Accounting for Governmental and Nonprofit Entities, 18e (Reck)
1) When financial statements are accompanied by the report of an independent auditor, users have
the assurance that the statements have been prepared in conformity with accounting and financial
reporting standards established by authoritative bodies, and that all material facts have been
disclosed.
2) Some of the auditing issues faced by auditors of government and not-for-profit entities are
unique to the public sector.
3) The U.S. Office of Management and Budget issues generally accepted auditing standards which
provide general guidelines for government audits and address the minimum responsibilities of the
auditor.
4) Auditing standards issued by the U.S. General Accountability Office include specific reference
to ethical requirements relating to an audit of financial statements, however, auditing standards
issued by the Auditing Standards Board do not address ethics.
5) Governments may engage one auditor to audit the primary government and other auditors to
audit certain component units.
6) Generally accepted government auditing standards (GAGAS) apply to financial audits of state
and local governments only if they expend $750,000 or more in federal financial assistance.
7) To help identify threats to independence, generally accepted government auditing standards
establish a conceptual framework that requires auditors to identify, evaluate, and apply safeguards
to appropriately address threats to independence.
8) Performance audits are independent assessments of performance against objective criteria.
9) Only state and local governments and their component units must have single audits; colleges
and universities and other not-for-profit organizations that expend federal financial awards are not
required to have single audits.
10) In evaluating an entity’s system of internal controls, a material weakness is a deficiency in the
design or operation of internal controls such that there is a reasonable possibility that a material
misstatement of the entity’s financial statements will not be prevented, or detected and corrected
on a timely basis.
11) In auditing compliance with laws and regulations as part of a single audit, the auditor must
render an opinion on the specific requirements applicable to each program for which the entity
receives federal financial assistance.
12) The introductory paragraph of the auditor‘s report should identify the financial statements
being audited and, in particular, refer to the audit of the financial statements of each opinion unit.
13) Required supplementary information (RSI), such as the MD&A and budgetary comparison
schedules, are within the scope of a financial statement audit.
14) Under generally accepted government auditing standards, safeguards are controls designed to
reduce or eliminate threats to independence.
15) The section headed “Auditor’s Responsibility” in the audit report will specify whether the audit
is conducted under generally accepted auditing standards or generally accepted government
auditing standards.
16) If the auditor determines that the financial statements contain a departure from GAAP, the
effect of which is material, the auditor should express an unqualified opinion.
17) The AICPA’s Audit and Accounting Guide, State and Local Governments, requires auditors to
make separate materiality determinations for each opinion unit.
18) Generally accepted government auditing standards (GAGAS) require that auditors conducting
a GAGAS audit complete at least 80 hours of continuing professional education (CPE) that
directly contributes to the auditor’s professional proficiency to perform such audit work.
19) Guidelines for grant accounting and reporting are contained within the State and Local
Government Audit and Accounting Guide, issued by the AICPA.
20) Generally accepted government auditing standards require the auditor to report on internal
control over financial reporting and compliance with laws, regulations, and provisions of contracts
or grant agreements.
21) Audits of state and local governments may be performed by all of the following except:
A) Independent CPAs.
B) State audit agencies.
C) Federal grantor agencies.
D) The Office of Management and Budget (OMB).
22) Governments and not-for-profit entities may be subject to each of the following levels of audit
except:
A) Requirements under AICPA generally accepted auditing standards.
B) Requirements under GAO generally accepted government auditing standards.
C) Requirements under OMB compliance standards.
D) Requirements under the Single Audit Act.
23) Which of the following is a true statement about the relationship between generally accepted
government auditing standards (GAGAS) and generally accepted auditing standards (GAAS)?
A) GAGAS and GAAS provide standards for financial audits, attestation engagements, and
performance audits.
B) GAGAS encompass GAAS and supplement certain GAAS.
C) GAAS encompass GAGAS and supplement certain GAGAS.
D) GAGAS are promulgated by the Government Accountability Office and GAAS are
promulgated by the Governmental Accounting Standards Board.
24) The goal(s) of a performance audit include(s) assessment of:
A) Program effectiveness.
B) Economy.
C) Internal control compliance.
D) All of these choices are correct.
25) Auditing procedures deemed particularly applicable to audits of state and local governments
by independent CPAs are published in:
A) The GASB codification.
B) AICPA audit and accounting guides.
C) GASB implementation guides.
D) All of these choices are correct.
26) In audits of state and local government units which of the following sections may not be
required in the auditor’s report for every audit?
A) Auditor‘s Opinion section.
B) Other Matters section.
C) Other Information section.
D) Auditor‘s Responsibility section.
27) Generally accepted government auditing standards (GAGAS) apply to all of the following
audits except:
A) Financial statement audits of federal organizations.
B) Financial audits of not-for-profit organizations not receiving or expending federal financial
awards.
C) Financial audits of governments receiving and expending federal grants.
D) Performance audits of federal programs.