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Student name:__________
TRUE/FALSE – Write ‘T’ if the statement is true and ‘F’ if the statement is false.
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.
⊚ true
⊚ false
2) Some of the auditing issues faced by auditors of government and not-for-profit entities
are unique to the public sector.
⊚ true
⊚ false
3) The U.S. Office of Management and Budget issues generally accepted auditing standards
which provide general guidelines for government audits.
⊚ true
⊚ false
4) Unlike auditing standards issued by the U.S. General Accountability Office, auditing
standards issued by the Auditing Standards Board do not address ethics.
⊚ true
⊚ false
5) Governments may engage one auditor to audit the primary government and other auditors
to audit certain component units.
⊚ true
⊚ false
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.
⊚ true
⊚ false
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7) To help identify threats to independence, generally accepted government auditing
standards establish a conceptual framework that requires auditors to identify and evaluate risks
and apply safeguards to appropriately address threats to independence.
⊚ true
⊚ false
8) Performance audits are independent assessments of the performance and the management
of the entity, program, service, or activity against objective criteria.
⊚ true
⊚ false
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 exempt from single audits.
⊚ true
⊚ false
10) In evaluating an entity’s system of internal controls, a material weakness is a deficiency
in internal controls over financial reporting 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.
⊚ true
⊚ false
11) In auditing compliance with laws and regulations as part of a single audit, the auditor
must render an opinion on whether fraud or waste was discovered.
⊚ true
⊚ false
12) The auditor’s report of a government should identify the financial statements being
audited and, in particular, refer to the opinion units being audited.
⊚ true
⊚ false
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13) Required supplementary information (RSI), such as the MD&A and budgetary
comparison schedules, is covered within a financial statement audit opinion.
⊚ true
⊚ false
14) Under generally accepted government auditing standards, safeguards are controls
designed to reduce or eliminate threats to independence.
⊚ true
⊚ false
15) Opinion units of a government need not all receive the same audit opinion.
⊚ true
⊚ false
16) Auditors can express an unmodified opinion, qualified opinion, adverse opinion, or a
disclaimer of opinion.
⊚ true
⊚ false
17) The AICPA’s Audit and Accounting Guide, State and Local Governments, requires
auditors to make separate materiality determinations for each opinion unit.
⊚ true
⊚ false
18) Generally accepted government auditing standards (GAGAS) require that auditors
conducting a GAGAS audit complete at least 80 hours of continuing professional education
(CPE) every two years.
⊚ true
⊚ false
19) Guidelines for grant accounting and reporting are contained within the State and Local
Government Audit and Accounting Guide, issued by the AICPA.
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⊚ true
⊚ false
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.
⊚ true
⊚ false
21) Not all not-for-profit entities are required to undergo a financial statement audit.
⊚ true
⊚ false
22) An auditor must express an opinion on each federal grant award received by an
organization that undergoes a single audit.
⊚ true
⊚ false
23) If an entity that requires a single audit is determined to be a low-risk auditee, then no
audit must be conducted.
⊚ true
⊚ false
24) Government and not-for-profit entities can benefit from voluntarily adopting certain
requirements of the Sarbanes-Oxley (SOX) Act of 2002.
⊚ true
⊚ false
25) Most single audits have been found to be of high quality.
⊚ true
⊚ false
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MULTIPLE CHOICE – Choose the one alternative that best completes the statement or
answers the question.
26) 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 General Accountability Office.
27) 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 audit standards.
D) Requirements under the Single Audit Act.
28) The auditor’s objectives in performing a financial audit include forming and expressing
an opinion on:
A) Whether the financial statements are presented fairly, in all material respects, in
accordance with the applicable financial reporting framework.
B) Whether waste and abuse have been found.
C) Whether the statements are free of errors.
D) All of the above.
29) Which of the following statements regarding additional information that is included in a
document containing audited financial statements is not true?
A) Additional information can be subject to certain limited procedures by the auditor.
B) Additional information can be subject to a limited review by the auditor.
C) Additional information can be the subject of an in-relation-to opinion.
D) Additional information can be the subject of another information opinion.
