Gov't & Not-for-Profit: CH 13 - Auditing, Tax-Exempt Organizations and Evaluating Performance

What are the 5 Yellow Book ethical concepts for effective auditing?

1. Public Interest 2. Integrity 3. Objectivity 4. Proper use of government information, resources, and position 5. Professional behavior

Select all that apply; When it comes to SEA reporting, challenges exist in ______. A. the measurement of outputs and outcomes B. preparing the information for audit C. balancing the information between favorable and unfavorable measures D. the measurement and allocation of costs

A. the measurement of outputs and outcomes D. the measurement and allocation of costs

A program selected for audit under the single audit approach is called a(n) __________ program.

major pg. 384

If the financial statements are prepared in conformity with generally accepted accounting principles the auditor expresses a(n) _________ or clean audit opinion.

unmodified

A measure of how long a not-for-profit could sustain its operations without generating new revenue is provided by the ________ ________ ratio.

working capital

Generally Accepted Auditing Standards (GAAS) are issued by the ______. A. AICPA B. FASB C. GASB D. GAO

A. AICPA

The auditor is required to express an opinion of compliance for major programs, which generally must add up to ______% of the federal funds expended by the government being audited, but is reduced to _______% for low-risk auditees.

1. 50% 2. 25% pg. 384 (major programs)

Government Auditing Standards identify four types of professional engagements: financial audits, _________ engagements, _________ audits, and _________ services.

1. attestation 2. performance 3. nonaudit pg. 379/380

Under the Single Audit Act of 1984, governments and non-for-profit organizations that expend $50 million in federal awards are assigned _________ agencies, while those organizations receiving less are expected to use _________ agencies.

1. cognizant 2. oversight

According to GASB, the quantity of a service provided or the quantity of a service that meets a certain quality requirement are _________ measures, while _________ measures are the extent to which results are achieved or needs are met.

1. output 2. outcome

Governmental Auditing Standards are published in a document commonly known as the _________ _________.

1. yellow 2. book

Select all that apply; The City of Valley Ridge government has not been determined to be low risk. It has four programs, two Type A and two Type B as follows: Type A: Housing and Urban Development (HUD), $800,000 was audited last year with no major control or compliance findings. Environmental Protection Agency (EPA), $750,000 was audited three years ago with no major control or compliance findings. Type B: Department of Education, $350,000 Department of Energy, $175,000 The total amount of grant expenditures is $1,800,000. Which of the following statements are correct? A. A risk assessment must be performed on the Department of Education. B. The auditor could choose to audit just HUD and the Dept. of Education. C. The auditor could choose to audit just EPA and the Dept. of Energy. D. At least $450,000 must be audited as major programs.

A. A risk assessment must be performed on the Department of Education. C. The auditor could choose to audit just EPA and the Dept. of Energy. Reason: The EPA must be audited.

Select all that apply; Which of the following statements are correct? A. Auditors must do a separate materiality evaluation at each opinion unit. B. Governmental activities is considered an opinion unit. C. A modified or adverse audit opinion for one opinion unit precludes a clean opinion for other opinion units. D. Major funds are not considered as an opinion unit.

A. Auditors must do a separate materiality evaluation at each opinion unit. B. Governmental activities is considered an opinion unit.

Which of the following categories of professional engagements is NOT covered by Government Auditing Standards? A. Nonaudit services B. Attestation engagements C. Financial audits D. Performance audits

A. Nonaudit services Reason: Auditors are providing information to a requesting party without providing verification or evaluation of information

According to the Yellow Book, audits performed in accordance with GAGAS may use lower materiality levels than non-GAGAS audits. A. True B. False

A. True

Select all that apply; 501(c)(3) entities ______. A. are the most common form of tax-exempt organization B. can inure up to 10% of net earnings to the benefit of shareholders C. may be operated for religious purposes D. are permitted to lobby for legislation

A. are the most common form of tax-exempt organization C. may be operated for religious purposes Reason: No part of net earnings can inure to the benefit of any individual or shareholder.

Select all that apply; Performance audits ______. A. assess program effectiveness and results B. encompass functions similar to those performed by internal auditors in the private sector C. often use specialists outside of accounting D. are required to be done on an annual basis for many government programs

A. assess program effectiveness and results B. encompass functions similar to those performed by internal auditors in the private sector C. often use specialists outside of accounting Reason: Audits are not required on an annual basis, but are expected periodically .

