Question Details

AUD 6
The auditor's report on compliance and internal control over compliance designed to meet the requirements of Government Auditing Standards (the Yellow Book), should include:
I.	The scope of the auditor's testing of internal controls.
II.	Uncorrected misstatements that were determined by management to be immaterial.
In performing an audit in accordance with Generally Accepted Government Auditing Standards (the "Yellow Book"), the auditor:
Government Auditing Standards published by the Government Accountability Office:
An audit performed in accordance with OMB Circular A-133 will expand the auditor's 
responsibilities beyond generally accepted auditing standards. The auditor's expanded 
responsibilities include:
Gearty& Duffy, certified public accountants, have been engaged to perform an audit of Sleepy 
Knoll Township in accordance with OMB Circular A-133. In connection with that engagement, 
Gearty& Duffy will determine major programs:
When auditing an entity's financial statements in accordance with Government Auditing 
Standards (the Yellow Book), an auditor is required to report on:
Choices "a", "c", and "b" are incorrect, based on the above explanation. 
Auditing Standards?
Which of the following statements represents a quality control requirement under Government 
An auditor most likely would be responsible for communicating significant deficiencies in the 
design of internal control:
In reporting on compliance with laws and regulations during a financial statement audit in 
accordance with Government Auditing Standards, an auditor should include in the auditor's 
report:
Wolf is auditing an entity's compliance with requirements governing a major federal financial 
assistance program in accordance with Government Auditing Standards. Wolf detected 
noncompliance with requirements that have a material effect on the program. Wolf's report on 
compliance should express:
An auditor was engaged to conduct a performance audit of a governmental entity in accordance 
with Government Auditing Standards. These standards do not require, as part of this auditor's 
report:
Because of the pervasive effects of laws and regulations on the financial statements of 
governmental units, an auditor should obtain written management representations acknowledging 
that management has:
Which of the following is a documentation requirement that an auditor should follow when 
auditing in accordance with Government Auditing Standards?
When auditing an entity's financial statements in accordance with Government Auditing 
Standards, an auditor should prepare a written report on the auditor's:
In performing a financial statement audit in accordance with Government Auditing Standards, an 
auditor is required to report on the entity's compliance with laws and regulations. This report 
should:
from reporting under other generally accepted auditing standards in that Government Auditing 
Reporting on internal control to meet the requirements of Government Auditing Standards differs 
Standards requires a:
The scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies. Which of the following elements do these audits have in common?
 
a.	The materiality levels are higher and are determined by the government entities that provide the federal financial assistance to the recipients.
 
b.	The accounts should be 100% verified by substantive tests because certain statistical sampling applications are not permitted.
 
c.	The auditor is required to disclose all situations and transactions that could be indicative of fraud, abuse, and illegal acts to the federal inspector general.
 
d.	The auditor is required to document an understanding of internal control established to provide reasonable assurance of compliance with the applicable laws and regulations.
Auditors conducting an audit in accordance with the Single Audit Act use a risk-based approach designed to:
 
a.	Reduce audit risk by providing an equal opportunity for all grants to be tested.
 
b.	Reduce audit risk by providing an equal opportunity for all expended federal dollars to be tested.
 
c.	Focus the audit on grants related to large federal programs.
 
d.	Focus the audit on high-risk programs.
Auditing Standards (the Yellow Book) because of the provisions of government grant funding agreements. Under these circumstances, the CPA is required to report on the enterprise's internal controls either in the report on the financial statements or in:
 
a.	A separate report.
 
b.	A letter to the government funding agency.
 
c.	The report on the performance audit.
 
d.	The notes to the financial statements.
Reporting standards for financial audits under Government Auditing Standards (the Yellow Book) differ from reporting under generally accepted auditing standards in that Government Auditing Standards require the auditor to:
 
a.	Provide positive assurance that control activities regarding segregation of duties are consistent with the entity's control objectives.
 
b.	Present the results of the auditor's tests of controls.
 
c.	Describe the scope of the auditor's principal substantive tests.
 
d.	Provide negative assurance that the auditor discovered no evidence of intentional override of internal controls.
According to the Statement on Auditing Standards No. 117, Compliance Audits, a compliance audit is based on management's assumption of responsibility for all of the following, except:
 
a.	Maintaining effective controls that provide absolute assurance that the entity administers programs in compliance with related requirements.
 
b.	Identification of the government's programs and understanding and fulfilling compliance requirements.
 
c.	Taking appropriate corrective actions on audit findings.
 
