ACCT 365 - Chapter 11 - MC Website

Auditing financial statements prepared under the GASB reporting model requires separate materiality determinations for each: A) Opinion unit. B) Fund. C) Activity. D) Component unit

A) Opinion unit.

Which of the following statements concerning the GAGAS general standards for a financial audit is correct? A) The audit firm has the responsibility for ensuring that its audit staff is competent B) Twenty of the 80 continuing professional education (CPE) credits that are taken every two years should relate to government auditing or the government/not-for-profit environment. C) An external peer review is to be conducted every three years, with an internal review conducted annually. D) All of the above statements are correct.

A) The audit firm has the responsibility for ensuring that its audit staff is competent

A cognizant agency for audit responsibilities in a single audit is: A) The federal awarding agency that provides the predominant amount of direct funding to a nonfederal recipient. B) Always required no matter how much an entity expends in federal awards. C) Normally designated by the Office of Management and Budget. D) Designated when a nonfederal entity does not receive a large enough amount of federal awards to be assigned an oversight agency.

A) The federal awarding agency that provides the predominant amount of direct funding to a nonfederal recipient.

Financial statements of governmental and not-for-profit entities are: A) The representations of the officials responsible for the financial management of the entity. B) The representation of the financial position of the entity as prepared by the auditor. C) Always accompanied by the report of an independent auditor. D) The product of the audit.

A) The representations of the officials responsible for the financial management of the entity.

Which of the following statements concerning the GAGAS reporting standards for a financial audit is incorrect? A) Sensitive information may be omitted from the audit report. B) A report on internal control over financial reporting and compliance must be provided as part of the audit report prepared for financial statements. C) The fact that the audit was conducted in accordance with GAGAS is to be indicated in the audit report. D) If internal control deficiencies are reported, any plans for corrective action should be included.

B) A report on internal control over financial reporting and compliance must be provided as part of the audit report prepared for financial statements.

Which of the following is a true statement about the comparison of generally accepted auditing standards (GAAS) to generally accepted government auditing standards (GAGAS)? A) GAGAS are used when auditing governmental organizations while GAAS are used in auditing not-for-profit organizations. B) GAGAS are broader in scope than GAAS. C) There are more GAAS in the areas of general standards, field work standards, and reporting standards than there are GAGAS. D) GAGAS refer to financial audits only.

B) GAGAS are broader in scope than GAAS.

The Sarbanes-Oxley Act of 2002 A) Has no effect on governmental or not-for-profit organizations. B) Includes best practices relating to audit committees and internal controls that can be adapted by governments and not-for-profit organizations. C) Applies equally to governments, not-for-profit organizations and businesses. D) None of the above statements are true.

B) Includes best practices relating to audit committees and internal controls that can be adapted by governments and not-for-profit organizations.

The primary objective of a financial audit of a governmental or not-for-profit entity by an independent auditor is to provide assurance that: A) The entity is effectively accomplishing its mission and efficiently using its resources. B) The financial statements present fairly the financial position, results of operations, and cash flows of an organization in conformity with generally accepted accounting principles. C) The financial statements are free of errors and misstatements and all fraud was detected. D) All of the above.

B) The financial statements present fairly the financial position, results of operations, and cash flows of an organization in conformity with generally accepted accounting principles.

Engagements in which auditors provide an examination, a review, or an agreed-upon procedure report on a subject matter or on an assertion about a subject matter are called: A) Financial audits. B) Financial related audits. C) Attestation engagements. D) Performance audits.

C) Attestation engagements.

Which of the following statements concerning GAGAS requirements for performing financial audits is incorrect? A) During audit planning, the auditors should evaluate whether the audited entity has taken appropriate corrective action to address findings and recommendations from previous engagements that could have a material effect on the financial statements. B) Pertinent information should be communicated to individuals contracting for or requesting the audit. C) Auditors must follow a total of five field work standards. D) Documentation should be provided concerning evidence of supervisory review of work performed.

C) Auditors must follow a total of five field work standards.

Generally accepted government auditing standards (GAGAS) are issued by the: A) American Institute of CPAs (AICPA). B) Office of Management and Budget (OMB). C) Government Accountability Office (GAO). D) Governmental Accounting Standards Board (GASB).

C) Government Accountability Office (GAO).

Which of the following statements about the single audit is correct? A) It does not apply to nongovernmental not-for-profit organizations. B) It is intended to ensure maximum effectiveness, by conducting audits on a grant-by-grant basis. C) Its purpose is to improve the financial management of state and local government with respect to federal financial assistance programs. D) All of the above are correct.

C) Its purpose is to improve the financial management of state and local government with respect to federal financial assistance programs.

A single audit is required of: A) A federal or nonfederal entity that receives more than $500,000 in a year. B) A nonfederal entity that received more than $100,000 in a year. C) Nonfederal entities that expend $500,000 or more in federal awards in a year. D) Any entity that receives more that $500,000 in federal financial assistance in a year.

C) Nonfederal entities that expend $500,000 or more in federal awards in a year.

Which of the following statements is not true about selecting federal award programs to be audited in a single audit? A) At least 50 percent of total federal awards expended must be audited. B) A risk-based approach is used for selecting major programs for audit. C) Low risk programs include those that have previously been audited with no audit findings, and are relatively stable, among other considerations. D) A major program is one that is large and relatively risky and always includes new programs.

D) A major program is one that is large and relatively risky and always includes new programs.

The authoritative literature that is second only to GASB statements and interpretations in the hierarchy of generally accepted accounting principles (GAAP) for state and local governments is: A) AICPA Practice Bulletins. B) GASB Implementation Guides with Questions and Answers. C) Statements of GASB's Emerging Issues Task Force. D) AICPA Industry Audit and Accounting Guides.

D) AICPA Industry Audit and Accounting Guides.

Which of the following statements is true regarding required supplementary information (RSI)? A) RSI includes the Management's Discussion and Analysis (MD&A) and budgetary comparison schedules. B) Auditors apply certain limited procedures to RSI to provide assurance that it is fairly presented in relation to the basic financial statements. C) Auditors do not render an opinion on RSI. D) All of the above are true.

D) All of the above are true.

The GAGAS conceptual framework for independence should be used to assess threats to independence: A) Annually. B) At the start of a new audit engagement. C) Any time a threat to independence comes to the attention of the audit organization. D) Both B and C are correct.

D) Both B and C are correct.

Financial audits of state and local governments are always performed: A) By external certified public accountants. B) Following generally accepted government auditing standards. C) By state or federal audit agencies. D) None of the above statements is true.

D) None of the above statements is true.

Engagements in which auditors provide an independent assessment of the management of government programs against objective criteria or best practices are called: A) Attestation engagements. B) Financial related audits. C) Financial audits. D) Performance audits.

D) Performance audits.

Which of the following is not typically one of the functions of the audit committee of a governing board? A) Select the auditor. B) Monitor the audit process. C) Participate with management and the independent auditor in resolving internal control deficiencies. D) Propose adjusting journal entries.

D) Propose adjusting journal entries.