Question 1

An independent CPA who conducts audits of entities that receive federal financial assistance has what responsibility related to a peer review?

Accepted Answer

According to the Generally Accepted Government Auditing Standards, an independent CPA who conducts audits of entities that receive federal financial assistance must have a peer review at least every three years. This review must be conducted by a qualified, independent external peer review team.

Question 2

A CPA prepares 'working papers' in an audit of an entity that receives federal financial assistance.Which of the following statements is true with regard to such 'working papers'?

Accepted Answer

The GAO standards concerning working papers are indeed more rigorous than the AICPA standards. This is because the GAO (Government Accountability Office) standards, often referred to as the Yellow Book standards, have specific requirements for documentation in audits of entities receiving federal financial assistance, ensuring accountability and transparency. The AICPA (American Institute of Certified Public Accountants) also emphasizes the importance of working papers in audits but the GAO standards are more detailed and stringent in their requirements.

Question 3

An independent CPA is conducting an audit of an entity that is subject to the GAO audit standards, but is not subject to the OMB audit standards.While conducting the audit, the CPA found that the entity had violated a law that had a large, but not material, potential penalty associated with such violation.There was no accrual for the potential penalty or disclosure of the violation.What action(s)must the CPA take with regard to this violation?

Accepted Answer

The CPA must issue a report that details the violation and the potential dollar effect. This is required by the GAO audit standards, which state that the auditor should communicate internal control related matters that are significant deficiencies or material weaknesses in writing to management, and that the auditor should communicate other findings or issues in writing to management or those charged with governance, as appropriate. The violation of a law would be considered a significant deficiency or material weakness, and thus must be communicated to management. The potential dollar effect of the violation must also be disclosed in the report.

Question 4

Each federal financial assistance program has specific compliance requirements.Which of the following is not an example of the general nature of the specific compliance requirements?

Accepted Answer

The maximum dollar amounts of expenditures is a general nature of the specific compliance requirements for federal financial assistance programs. Eligibility, allowability, and matching fund requirements are all specific compliance requirements that vary from program to program.

Question 5

What amount of continuing professional education would an auditor, who is not a CPA but who is engaged in the audit of a City that receives significant amounts of federal financial assistance, be required to complete?

Accepted Answer

Auditors engaged in audits of entities receiving significant federal financial assistance, such as a city in this case, are generally required to follow the standards set by the Government Auditing Standards (also known as the Yellow Book). These standards require auditors to complete 80 hours of continuing professional education (CPE) every two years, with at least 24 hours directly related to government auditing, the government environment, or the specific or unique environment in which the audited entity operates. This requirement applies regardless of the auditor's CPA status.

Question 6

Which of the following is an objective of audits under the Single Audit Act? To ensure that

Accepted Answer

The Single Audit Act requires audits to ensure that entities receiving federal awards are complying with the laws, regulations, and provisions applicable to each specific award. Therefore, option D is the correct objective of audits under the Single Audit Act. Options A, B, and C are objectives of financial statement audits, which are different from audits under the Single Audit Act.

Question 7

An independent CPA is conducting an audit of an entity that receives federal financial assistance and is subject to the GAO standards (GAGAS).The auditor must design the audit to provide reasonable assurance of detecting which of the following?

Accepted Answer

The auditor must design the audit to provide reasonable assurance of detecting noncompliance with the terms of contracts or grant agreements, especially when the entity receives federal financial assistance and is subject to GAO standards (GAGAS).

Question 8

Under which set of auditing standards is the auditor required to express an opinion on compliance with laws and regulations applicable to each major program?

Accepted Answer

The requirement to express an opinion on compliance with laws and regulations applicable to each major program is under the OMB (Office of Management and Budget) standards. The AICPA (American Institute of Certified Public Accountants) and GAO (Government Accountability Office) standards do not specifically address this requirement.

Question 9

A CPA has conducted an audit of the financial statements of an entity that received federal financial assistance and had one program that qualified as a major program.The CPA's responsibility related to reporting on internal control for this entity is to:

Accepted Answer

The answer of A CPA has conducted an audit of...

Question 10

An auditor is engaged to audit the Eastern Planning and Development District, a not-for-profit entity that receives federal financial assistance.The auditor designed his audit to provide reasonable assurance of detecting material misstatements resulting from illegal acts.What additional requirements does the auditor have with regard to compliance?

Accepted Answer

When auditing a not-for-profit entity that receives federal financial assistance, the auditor has a responsibility to design the audit to provide reasonable assurance of detecting material misstatements resulting from illegal acts. In addition to this, the auditor must also design the audit to provide reasonable assurance of detecting noncompliance with terms of grants and contracts. Therefore, option B is the correct answer. Option C is incorrect because the auditor is only required to design the audit to detect material misstatements resulting from illegal acts, not all misstatements. Option D is incorrect because the auditor's responsibility is to detect material misstatements resulting from illegal acts and noncompliance with terms of grants and contracts, not any fraud. Option A is also incorrect because there are additional requirements related to compliance that the auditor must follow.