d.	Ongoing evaluation and monitoring of the entity's compliance with program requirements.
In its tests of controls over the Tarbet Township Housing Assistance Program, Black, CPA, has found that the clerk assigned to monitor and limit participation in the housing program to a target population of individuals meeting income criteria is routinely overruled by his supervisor in order to meet volume based level of effort requirements. Ineligible participants whose income exceeds program limits are routinely admitted to the program. Black would characterize this as a(n):
 
a.	Audit risk of noncompliance.
 
b.	Deficiency in the design of internal control.
 
c.	Inherent risk of noncompliance.
 
d.	Deficiency in the operation of internal control.
Management's written representation to the auditor in connection with a governmental audit would most likely include:
 
a.	Identification of management's interpretation of compliance requirements that are subject to different interpretations.
 
b.	A statement that management had identified and disclosed all material government programs to the auditor.
 
c.	Negative assurance that the government has complied with compliance requirements.
 
d.	Representation that all known noncompliance had been reported or negative assurance that other noncompliance likely does not exist.
A report on compliance would include:
 
a.	A disclaimer of opinion on compliance.
 
b.	A representation that findings that do not result in any report modification are not otherwise disclosed.
 
c.	A statement that generally accepted auditing standards includes all governmental audit standards by reference.
 
d.	An opinion on whether the entity complied, in all material respects, with the applicable compliance requirements.
Gearty& Duffy, certified public accountants, have been engaged to perform a single audit of Sleepy Knoll Township, a local government receiving substantial federal financial assistance for community development and housing assistance. A single audit represents:
 
a.	An inception to date audit of only federal financial assistance programs over the course of the grant year specified by the grant award.
 
b.	An audit of the township's financial statements and of compliance with federal regulations relating to federal financial assistance as prescribed by the Single Audit Act and OMB Circular A-133.
 
c.	An audit of the township's financial statements and the fair presentation of the revenues derived from federal financial assistance.
 
d.	An audit of annual activity of only federal financial assistance programs over the course of the town's fiscal year.
A report on internal control over compliance will include which of the following assertions?
 
a.	Identification of material weakness in the event an adverse opinion is expressed.
 
b.	An opinion as to whether internal controls were adequate to provide reasonable assurance that the organization would comply, in all material respects, with laws rules and regulations.
 
c.	Disclaimer of opinion in the event that significant weaknesses are identified.
 
d.	A disclaimer of opinion on internal control over compliance.
Explanation
Compliance audit workpapers will include all of the following documentation, except:
 
a.	Final basis for the opinion on the effectiveness of internal control over compliance.
 
b.	Responses to the assessed risk of noncompliance including tests of compliance and tests of controls
 
c.	Materiality levels.
 
d.	Risk assessment procedures performed including those related to gaining an understanding of the internal control over compliance.
The auditors' purpose in establishing materiality levels in a compliance audit includes all of the following, except:
 
a.	Determining the nature and extent of risk assessment procedures.
 
b.	Establishing the basis for the opinion on effectiveness of internal control over compliance.
 
c.	Evaluate whether the entity has complied with applicable requirements.
 
d.	Determining the nature, timing and extent of additional audit procedures.
The GAO standards of reporting for governmental financial audits incorporate the AICPA standards of reporting and prescribe supplemental standards to satisfy the unique needs of governmental audits. Which of the following is a supplemental reporting standard for governmental financial audits?
 
a.	All changes in the audit program from the prior year should be reported to the entity's audit committee.
 
b.	Any privileged or confidential information discovered should be reported to the organization that arranged for the audit.
 
c.	Material indications of illegal acts should be reported in a document distributed only to the entity's senior officials.
 
d.	Auditors should report the scope of their testing of compliance with laws and regulations and of internal controls.
How does Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-profit Organizations, define a subrecipient?
 
a.	As a nonfederal entity that expends federal awards received from another entity to carry out a federal program.
 
b.	As a dealer, distributor, merchant, or other seller providing goods or services that are required for the conduct of a federal program.
 
c.	As an individual who receives and expends federal awards received from a pass-through entity.
 
d.	As a nonfederal entity that provides a federal award to another entity to carry out a federal program.
Although the scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies, these audits generally have which of the following elements in common?
 
a.	The auditor is to determine whether the federal financial assistance has been administered in accordance with applicable laws and regulations.
 
b.	The materiality levels are lower and are determined by the government entities that provided the federal financial assistance to the recipient.
 
c.	The auditor should obtain written management representations that the recipient's internal auditors will report their findings objectively.
 
