Question 1

In a performance audit of a not-for-profit organization, procedures that auditors would follow to gain an understanding of management controls would NOT include

Accepted Answer

Sending questionnaires to clients is not a procedure auditors would typically follow to gain an understanding of management controls within a not-for-profit organization. This method is more aligned with understanding client satisfaction or gathering feedback on services provided, rather than assessing internal management controls. Reviewing policy manuals, discussing controls with employees, and flowcharting systems are all direct methods to understand and evaluate the organization's management controls.

Question 2

Financial audits generally are conducted annually. Performance audits generally are conducted

Accepted Answer

Performance audits are conducted on an irregular basis, depending on the specific needs and objectives of the organization or project being evaluated, rather than on a fixed schedule.

Question 3

An elected state auditor, employed by the state, would NOT be considered independent when auditing which of the following entities?

Accepted Answer

The office of the state auditor would not be considered an independent entity for the auditor to audit, as it would involve auditing their own work, which lacks independence.

Question 4

An independent CPA is engaged to audit the financial statements of Holland City . The city has a variety of revenue sources including a $350,000 grant from the U.S. Department of Housing and Urban Development. Which of the following audit standards must the CPA use when conducting the audit?

Accepted Answer

The CPA must use all of the mentioned audit standards: AICPA audit standards for general auditing guidance, GAO audit standards (also known as the Yellow Book) for government audits, and OMB audit standards for federal grants and funding, which would include the HUD grant.

Question 5

Which of the following is NOT a consideration in resolving an ethical dilemma?

Accepted Answer

The primary considerations in resolving an ethical dilemma involve understanding the facts (A), identifying who is affected (B), and considering the alternative courses of action (D). The concern about who will know about the action (C) does not directly address the ethical dimensions of the dilemma but rather focuses on the potential consequences or perceptions of the action, which is not a fundamental ethical consideration.

Question 6

Which of the following is not a unique characteristic that distinguishes ethical decisions made by employees of governments from those made by employees of for-profit entities?

Accepted Answer

Government employees and employees of for-profit entities both have a responsibility to safeguard assets. This responsibility is not unique to government employees, as employees in the private sector also have a duty to protect the assets of their respective organizations. The other options (A, B, D) highlight aspects more uniquely associated with government roles, such as higher standards of conduct, accountability for public funds, and transparency of activities.

Question 7

Which of the following is NOT a necessary condition for a performance audit?

Accepted Answer

A necessary condition for a performance audit includes having a clear understanding of what will be audited, which involves delineating the activities and outcomes (A), ensuring that the entity has defined operational objectives (B), and understanding the management controls relevant to the audit (C). However, having a schedule of disbursements related to the program (D) is not a necessary condition for a performance audit, as performance audits focus on the efficiency, effectiveness, and economy of a program or operation, rather than just financial transactions.

Question 8

GAO performance audit standards do NOT include which of the following?

Accepted Answer

The answer of GAO performance audit standards do NOT include...

Question 9

Which of the following is NOT true of an attestation engagement?

Accepted Answer

Attestation engagements can be performed even if the reliability of the entity's performance measures is questionable. The purpose of such engagements often includes evaluating or improving the reliability of these measures.

Question 10

In a highly controversial move, the mayor and city council approved the purchase of the Swim and Gym, a local private facility that was facing bankruptcy. The mayor promised the public that the facility would be operated on a business-like basis and would be fully supported by user fees. No city money was to be spent on the Swim and Gym. Critics of the purchase complain that city laborers are frequently seen at the facility, the facility was re-roofed during the first year, and employees at the facility are considered city employees and earn the same benefits as other city employees. To quiet the vocal opponents to the operation of the Swim and Gym, the mayor asked the internal audit department to conduct an audit of the operation. You are assigned to the task.
REQUIRED:
What are the issues you want to address in this audit?

Accepted Answer

The answer of In a highly controversial move, the mayor...

Question 11

Which of the following is NOT a technique used by an auditor in a performance audit engagement to gain an understanding of the controls in place to ensure that a program meets its objective?