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30) Audit requirements for a charitable not-for-profit organization can vary by:
A) State.
B) Total revenue received.
C) Total contributions received.
D) All of the above.
31) 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.
32) The goal(s) of a performance audit include(s) assessment of:
A) Program effectiveness.
B) Economy.
C) Compliance.
D) All of these choices are correct.
33) 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.
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34) In audits of state and local government units which of the following sections are not
required in the auditor’s report for a GAAS audit?
A) Basis for Opinion.
B) Report on Waste and Abuse.
C) Auditor’s Responsibilities for the Audit of the Financial Statements.
D) Responsibilities of Management for the Financial Statements.
35) 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.
36) Generally accepted government auditing standards (GAGAS) can apply to a:
A) Financial audit.
B) Attestation engagement.
C) Performance audit.
D) All of the above.
37) The single audit requirement applies to:
A) All audits of state and local government reporting entities.
B) Financial audits of all not-for-profit entities.
C) Most audits of state and local governments expending federal grant funds.
D) Only those governments and not-for-profit entities that are audited by a federal audit
agency.
38) One of the primary purposes of the Single Audit Act of 1984 (amended in 1996) is to:
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A) Detect fraud, waste and abuse in government entities.
B) Promote the efficient and effective use of audit resources.
C) Make audit activity legal at the federal level.
D) Allow federal auditors greater access to government entities receiving federal funds.
39) Which of the following statements concerning the Single Audit Act of 1984 (with 1996
amendments) is correct?
A) Only those entities receiving over $750,000 a year in federal financial assistance are
required to have a single audit.
B) Those entities expending under $750,000 a year in federal awards may be exempt
from single audit requirements.
C) The Single Audit Act only applies if an entity has high risk programs.
D) The single audit is optional for all entities receiving federal awards.
40) Threats to independence include all of the following except:
A) Bias threat.
B) Familiarity threat.
C) Undue influence threat.
D) Management representation threat.
41) Typical objectives of a performance audit include:
A) Determining whether financial statements fairly present the entity’s operational
results.
B) Judging the appropriateness of an entity’s program goals.
C) Determining whether financial statements fairly present in conformity with GAAP.
D) Assessing effectiveness, economy, efficiency, and internal controls.
42) Attestation engagements include all of the following, except:
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A) Expressing an opinion on whether subject matter examined is in conformity with
recognized criteria.
B) Expressing a conclusion about whether any material modification should be made to
subject matter in order for it to be in accordance with criteria.
C) Providing an agreed-upon procedure report on an assertion about a subject matter.
D) Providing a due diligence report on compliance with laws and regulations.
43) Generally accepted government auditing standards (GAGAS):
A) Establish the same scope as GAAS, but use wording appropriate to government
entities instead of business organizations.
B) Are set forth in the Federal Government Compliance Supplement.
C) Establish more standards that are broader in scope than those found in GAAS.
D) Establish standard wording of auditor’s reports on government financial statements.
44) Generally accepted government auditing standards (GAGAS) require:
A) Auditors conducting a GAGAS audit to complete 80 hours of continuing
professional education directly related to the government environment every year.
B) An audit organization conducting a GAGAS audit to undergo an external peer review
each year.
C) Documentation of supervisory review of the evidence that supports the findings and
conclusions contained in the audit report.
D) All of the above.
45) An unmodified audit opinion rendered on a government unit’s basic financial statements
means those statements:
A) Have been certified as free from error.
B) Did not require modifications by the auditor.
C) Present the entity’s financial position fairly in conformity with GAAP.
D) All of these choices are correct.
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46) Under the existing GAAP hierarchy for state and local government financial reporting,
the GASB Implementation guides are:
A) More authoritative than GASB Statements.
B) Equally authoritative to GASB Technical Bulletins.
C) More authoritative than the AICPA state and local government audit guide.
D) Less authoritative than AICPA Practice Bulletins.
47) An auditor would not render an opinion on a(an):
A) Financial audit of financial statements.
B) Performance audit.
C) Audit to determine whether the entity has adhered to specific compliance
requirements applicable to a major program.