d.	The auditor is required to express both positive and negative assurance that illegal acts that could have a material effect on the recipient's financial statements are disclosed to the inspector general.
In auditing a not-for-profit entity that receives governmental financial assistance, the auditor has a responsibility to:
 
a.	Assess whether management has identified laws and regulations that have a direct and material effect on the entity's financial statements.
 
b.	Issue a separate report that describes the expected benefits and related costs of the auditor's suggested changes to the entity's internal control.
 
c.	Notify the governmental agency providing the financial assistance that the audit is not designed to provide any assurance of detecting errors and fraud.
 
d.	Render an opinion concerning the entity's continued eligibility for the governmental financial assistance.
Which of the following statements is a standard applicable to financial statement audits in accordance with Government Auditing Standards?
 
a.	An auditor should briefly describe in the auditor's report the method of statistical sampling used in performing tests of controls and substantive tests.
 
b.	An auditor should assess whether the entity has reportable measures of economy and efficiency that are valid and reliable.
 
c.	An auditor should report on the scope of the auditor's testing of internal controls.
 
d.	An auditor should determine the extent to which the entity's programs achieve the desired level of results.
Which of the following is correct about reporting on compliance with laws and regulations in a financial audit under Government Auditing Standards (the Yellow Book)?
 
a.	In some circumstances, auditors are required to report fraud and illegal acts directly to parties external to the audited entity.
 
b.	The reporting standards in a governmental audit modify the auditor's responsibilities under generally accepted auditing standards.
 
c.	The auditor's key findings of the audit of the financial statements should be communicated in a separate report.
 
d.	Auditors are not required to report fraud, illegal acts, and other material noncompliance in the audit report.
In auditing compliance with requirements governing major federal financial assistance programs under the Single Audit Act, the auditor's consideration of materiality differs from materiality under generally accepted auditing standards. Under the Single Audit Act, materiality is:
 
a.	Ignored, because all account balances, regardless of size, are fully tested.
 
b.	Calculated in relation to the financial statements taken as a whole.
 
c.	Determined separately for each major federal financial assistance program.
 
d.	Decided in conjunction with the auditor's risk assessment.
Explanation
The auditor's objectives in a compliance audit of a governmental entity include:
 
a.	Minimizing control risk of noncompliance.
 
b.	Forming an opinion on whether the government complied in all material respects with applicable compliance requirements.
 
c.	Limiting auditing procedures and audit exposure to the standards described by GAAS and GAGAS.
 
d.	Providing negative assurance regarding a legal determination of compliance.
Explanation
Detection risk of noncompliance is inversely related to:
 
a.	Audit risk of noncompliance.
 
b.	Inherent risk of noncompliance.
 
c.	Control risk of noncompliance.
 
d.	Risk of material noncompliance.
Explanation
Government Auditing Standards published by the United States Government Accountability Office define standards associated with the following types of engagements:
 
a.	Financial audits, attest engagements, and program-specific audits.
 
b.	Financial audits, single audits, and program specific audits.
 
c.	Audits, reviews, and compilations.
 
d.	Financial audits, attest engagements, and performance audits.
An auditor conducting a compliance audit will design and perform additional audit procedures in response to the assessed risk of material noncompliance. These procedures will include tests of controls if:
 
a.	The auditor's expectation of the operating effectiveness of controls over compliance is otherwise unknown.
 
b.	Tests of controls are required by the governmental audit requirement.
 
c.	The auditor has been engaged to perform an organization-wide audit.
 
d.	The auditor has determined a deficiency in the design of internal control over compliance.
Explanation
A government internal audit function is presumed to be free from organizational independence impairments for reporting internally when the head of the organization: 
 
a.	Is removed from political pressures to conduct audits objectively, without fear of political reprisal.
 
b.	Performs auditing procedures that are consistent with generally accepted accounting principles.
 
c.	Is a line-manager of the unit under audit.
 
d.	Is not accountable to those charged with governance. 
The Generally Accepted Government Auditing Standards Framework for Independence identifies an inappropriate influence on auditor judgment or behavior caused by a financial or other interest as a:
 
a.	Management participation threat.
 
b.	Bias threat.
 
c.	Self-review threat.
 
d.	Self-interest threat.
Explanation
behalf of the entity undergoing an audit.
The standard that an auditor should be independent of mind and appearance in providing audits is included in the Generally Accepted Government Auditing Standard ethics principle of:
 
a.	Integrity.
 
b.	Professional behavior.
 
c.	Objectivity.
 
d.	Serving the public interest.
Explanation
Safeguards to threats to independence identified by Generally Accepted Governmental Auditing Standards are generally not effective to mitigate:
 
a.	Self-review threat.
 
b.	Management participation threat.
 
c.	Self-interest threat.
 