Accepted Answer

Reading the legislation is more about understanding the legal framework and requirements governing the program rather than a technique to understand the controls in place for ensuring the program meets its objectives. Techniques like making inquiries of employees, flow-charting systems, and administering questionnaires are direct methods to understand and evaluate the controls.

Question 12

Which of the following is NOT a key difference between financial and performance audits?

Accepted Answer

Performance audits are conducted with reference to standards, such as those issued by the Government Accountability Office (GAO) in the United States or the International Organization of Supreme Audit Institutions (INTOSAI) for international audits, not without any standards.

Question 13

Which of the following is true about the public availability of audit reports prepared under GAGAS?

Accepted Answer

Audit reports prepared under Generally Accepted Government Auditing Standards (GAGAS) are intended to be publicly available to ensure transparency and accountability in government operations. This includes both financial statement audits and performance audits.

Question 14

Which of the following statements about the GAO is NOT true?

Accepted Answer

The Government Accountability Office (GAO) is a legislative branch agency, not an executive branch agency. It serves as the audit, evaluation, and investigative arm of Congress.

Question 15

Under the Single Audit Act, the required report on compliance and on internal control over financial reporting

Accepted Answer

The Single Audit Act requires that the report on compliance and internal control over financial reporting is based on the audit requirements of the GAO's Government Auditing Standards.

Question 16

The following descriptions relate to an independent public accounting firm that has as clients some governments and not-for-profit entities that receive federal financial assistance.
REQUIRED:
For each of the following independent situations, describe the possible violations of GAO standards (Government Auditing Standards) and conclude whether or not the situation is a violation.
a) A college graduate who is not a CPA is assigned by her firm to the audit of Grover County. Because she is not a CPA, the firm did not send her to any continuing education courses this year or last year.
b) An auditor has prepared working papers using a new computer software package. The financial statements and audit reports generated by the software are well designed and incorporate all required accounting and auditing standards. Because the program is so powerful, it is also quite complex. Printouts of the financial statements and supporting schedules do not include much of the information necessary to determine that the auditor was justified in his/her conclusion. Most of that information is part of the computer program, however.
c) While auditing a not-for-profit entity, the auditor discovered that a secretary had been embezzling money from the petty cash fund. In relation to the financial statements taken as a whole, the amount stolen was not material. The auditor discussed the issue with the entity's management. The theft was reported to the appropriate law enforcement personnel and the bonding company reimbursed the not-for-profit entity for the full amount of its loss. Since there was no effect on the financial statements, the theft was not mentioned in the auditor's report.
d) The internal auditor of Sunningdale City reports to the city's chief financial officer. The internal auditor audited the city's health and welfare division for purposes of expressing an opinion on the financial statements prepared by that division and submitted to a federal agency.

Accepted Answer

The answer of The following descriptions relate to an independent...

Question 17

The three categories of government auditing standards are

Accepted Answer

The three categories of government auditing standards are General, Field Work, and Reporting standards. These categories ensure that audits are conducted with competence, integrity, objectivity, and in a manner that adds value to the audited entity.

Question 18

Circular A-133, issued by the Office of Management and Budget,

Accepted Answer

Circular A-133, issued by the Office of Management and Budget, applies to both state and local governments and not-for-profit organizations, setting standards for consistency and uniformity among federal agencies in the audit of states, local governments, and non-profit organizations expending federal funds.

Question 19

GAO standards specify that performance audit reports should be timely and include several items. Which of the following items is NOT required under the GAO standards?

Accepted Answer

GAO standards require that performance audit reports include significant findings, recommendations for corrections, and explanations of the audit's objectives, scope, and methodology. However, they do not specifically require details about the number of items tested and the sampling techniques used.

Question 20

If a program to be subjected to a performance audit lacks clearly defined objectives, what can the auditor do?

Accepted Answer

The auditor can examine the legislation to see if it articulated the goals and objectives of the program, as this provides an external, authoritative source for what the program is intended to achieve.

Quiz 15: Auditing Governments and Not-For-Profit Organizations