Question 1

Government Auditing Standards (GAS)issued by the U.S.Comptroller General,also referred to as generally accepted government auditing standards (GAGAS),apply to all of the following audits,except

Accepted Answer

GAS/GAGAS apply to financial audits of federal organizations, federal grants, and federal programs, regardless of the auditor performing the audit. However, they do not apply to financial audits of not-for-profit organizations that do not receive or expend federal financial awards.

Question 2

An auditor would not render an opinion on a(an)

Accepted Answer

While an auditor could perform a performance audit, the auditor would not render an opinion on the effectiveness or efficiency of the entity being audited, which is the objective of a performance audit. This distinguishes it from a financial audit or a compliance audit where an opinion would be provided.

Question 3

A single audit conducted pursuant to the Single Audit Act Amendments of 1996 requires which of the following types of audits?

Accepted Answer

A single audit includes a financial audit component but does not require a performance audit. It focuses on financial statements and federal awards.

Question 4

One of the primary purposes of the Single Audit Act of 1984 (amended in 1996)is to

Accepted Answer

The Single Audit Act of 1984 (amended in 1996) aims to promote the efficient and effective use of audit resources by consolidating audit activity into one organization-wide audit. This act requires nonfederal entities that spend over $750,000 in federal funds in a year to undergo a single audit, which covers both financial and compliance audits. The purpose is to reduce the administrative burden on these entities, and at the same time, to provide the federal government with assurance that the funds are spent in compliance with applicable laws and regulations. The act also requires auditors to report on internal control over financial reporting and on compliance with laws and regulations related to federal funds.

Question 5

In which paragraph of the standard audit report does the auditor communicate to the user that certain combining fund information in the financial statements is not part of the basic financial statements,but that such information has been subjected to auditing procedures and,in his or her opinion,is fairly presented in all material respects in relation to the basic financial statements?

Accepted Answer

The explanatory paragraph is used to provide additional information or clarification about the audit, including any additional procedures performed on supplementary information, such as combining fund information.

Question 6

Typical objectives of a performance audit include

Accepted Answer

Performance audits aim to assess effectiveness and results, economy and efficiency, and internal controls and compliance with laws and regulations. Options A and C specifically refer to financial statement audits, while option B is mostly related to assessing a program's objectives and goals, which is not the primary focus of a performance audit.

Question 7

Which of the following best describes the relationship between generally accepted auditing standards (GAAS)and generally accepted government auditing standards (GAGAS)?

Accepted Answer

GAGAS incorporates GAAS as one of the necessary standards, but it also includes additional requirements specific to government auditing. Therefore, audits conducted in conformity with GAGAS may require the auditor to conform to GAAS as well.

Question 8

Circumstances that could impair independence and therefore should be evaluated are called

Accepted Answer

Threats to independence refer to any circumstances or relationships that could jeopardize an auditor’s ability to act with integrity, maintain professional skepticism, and make objective and impartial judgments. These threats can arise from financial or personal interests, close relationships with clients, or pressures from third parties. Evaluating and mitigating these threats is crucial to ensure that auditors can perform their duties with independence and objectivity. Material weaknesses, significant deficiencies, and reportable conditions are all related to deficiencies in internal control or financial reporting but are not specific to independence.

Question 9

All of the following reports are included in the reporting package resulting from the single audit except

Accepted Answer

The reporting package resulting from the single audit includes the financial statements and schedule of expenditures of federal awards, summary schedule of prior audit findings, and corrective action plan. However, the report on efficiency and effectiveness is not included in the reporting package resulting from the single audit.

Question 10

Which of the following statements concerning the Single Audit Act of 1984 (with 1996 Amendments)is correct?

Accepted Answer

The Single Audit Act of 1984 (with 1996 Amendments) dictates that entities expending under $750,000 per year in federal awards are exempt from single audit requirements. Therefore, statement B is correct. Statement A is incorrect because the threshold for requiring a single audit is $750,000, not $500,000. Statement C is incorrect because the Single Audit Act requires audits to be performed on all federal programs administered by an entity, not just high-risk programs. Statement D is incorrect because the Single Audit Act mandates that entities expending the specified amount of federal funds must have a single audit performed.

Question 11

Under the existing GAAP hierarchy for state and local government financial reporting,the GASB Implementation guides are

Accepted Answer

According to the GAAP hierarchy for state and local government financial reporting, GASB Technical Bulletins are more authoritative than GASB Implementation guides. Therefore, option B is the correct choice. Option A, C, and D are incorrect because GASB Statements hold the highest level of authority among GASB pronouncements, and the AICPA state and local government audit guide is not part of the GAAP hierarchy for state and local government financial reporting.

Question 12

A condition whereby the design or operation of a control does not allow management or employees,in the normal course of performing their assigned functions,to prevent,or detect and correct misstatements on a timely basis is called a(an)

Accepted Answer

A deficiency in internal control exists when the design or operation of a control does not allow management or employees to prevent, or detect and correct misstatements on a timely basis.

Question 13

Generally accepted government auditing standards (GAGAS)

Accepted Answer

Generally accepted government auditing standards (GAGAS) establish standards for auditors of government entities that are broader in scope than those found in GAAS (Generally Accepted Auditing Standards). GAGAS is also known as the Yellow Book. It covers both financial and performance audits and includes standards for planning, conducting, and reporting on audits, as well as requirements for auditor independence and ethics.

Question 14

Which of the following is not a required audit report for a single audit?

Accepted Answer

A report from the cognizant agency on auditee compliance is not a required audit report for a single audit. The other reports listed are required as part of the Single Audit Act to ensure compliance and proper financial management.

Question 15

Threats to independence include all of the following except

Accepted Answer

Choice D, the management representation threat, is not a threat to independence because it pertains to management providing false or misleading information, rather than affecting the independence of the auditor. The other three choices (A, B, and C) all pose a risk to the auditor's independence. Bias threat refers to a situation where the auditor's opinion may be influenced by personal bias or prejudice. Familiarity threat refers to situations where the auditor has a close relationship with the client that could compromise their independence. Undue influence threat refers to situations where a client may attempt to pressure or coerce the auditor into changing their opinion or report.

Question 16

The scope paragraph of an independent auditor's report on a financial audit of a local government

Accepted Answer

The scope paragraph of an independent auditor's report typically identifies the standards used in performing the audit, such as Generally Accepted Auditing Standards (GAAS) or other relevant standards.

Question 17

An unqualified audit opinion rendered on a governmental unit's general purpose external financial statements means those statements

Accepted Answer

An unqualified audit opinion means that the financial statements are presented fairly in accordance with GAAP. It does not mean that they are certified as completely error-free but provides reasonable assurance that they are free from material misstatements. A departure from GAAP would result in a qualified or adverse opinion. The auditor's qualifications are not relevant in this context.

Question 18

In the auditor's report the financial statements on which the opinion is being expressed are specified in the

Accepted Answer

The introductory paragraph of the auditor's report specifies the financial statements on which the opinion is being expressed. It typically identifies the entity whose financial statements are being audited and provides information on the period covered by the statements.

Question 19

In audits of state and local government units which of the following paragraphs may not be required in the auditor's report for every audit?

Accepted Answer

The explanatory paragraph is only required if there is a need to provide additional information or explanation about a matter related to the audit. It may not be required in every audit. The introductory, scope, and opinion paragraphs are required in every auditor's report.

Question 20

The single audit requirement applies to

Accepted Answer

The single audit requirement applies to audits following the Single Audit Act of 1984 (with 1996 Amendments) and the revised OMB Circular A-133. This involves audits of state and local government reporting entities that receive federal awards. The purpose of the single audit is to provide assurance that the reporting entity is in compliance with applicable laws and regulations related to the federal awards. Financial and performance audits and attestation engagements may be part of the single audit, but they do not by themselves trigger the single audit requirement. Efficiency and economy audits are not covered by the single audit requirement.

Quiz 11: Auditing of Governmental and Not-For-Profit Organizations

Government Auditing Standards (GAS) issued by the U.S.Comptroller General,also referred to as generally accepted government auditing standards (GAGAS) ,apply to all of the following audits,except