Question 11

A CPA has conducted an audit of the financial statements of an entity that received federal financial assistance.The CPA identified one major federal program and four nonmajor federal programs.The CPA's responsibility related to the Schedule of Expenditures of Federal Awards is to:

Accepted Answer

The CPA's responsibility in relation to the Schedule of Expenditures of Federal Awards is to express an opinion as to whether the Schedule is fairly presented in relation to the financial statements taken as a whole. This approach allows the CPA to provide assurance on the schedule based on its relation to the overall financial statements, rather than as a standalone document.

Question 12

The Single Audit Act distinguishes between major and nonmajor federal programs.One factor that distinguishes a major from a nonmajor program is inherent risk.Which of the following is NOT a characteristic of "inherent risk"?

Accepted Answer

Lack of oversight by federal agencies is not a characteristic of inherent risk. Inherent risk is related to the nature of the program itself, and factors such as significant prior audit findings, violations of grant terms due to misunderstandings, and weaknesses in internal controls all contribute to the level of inherent risk associated with a program. Lack of oversight by federal agencies may increase the level of control risk, but it does not affect inherent risk.

Question 13

Which of the following is NOT included in the general requirements for which the auditor must test compliance with federal regulations?

Accepted Answer

Drug-free workplace requirements are typically not part of the general compliance requirements that auditors must test for in the context of federal regulations. These requirements are more specific to certain federal contracts and grants, rather than a general compliance requirement for all federal funding.

Question 14

Under which set of auditing standards is the auditor required to test compliance with laws and regulations that could have a direct and material effect on the financial statements of the entity?

Accepted Answer

According to Generally Accepted Government Auditing Standards (GAGAS) promulgated by the Government Accountability Office (GAO), auditors are required to obtain an understanding of laws and regulations that could have a direct and material effect on the financial statements of the entity, and to test compliance with those laws and regulations. AICPA and OMB standards may also require compliance testing but are not as explicitly focused on it as GAGAS.

Question 15

An independent auditor has conducted an audit of the financial statements of an entity that receives federal financial assistance, but that is not subject to the OMB standards.What report(s)must the auditor issue at the completion of this engagement?

Accepted Answer

Since the entity receives federal financial assistance, the auditor must issue a report on compliance with the applicable compliance requirements in relation to the financial assistance. Also, a report on internal control is required since the entity is not subject to the OMB standards. Finally, the auditor must issue an opinion (or disclaimer of opinion)on the financial statements. Therefore, the best choice is option C.

Question 16

The Schedule of Findings and Questioned Costs should include all of the following except

Accepted Answer

The Schedule of Findings and Questioned Costs should include information on weaknesses in internal control, material noncompliance, and known questioned costs. However, it does not typically include information on the types of opinions expressed on the financial statement, as this information is typically included in the auditor's report.

Question 17

Reports issued by CPAs conducting audits subject to the GAO standards must include all of the following except:

Accepted Answer

Reports issued by CPAs conducting audits subject to the GAO standards must include descriptions of the scope of compliance testing, the scope of internal control testing, and any irregularities and illegal acts found. However, they are not required to include a description of any sampling methodology and sampling plans used. This detail is typically part of the audit methodology and does not need to be explicitly stated in the report.

Question 18

What is the auditor's responsibility for the Schedule of Expenditures of Federal Awards?

Accepted Answer

The auditor's responsibility for the Schedule of Expenditures of Federal Awards is to express an opinion on the fair presentation of the Schedule in relation to the basic financial statements taken as a whole. This means that the auditor should assess whether the Schedule is accurate and complete, and whether it aligns with the information presented in the rest of the financial statements. The auditor should issue an opinion on the Schedule as part of the overall audit opinion.

Question 19

A CPA has conducted an audit of the financial statements of an entity that received federal financial assistance and had one program that qualified as a major program.The CPA's responsibility related to reporting on compliance for this entity is to

Accepted Answer

In conducting an audit of an entity that has received federal financial assistance and has a major program, the CPA's responsibility includes issuing a report on compliance for the entity as a whole and also providing an opinion on compliance specifically related to the federal program(s) identified as major. This dual reporting approach ensures that both the entity's overall compliance and the compliance related to the major federal program are adequately addressed.

Question 20

Which of the following groups is responsible for administering the Single Audit Act?

Accepted Answer

The Single Audit Act is administered by the Office of Management and Budget (OMB). The act requires states, local governments, and nonprofit organizations that expend more than $750,000 in federal funds in a fiscal year to have a single audit performed in accordance with the OMB's guidelines.

Quiz 16: Auditing Governments and Notforprofit Organizations