Auditing and Assurance Services, 16e (Arens/Elder/Beasley)
Chapter 26 Internal and Governmental Financial Auditing and Operational Auditing
26.1 Learning Objective 26-1
1) Internal auditors are expected to add value to the organization through improved operational
effectiveness. In addition, their responsibilities include all the following except
A) reviewing the reliability and integrity of information.
B) ensuring compliance with the company’s accounting policies.
C) verifying accounting information for external users.
D) ensuring compliance with applicable governmental regulations.
2) Statements on Internal Auditing Standards are issued by the
A) AICPA.
B) SEC.
C) Internal Auditing Standards Board.
D) Auditing Standards Boards.
3) Internal auditors are responsible to
A) the board of directors.
B) management.
C) both A and B.
D) neither A nor B.
4) Which of the following is not a similarity between external and internal auditors?
A) Both must be independent of the company.
B) Both must be competent.
C) Both follow a similar methodology in performing their audits.
D) Both consider risk and materiality deciding the extent of their tests and evaluating results.
5) External auditors would consider internal auditors effective if they
A) are independent of the operating units being evaluated.
B) are competent and well trained.
C) apply a systematic and disciplined approach, including quality control.
D) all of the above.
6) Which of the following is most correct regarding external auditors use of internal auditors
directly on the audit engagement?
A) discourage
B) prohibit
C) require
D) permit
7) The International Standards for the Professional Practice of Internal Auditing include which
two categories of standards?
A) attribute and performance
B) competency and professional skepticism
C) performance and integrity
D) ethics and rules of conduct
8) The professional organization which is responsible for providing guidance for internal
auditors is the
A) Association of Private Auditors.
B) Institute of Internal Auditors.
C) American Bar Association.
D) Association of Internal Auditors.
9) External financial statement auditors must obtain evidence regarding what attributes of an
internal audit department if the external auditors intend to rely on the internal auditor’s work?
A)
If they have performed relevant audit
tests of the internal controls and financial
statements
Competence
Yes
Yes
B)
If they have performed relevant audit
tests of the internal controls and financial
statements
Competence
No
No
C)
If they have performed relevant audit
tests of the internal controls and financial
statements
Competence
Yes
No
D)
If they have performed relevant audit
tests of the internal controls and financial
statements
Competence
No
Yes
10) Which of the following is a performance standard under the International Standards for the
Professional Practice of Internal Auditing?
A) proficiency and due professional care
B) independence and objectivity
C) requirement that the internal audit must be a CPA
D) engagement planning
11) The International Standards for the Professional Practice of Auditing list seven performance
standards. List three.
12) What are three similarities between internal and external auditors?
13) External auditors typically consider internal auditors effective if they meet three criteria.
What are these criteria?
14) The Institute of Internal Auditors has established Ethical Principles for its members. List
each of the principles.
15) Independence is a fundamental ethical principle for internal auditors.
16) Current professional auditing standards prohibit external auditors from using internal
auditors for direct assistance on external audits.
17) Internal auditors are expected to provide value to the organization through improved
operational effectiveness.
18) The objectives of internal auditors are considerably broader than the objectives of external
auditors.
19) Integrity is one of the Institute of Internal Auditors’ ethical principles.
20) Internal auditing standards are included in the Blue Book.
21) Professional guidelines for performing internal audits for companies are not as well-defined
as for external audits.
22) The Internal Auditing Standards Board issues Statements on Internal Auditing Standards.
23) Because they spend all their time within one company, internal auditors have much greater
knowledge about the company’s operations and internal controls then external auditors.
24) Under the International Standards for the Professional Practice of Internal Auditing, the
performance standards deal with the education requirements of the internal auditor.
1) The primary source of authoritative literature for doing government audits is the
A) Purple Book.
B) Yellow Book.
C) Green Book.
D) Red Book.
2) When a state or local government agency receives federal funds, it is subject to the audit
requirements of
A)
Yellow Book
Single Audit Act
OMB Circular A-133
Yes
Yes
No
B)
Yellow Book
Single Audit Act
OMB Circular A-133
No
No
Yes
C)
Yellow Book
Single Audit Act
OMB Circular A-133
Yes
Yes
Yes
D)
Yellow Book
Single Audit Act
OMB Circular A-133
Yes
No
No
3) Which of the following is most correct with regard to the comparison of the financial auditing
standards of the Yellow Book with the principles of the AICPA auditing standards?
A) the same as
B) quite different from
C) incompatible with
D) consistent with
4) The correct title of the Yellow Book is
A) Government Auditing Standards.
B) Institute of Internal Auditors (IIA) Practice Standards.
C) Statement of Responsibilities of Internal Auditing.
D) Statement of Standards on Accounting and Review Services.
5) Government Auditing Standards recognize that because of public accountability over
governmental activities the acceptable tolerable misstatement as compared to commercial
businesses may be
A) equal.
B) lower.
C) higher.
D) indeterminable.
6) The Single Audit Act requires that an audit be conducted for recipients who receive total
federal funds in any fiscal year of more than
A) $1,000,000.
B) $750,000.
C) $500,000.
D) $100,000.
7) An audit designed to provide reasonable assurance of detecting material misstatements
resulting from noncompliance with provisions of contracts or grant agreements that have a
material and direct effect on the financial statements would be called a(n)
A) performance audit.
B) management audit.
C) operational audit.
D) compliance audit.
8) Auditors involved in planning, performing, or reporting on audits under Generally Accepted
Government Auditing Standards (GAGAS) must complete ________ hours of continuing
professional education in each two-year period.
A) 20
B) 40
C) 60
D) 80
9) An audit conducted in accordance with the Yellow Book must include an audit report that
states the audit was performed in accordance with
A) Generally Accepted Auditing Standards (GAAS).
B) Generally Accepted Government Auditing Standards (GAGAS).
C) Generally Accepted Standards on Auditing (GASA).
D) Statements on Auditing Standards (SAS).
10) How do the risk and materiality thresholds change in a government audit compared to a
financial statement audit of a public company?
11) In addition to an opinion on whether the financial statements are in accordance with GAAP,
identify four other reports required by the OMB Circular A-133/2 CFR 200 subpart F.
12) The auditing standards of the Yellow Book are consistent with the ten generally accepted
auditing standards of the AICPA. There are, however, important additions/modifications in the
Yellow Book. For example, the Yellow Book recognizes that materiality and risk are lower due
to the nature of the government enterprise. Discuss the other additions/modifications.
13) Government auditing standards are included in the Yellow Book.
14) The formal name of the Yellow Book is Government Auditing Standards.
15) The Single Audit Act applies only to audits of state and local governments.
16) Extensive professional development is necessary for auditors doing governmental audits.
26.3 Learning Objective 26-3
1) Which one of the following is not a major difference between operational and financial
auditing?
A) purpose of the audit
B) distribution of the report
C) testing the effectiveness of internal controls
D) inclusion of nonfinancial areas