D) Audit to determine whether a government department’s financial information
complies with specific state regulatory requirements.
48) All of the following reports are included in the reporting package resulting from the
single audit except:
A) Financial statements and schedule of expenditures of federal awards.
B) Summary schedule of prior audit findings.
C) Report on efficiency and effectiveness.
D) Corrective action plan.
49) Which of the following is not a required component of the audit report for a single audit?
A) A report on internal control over financial reporting and compliance with federal
statutes, regulations, and the terms and conditions of the federal award.
B) An opinion on the completeness of the schedule of expenditures.
C) A report on compliance for each major program and on internal control over
compliance.
D) A schedule of findings and questioned costs.
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50) Which of the following best describes the relationship between generally accepted
auditing standards (GAAS) and generally accepted government auditing standards (GAGAS)?
A) GAAS apply to independent CPA auditors; GAGAS apply to government auditors.
B) Audits conducted in conformity with GAGAS also require the auditor to conform to
GAAS.
C) Audits done in accordance with GAAS must also be done in accordance with
GAGAS.
D) Audits of state and local governments always require that the audit be conducted in
accordance with both GAAS and GAGAS.
51) Which of the following would not be considered Category (b) GAAP for state and local
government auditees?
A) AICPA Practice Bulletins if specifically made applicable to state and local
governments by the AICPA and cleared by the GASB.
B) GASB Technical Bulletins.
C) GASB Statements.
D) GASB Implementation Guides.
52) Which of the following is the highest in the hierarchy of generally accepted accounting
principles for federal government entities?
A) AICPA Audit and Accounting Guide
B) FASB emerging issues task force reports.
C) GASB statements.
D) FASAB statements.
53) Which of the following is the highest in the hierarchy of generally accepted accounting
principles for federal entities?
A) AICPA Audit and Accounting Guide for Not-for-Profit Entities.
B) FASB Codification.
C) FASB statements.
D) FASAB standards and interpretations.
54) Which of the following is not considered an opinion unit requiring a materiality
determination associated with a financial statement audit of a state or local government?
A) Aggregate discretely presented component units.
B) Investment trust fund financial statements.
C) Each major governmental fund.
D) Business-type activities.
55) When compared to generally accepted auditing standards (GAAS), generally accepted
government auditing standards (GAGAS) include additional General Standard requirements for
financial audits related to all of the following except:
A) Independence.
B) Quality control and peer review.
C) Audit opinions.
D) Education.
56) The fundamental ethical principles identified under generally accepted government
auditing standards (GAGAS) include all of the following except:
A) Public interest.
B) Proper use of government information, resources, and position.
C) Oath of office.
D) Professional behavior.
57) An auditor performing nonaudit work for a client may be in danger of violating the
independence rules in Government Auditing Standards when he or she provides:
A) Internal audit services.
B) Advice on routine business matters.
C) Benchmarking information to the client.
D) Best practice information to the client.
58) Which of the following examples of nonaudit work for a client is prohibited under
government auditing standards if the auditor is performing a financial audit?
A) Reporting to those charged with governance on behalf of management.
B) Setting policies and strategic direction for the audited entity.
C) Accepting responsibility for the management of an audited entity’s project.
D) All of the above are prohibited under Government Auditing Standards if the auditor
is performing a financial audit.
59) Under a single audit:
A) An audit must be performed encompassing the nonfederal entity’s financial
statements and schedule of expenditures of federal awards.
B) The audit must be conducted by an independent auditor in accordance with generally
accepted government auditing standards (GAGAS) and cover the operations of the entire
nonfederal entity.
C) For each major program, the auditor must obtain an understanding of the internal
controls pertaining to the compliance requirements for the program, assess control risk, and
perform tests of controls, unless the controls are deemed to be ineffective.
D) All of the given statements regarding a single audit are true.
60) Under a single audit, which of the following is a characteristic of a low-risk Type A
program?
A) Audited in at least one of the three most recent audit periods as a major program.
B) Had no significant changes in personnel or systems that would have significantly
increased risk.
C) Considered low-risk by a cognizant agency.
D) All of these choices are correct.
61) When conducting a single audit: