
Explanation: The auditor is required to report directly to appropriate officials, such as funding agencies or legislative bodies, as well as to the organization's board or audit committee.

Question 4

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

Question 5

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

Question 6

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

Question 7

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 8

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

Question 9

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

Question 10

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

Question 11

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

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

Question 14

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

Question 15

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

Question 16

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 17

Government financial audits are subject only to GAGAS.

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

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.

Question 20

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 21

Churches must file a Form 990.

Question 22

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

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 90 percent of federal funds expended by the auditee.

Question 24

Governmental units and many not-for-profit organizations are subject to Government Auditing Standards in addition to the Statements on Auditing Standards, issued by the American Institute of Certified Public Accountants AICPA).

Question 25

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

Question 26

Government Auditing Standards are issued by the U.S. Government Accountability Office GAO).

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

Governmental Audit Reports may include a report describing instances of fraud or illegal acts.

Question 33

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

Question 34

Government Auditing Standards do not apply to audits conducted to satisfy the requirements of the Single Audit Act as well as other governmental audits

Question 35

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

Question 36

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

Question 37

The classification of Net Assets in the Form 990 for are consistent with FASB standards for not-for-profit organizations.

Question 38

Government Auditing Standards identify four categories of professional engagements: financial audits, performance audits, and nonaudit services but not attestation engagements.

Question 39

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 40

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 41

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

Question 42

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 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

Tax Code Section 501 provides that nonprofit organizations organized for charitable purposes may be exempt from federal income taxes.

Question 49

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

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

Churches, schools and hospitals are public charities.

Question 52

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

Question 53

An organization that receives more than two-thirds of its support from a combination of contributions, membership fees, and gross receipts from exempt and no more than one-third of its support from a combination of investment income and net unrelated income after taxes is a public charity.

Question 54

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

Question 55

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 56

Debt service coverage can only be directly measured from proprietary fund statements since cash flow statements are not prepared for governmental funds or at the government-wide level.

Question 57

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

Question 58

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

Question 59

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 60

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

Question 61

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

Question 62

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 63

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

Question 64

Service efforts are measures of costs and other resources dedicated to a program or service.

Question 65

Service Efforts and Accomplishments Reporting is mandatory for government organizations.

Question 66

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

Question 67

What organization oversees the promulgation of Government Auditing Standards?

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

Question 68

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

Question 69

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

Question 70

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

Question 71

The working capital ratio provides a measure of how long a not-for-profit could sustain its operations without generating new revenue.

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

Government auditing standards are commonly known as:

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

Question 74

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

Question 75

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

Question 76

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

Question 77

The most commonly used measure of not-for-profit efficiency is the fund raising expense ratio.

Question 78

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

Question 79

Working capital ratio for a not-for-profit is the ratio: current assets divided by total expenses.

Question 80

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