Governmental attestation engagements must comply with ______. A. both AICPA attestation standards and Governmental Auditing Standards B. Governmental Auditing Standards but not AICPA attestation standards C. AICPA attestation standards but not Governmental Auditing Standard

A. both AICPA attestation standards and Governmental Auditing Standards

If the IRS deems executive compensation to be excessive, intermediate sanctions may be imposed on ______. A. both managers who approved the compensation and individuals receiving it B. the organization only C. organizational managers who approved the compensation only D. individuals receiving the compensation only

A. both managers who approved the compensation and individuals receiving it

Select all that apply; Form 990 disclosures include ______. A. code-of-ethics B. compliance with Sarbanes-Oxley C. whether the organization was audited D. document retention policies

A. code-of-ethics C. whether the organization was audited D. document retention policies

Select all that apply; Form 990 requires compensation schedules for ______. A. directors B. officers C. independent contractors D. trustees E. all employees

A. directors B. officers C. independent contractors D. trustees Reason E: Only the highest-paid employees.

If the auditor is not satisfied the financial statements are fairly presented because of a severe scope limitation, a(n) ______ opinion is appropriate. A. disclaimer of B. qualified C. adverse

A. disclaimer of

Select all that apply; Legislative exemptions to UBIT exist for ______. A. dividends and interest B. annuities from controlled corporations C. all college bookstore sales D. income from membership list rental

A. dividends and interest D. income from membership list rental

Select all that apply; Conditions that exempt income from UBIT include ______. A. donated merchandise is being sold B. the business is not regularly carried on C. most of the labor is performed by paid workers D. operation for the convenience of employees

A. donated merchandise is being sold B. the business is not regularly carried on D. operation for the convenience of employees

Select all that apply; The Sarbanes-Oxley Act ______. A. has influenced not-for-profit organizations B. has provisions that exist in governmental auditing standards C. applies to all federal governmental agencies

A. has influenced not-for-profit organizations B. has provisions that exist in governmental auditing standards Reason C: It applies only to corporations filing with the SEC.

Select all that apply; 501(c)(3) entities ______. A. may be operated for educational purposes B. cannot be organized as corporations C. may provide athletic facilities or equipment D. may not participate in political campaigns

A. may be operated for educational purposes D. may not participate in political campaigns

Select all that apply; Service Efforts and Accomplishments (SEA) measures ______. A. may be slanted to present only favorable information B. are subject to standardization and public reporting requirements C. are part of the budget process of many governments D. are subject to audit and the rendering of an opinion

A. may be slanted to present only favorable information C. are part of the budget process of many governments

The wording "except for the effects of the matter(s)..." is found in a(n) ______ audit opinion. A. qualified B. disclaimer of C. adverse D. unqualified

A. qualified

Select all that apply; Section 501(c) status ______. A. reduces the net cost of contributions to donors B. impose reporting requirements C. exempts the organizations from sales tax D. places restrictions on the organization's activities

A. reduces the net cost of contributions to donors B. impose reporting requirements D. places restrictions on the organization's activities

The City of Valley Ridge government has not been determined to be low risk. It has four programs, two Type A and two Type B, as follows: Type A: Housing and Urban Development ($800,000) was audited last year with no major control or compliance findings. Environmental Protection Agency ($750,000) was audited three years ago with no major control or compliance findings. Type B: Department of Education, $350,000 Department of Energy, $175,000 The total amount of grant expenditures is $1,800,000. Which of the departments must be audited? A. Housing and Urban Development (HUD) B. Environmental Protection Agency (EPA) C. Both EPA and HUD

B. Environmental Protection Agency (EPA) Reason: Hasn't been audited in at least 2 years

In governmental audits the auditor only reports directly to appropriate officials, such as funding agencies or legislative bodies. A. True B. False

B. False Reason: They also report to the organization's board or audit committee.

Contributions to 501(c)(3) organizations are only deductible when computing federal income taxes. A. True B. False

B. False Reason: They are deductible for state income taxes and estate taxes also.

Select all that apply; Which of the following statements regarding governmental financial audits are correct? A. Governmental auditors are prohibited from communicating with parties outside of the audited organization. B. Government standards require additional fieldwork beyond AICPA requirements. C. Financial audits must comply with AICPA Generally Accepted Auditing Standards. D. Auditors are required to test compliance with laws and regulations.

