Accounting Chapter 11 2 At a minimum, all Type A major programs not identified as low-risk and certain high-risk Type B

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A) All federal grant programs must be audited.

B) All major programs must be audited.

C) At a minimum, all Type A major programs not identified as low-risk and certain

high-risk Type B programs must be considered for audit.

D) All programs not identified as low-risk must be audited.

62) Which of the following statements regarding audit findings is true?

A) A significant deficiency is a deficiency in internal control 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.

B) A material weakness is a deficiency in internal control important enough to merit

attention by those charged with governance.

C) A deficiency 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.

D) All of the given statements are true.

63) Cognizant agencies:

A) Are responsible for conducting government single audits.

B) Are assigned to each nonfederal agency expending more than $50 million of federal

funds per year.

C) Are also referred to as oversight agencies.

D) Are responsible for issuing Government Auditing Standards.

64) The OMB Compliance Supplement:

A) Is updated annually.

B) Identifies generic compliance requirements for federal grant awards.

C) Provides grant-specific program compliance requirements for each federal funding

source.

D) All of the above items regarding the OMB Compliance Supplement are true.

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65) When seeking an external auditor, governments and not-for-profits should prepare a

formal request for proposal that addresses all of the following except:

A) Information about the government entity.

B) The auditing standards to be followed.

C) Reports to be issued.

D) The fee that will be paid to the auditor.

66) The Sarbanes-Oxley (SOX) Act of 2002:

A) Applies to all for-profit companies, governments, and not-for-profit entities.

B) Establishes single audit requirements for entities receiving more than $750,000 in

federal funds annually.

C) Contains requirements for creation of an audit committee, monitoring the

independence of auditors, and certification of internal controls and financial statements by the

chief executive or financial officer of a publicly-held company.

D) Makes it clear that auditors report to management.

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ESSAY. Write your answer in the space provided or on a separate sheet of paper.

67) Select the definition that best matches each key term relating to audits of government and

not-for-profit organizations. A.Attestation engagement

B.Generally accepted auditing standards (GAAS)

C.Opinion units

D.Materiality

E.Financial audit

F.Generally accepted government auditing standards (GAGAS)

G.Performance audits

_____ 1. A process that culminates in an opinion that financial statements present fairly an

entity’s financial position and results of operations in conformity with GAAP

_____ 2. An auditor’s judgment as to the level at which the quantitative or qualitative effects of

misstatements will have a significant impact on user’s evaluationsAn auditor’s judgment as to the

level at which the quantitative or qualitative effects of misstatements will have a significant

impact on user’s evaluations

_____ 3. Standards prescribed by the AICPA to provide guidance for planning, conducting, and

reporting on audits by CPAs

_____ 4. Professional services that include an examination, a review, or an agreed-upon

procedure

_____ 5. Units of the government on which the auditor expresses an opinion (e.g., governmental

activities, each major governmental fund, etc.)

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68) Select the definition that best matches each key term relating to audits of government and

not-for-profit organizations. A.Risk-based approach

B.Single audit

C.Questioned cost

D.Material weakness

E.Oversight agency

F.Major programs

G.Cognizant agency

H.Significant deficiency

_____ 1. The federal agency that makes the predominant amount of direct funding to the

nonfederal entity receiving more than $50 million in federal awards

_____ 2. A deficiency in internal control 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

_____ 3. An audit prescribed by federal law for state and local governments and not-for-profit

organizations that expend more than $750,000 in a fiscal year

_____ 4. Used by auditors to determine which programs will be audited as part of the single

audit

_____ 5. A monetary item identified by an auditor in an audit finding that generally relates to

noncompliance with a law, regulation, or agreement, where the costs are either not supported by

adequate documentation or appear unreasonable

69) Each of the following activities could be performed by an independent auditor. Select

whether generally accepted government auditing standards deem each activity Acceptable (A),

Prohibited (P), or Require conceptual framework assessment (R) regarding independence.

_____ 1. Reporting to those charged with governance on behalf of management.

_____ 2. Providing valuation services.

_____ 3. Providing advice to the audited entity on routine business matters.

_____ 4. Preparing accounting records and financial statements.

_____ 5. Providing internal control monitoring and assessments.

_____ 6. Having custody of an audited entity’s assets.

_____ 7. Setting policies and strategic direction for the audited entity.

_____ 8. Educating the audited entity on matters within the technical expertise of the auditors.

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70) Audit objectives for a financial audit set forth in generally accepted Government Auditing

Standards (GAGAS) differ from the AICPA view (GAAS). What are some of the differences?

71) What are the major types of audits and audit engagements described in the Government

Accountability Office’s Government Auditing Standards or generally accepted government

auditing standards (GAGAS), and how do they differ?

72) “An unmodified opinion on the financial statements of a local government means the

entirety of the comprehensive annual financial report (CAFR) has been audited and conforms

with GAAP.” Do you agree or disagree? Why?

73) When conducting a government financial statement audit, how does the auditor determine

the appropriate auditing standards for the engagement?

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74) Explain how federal award programs are selected for audit under the risk-based approach.

75) Answer the following questions relating to the provisions of the Single Audit Act of 1984

and 1996 amendments.

1.(a) What is a single audit?

2.(b) How do you determine if your government must have a single audit?

3.(c) Where would you find authoritative guidance on conducting a single audit?

76) Describe the importance of materiality for auditors and explain how materiality is

determined in audits of state and local governments.

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Answer Key

Test name: chapter 11

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