d.	Undue influence threat.
Explanation
The auditor should determine whether providing a nonaudit service would create a threat to independence, either by itself or in aggregate with other nonaudit services provided, with respect to any audit it performs in accordance with Generally Accepted Government Auditing Standards. A critical component of this determination is:
 
a.	Ability to remove the auditor involved in the nonaudit service from the audit team.
 
b.	Consideration of management- ability to effectively oversee the nonaudit service to be performed. 
 
c.	Ability of a professional staff member who was not a member of the audit team to review the work performed.
 
d.	Ability of outside auditors to independently review the nonaudit service.
Explanation
actuarial valuation was performed as part of a separate nonaudit engagement. The unpaid claims are material to the fund. The situation above represents:
 
a.	A familiarity threat.
 
b.	A self-review threat.
 
c.	No threat to independence.
 
d.	A self-interest threat.
Explanation
Choice "b" is correct
Carlisle & Company is auditing the Town of Dunderhead in accordance with Generally Accepted Government Auditing Standards (GAGAS) and has determined that no one on the city's staff is competent enough to maintain and close the accounting records of the city. Believing that he is performing a service for his client, the audit manager takes possession of the books and records, posts transactions, develops trial balances and produces audited financial statements in time to fully comply with statutory filing requirements. The audit manager has created a threat to independence identified by GAGAS that is defined as:
 
a.	Self-review threat.
 
b.	Management participation threat.
 
c.	Familiarity threat.
 
d.	Self-interest threat.
The Generally Accepted Government Auditing Standards Framework for Independence identifies an inappropriate influence on auditor judgment or behavior caused by a financial or other interest as a:
 
a.	Bias threat.
 
b.	Management participation threat.
 
c.	Self-interest threat.
 
d.	Self-review threat.
behalf of the entity undergoing an audit.
th an honest effort in the performance of professional services in accordance with relevant technical and professional standards is included in the Generally Accepted Government Auditing Standard ethics principle of:
 
a.	Objectivity.
The standard that an auditor should be independent of mind and appearance in providing audits is included in the Generally Accepted Government Auditing Standard ethics principle of:
 
a.	Integrity.
 
b.	Professional behavior.
 
c.	Objectivity.
Generally accepted government auditing standards specifically include all of the following ethics 
principles except:
 
a.	Serving the public interest.
 
b.	Proper use of government information.
 
c.	Fraud detection.
The auditor should determine whether providing a nonaudit service would create a threat to independence, either by itself or in aggregate with other nonaudit services provided, with respect to any audit it performs in accordance with Generally Accepted Government Auditing Standards. A critical component of this determination is:
 
a.	Ability to remove the auditor involved in the nonaudit service from the audit team.
 
b.	Consideration of management- ability to effectively oversee the nonaudit service to be performed. 
 
c.	Ability of a professional staff member who was not a member of the audit team to review the work performed.
 
d.	Ability of outside auditors to independently review the nonaudit service.
Safeguards to threats to independence identified by Generally Accepted Governmental Auditing Standards are generally not effective to mitigate:
 
a.	Self-interest threat.
 
b.	Management participation threat.
 
c.	Undue influence threat.
 
d.	Self-review threat.
The standard that an auditor should put forth an honest effort in the performance of professional services in accordance with relevant technical and professional standards is included in the Generally Accepted Government Auditing Standard ethics principle of:
 
a.	Integrity.
 
b.	Professional behavior.
 
c.	Serving the public interest.
 
d.	Objectivity.
A CPA firm should establish procedures for conducting and supervising work at all organizational levels to provide reasonable assurance that the work performed meets the firm's standards of quality. To achieve this goal, the firm most likely would establish procedures for:
 
a.	Requiring personnel to adhere to the applicable independence rules.
 
b.	Reviewing audit documentation and engagement reports.
 
c.	Evaluating prospective and continuing client relationships.
 
d.	Maintaining personnel files containing documentation related to the evaluation of personnel.
Which of the following are elements of a CPA firm's quality control that should be considered in establishing its quality control policies and procedures?
		Engagement
Performance	Relevant
Ethical
Requirements	Monitoring
 
a.	Yes	No	Yes
 
b.	Yes	Yes	Yes
 
c.	Yes	Yes	No
 
d.	No	Yes	Yes
A CPA firm would be reasonably assured of meeting its responsibility to provide services that conform with professional standards by:
 
a.	Adhering to generally accepted auditing standards.
 
b.	Maintaining an attitude of independence in its engagements.
 
c.	Having an appropriate system of quality control.
 
d.	Joining professional societies that enforce ethical conduct.