B. Government standards require additional fieldwork beyond AICPA requirements. C. Financial audits must comply with AICPA Generally Accepted Auditing Standards. D. Auditors are required to test compliance with laws and regulations. Reason A: Additional communication is required.

Select all that apply The City of Valley Ridge government has not been determined to be low risk. It has four programs, two Type A and two Type B as follows: Type A: Housing and Urban Development (HUD), $800,000 was audited last year with no major control or compliance findings. Environmental Protection Agency (EPA), $750,000 was audited three years ago with no major control or compliance findings. Type B: Department of Education, $350,000 Department of Energy, $175,000 The total amount of grant expenditures is $1,800,000. Which of the following statements are correct? A. A risk assessment must be performed on the Dept. of Energy. B. The EPA must be selected for audit. C. The Dept. of Education must be selected for audit. D. At least $900,000 must be audited as major programs.

B. The EPA must be selected for audit. D. At least $900,000 must be audited as major programs.

In a governmental financial audit, auditors are specifically required to test internal control over financial reporting ______ compliance with laws and regulations. A. but not B. and C. or

B. and

Select all that apply; Type A programs ______. A. are always considered major programs B. are larger than Type B programs C. begin at $750,000 of federal awards

B. are larger than Type B programs C. begin at $750,000 of federal awards Reason: Type A programs are not considered major if they are determined to be low risk.

A report containing the views of the audited organization's officials regarding and reported significant deficiencies must be prepared by the ______. A. responsible officials B. auditor C. GAO

B. auditor

The Sarbanes-Oxley Act applies to ______. A. all organizations that have financial statement audits B. corporations that file with the SEC C. all federal government organizations D. corporations and federal government organizations

B. corporations that file with the SEC

The language of the governmental auditor's report is ______ those prepared for commercial businesses. A. identical to B. different from C. similar to

B. different from Reason: The language is different due to the unique reporting by governments.

Under the Single Audit Act of 1984, ______ are required to monitor the audit process and resolve findings and questioned costs. A. both cognizant and oversight agencies B. only cognizant agencies C. only oversight agencies

B. only cognizant agencies

Select all that apply; SEA output measures for a police department include ______. A. response time B. patrol hours C. number of responses

B. patrol hours C. number of responses

Select all that apply; SEA outcome measures for a police department include ______. A. number of responses B. response time C. number of violent crimes committed D. number of arrests

B. response time C. number of violent crimes committed

The most established information intermediaries exist in ______ A. newspaper reports B. the municipal bond market C. political party reports

B. the municipal bond market

Generally Accepted Government Auditing Standards (GAGAS) are issued by the ______. A. FASB B. AICPA C. GAO D. GASB

C. GAO pg. 379

IRS concerns over cost allocation for not for profit organizations arose when organizations reported ______. A. excessive fundraising expense relative to the amount of contribution revenue B. unreasonable staff compensation C. contribution revenue but no fund raising expense D. unreasonable executive compensation

C. contribution revenue but no fund raising expense

The most established information intermediaries exist in ______. A. political interest groups B. television and radio news C. public finance

C. public finance

Major programs are determined using a(n) ______ approach. A. percentage of funds B. absolute dollar amount C. relative dollar amount D. risk-based

D. risk-based

Independence in fact and appearance and being free of conflicts of interest are encompassed in the Yellow Book's ethical concept of _________.

Objectivity

Define SEA Outcome Measures?

The extent to which results are achieved or needs are met at least partially due to services provided. i.e. number of violent crimes committed, value of property lost due to crime, and response time

Define SEA Output Measures?

The quantity of a service provided or the quantity of a service that meets a certain quality requirement. i.e. number or responses, number of arrests, and hours of patrol.

Reporting on an entity's internal controls or prospective financial information are examples of _________ engagements.

attestation

Auditors are required to conduct their work with an attitude that is objective, fact-based and nonpartisan under the Yellow Book's ethical concept of _________.

integrity

Governmental activities, business-type activities and each major fund are all considered _________ units.

opinion

Activities done by internal auditors in the private sector are accomplished by _________ audits in the governmental sector.

performance