Chapter 16

21. Which of the following is NOT included in the general requirements for which the auditor must test compliance with federal regulations? a) Matching funds. b) Drug-free workplace. c) Political activity. d) Prevailing wage.

b) Drug-free workplace.

38. Circular A-133, issued by the Office of Management and Budget, a) Applies only to state and local governments b) Applies only to not-for-profit organizations c) Applies to both d) Applies to neither

c) Applies to both

41. The three categories of government auditing standards are a) General, field work, and control standards. b) General, independence, and reporting standards. c) General, field work, and reporting standards. d) General, compliance, and documentation standards.

c) General, field work, and reporting standards.

15. An attestation engagement might include examination of prospective or pro-forma financial statements.

T

26. The Schedule of Findings and Questioned Costs should include all of the following except a) Information on types of opinions expressed on the financial statement. b) Information on all weaknesses in internal control. c) List of material noncompliance. d) Known questioned costs.

a) Information on types of opinions expressed on the financial statement.

27. Which of the following is NOT a necessary condition for a performance audit? a) The auditor must delineate specifically the activities and outcomes to be addressed. b) Entity management must have clearly defined operational objectives. c) The auditor must obtain an understanding of management controls relevant to the audit. d) There must be a schedule of disbursements related to the program.

d) There must be a schedule of disbursements related to the program.

12. Per OMB Circular A-133, "questioned costs" are those that should not be reimbursed under a federal grant because they are in violation of laws of provisions pertaining to the grant.

T

2. The Single Audit Act of 1984 was passed to eliminate the costly practice of requiring separate audits for each federal program in which an organization participated.

T

3. Performance audits are sometimes referred to as "operational" audits.

T

5. To "attest" means to confirm that something is true, correct, or genuine.

T

6. An auditor of any government or not-for-profit that receives federal monies must include a report on the entity's internal control structure within their audit report or provide a cross-reference to that report.

T

8. Newly installed computer programs are one indicator that a government's participation in a federal program may be at high risk of noncompliance.

T

2. Which of the following is an example of a financial audit? a) An audit of financial statements to determine if they are presented fairly in accordance with generally accepted accounting principles. b) An audit to determine whether the objectives of a new program are suitable and relevant and whether the entity has complied with laws and regulations that may have a material effect on the financial statements. c) An audit of the financial report on the Noxious Weed Special Revenue Fund to determine whether the entity has complied with specific finance-related requirements. d) An audit to determine whether an entity is acquiring its resources economically and efficiently.

a) An audit of financial statements to determine if they are presented fairly in accordance with generally accepted accounting principles.

43. Under the Single Audit Act, the required report on compliance and on internal control over financial reporting a) Is based on the audit requirements of the GAO's Government Auditing Standards. b) Need not be issued if the auditors do not identify internal control deficiencies or instances of noncompliance. c) Must be countersigned by the inspector general of the cognizant agency. d) Should describe the scope of the auditors' testing.

a) Is based on the audit requirements of the GAO's Government Auditing Standards.

18. A CPA has conducted an audit of the financial statements of an entity that received federal financial assistance and had one program that qualified as a major program. The CPA's responsibility related to reporting on internal control for this entity is to: a) Issue a report on internal control relating to the financial statements. b) Issue an opinion on internal control relating to the financial statements. c) Issue a report on internal control relating to the financial statements and a report on internal control related to the federal program(s). d) Issue a report on internal control relating to the financial statements and an opinion on internal control related to the major program.

a) Issue a report on internal control relating to the financial statements.

42. Which of the following statements about the GAO is NOT true? a) It is an agency within the executive branch of the federal government. b) It is the author of Government Auditing Standards (GAGAS). c) It is responsible for auditing all federal agencies and programs. d) Its head, the Comptroller General of the United States, is appointed by the President.

a) It is an agency within the executive branch of the federal government.

40. Which of the following is NOT true of an attestation engagement? a) It should not be performed if the reliability of the entity's performance measures is questionable. b) An important part of the engagement scope is to examine compliance with rules, regulations, or terms of contracts. c) It should examine management's assertions in relation to the entity's administrative controls. d) It may include examination of prospective or pro-forma financial statements.

a) It should not be performed if the reliability of the entity's performance measures is questionable.

17. Which of the following groups is responsible for administering the Single Audit Act? a) OMB. b) GAO. c) AICPA. d) State Boards of Accountancy.

a) OMB.

31. Which of the following is NOT a technique used by an auditor in a performance audit engagement to gain an understanding of the controls in place to ensure that a program meets its objective? a) Reading the legislation. b) Making inquiries of employees. c) Flow-charting appropriate systems. d) Preparing and administering questionnaires.

a) Reading the legislation.

28. GAO performance audit standards do NOT include which of the following? a) The auditor should be independent of the entity being audited. b) The work should be adequately planned. c) The auditor should prepare written work papers. d) The auditor should obtain an understanding of management controls relevant to the audit.

a) The auditor should be independent of the entity being audited.

15. A CPA has conducted an audit of the financial statements of an entity that received federal financial assistance. The CPA identified one major federal program and four nonmajor federal programs. The CPA's responsibility related to the Schedule of Expenditures of Federal Awards is to: a) Express an opinion as to whether the Schedule is fairly presented. b) Express an opinion as to whether the Schedule is fairly presented in relation to the financial statements taken as a whole. c) Express negative assurance on the Schedule. d) The CPA has no responsibility with regard to the Schedule.

b) Express an opinion as to whether the Schedule is fairly presented in relation to the financial statements taken as a whole.

24. Under which set of auditing standards is the auditor required to test compliance with laws and regulations that could have a direct and material effect on the financial statements of the entity? a) AICPA standards. b) GAO standards. c) OMB standards. d) All of the above.

b) GAO standards.

45. In a performance audit of a not-for-profit organization, procedures that auditors would follow to gain an understanding of management controls would NOT include a) Reviewing policy manuals. b) Sending questionnaires to clients. c) Discussing controls with employees. d) Flowcharting appropriate systems.

b) Sending questionnaires to clients.

10. An auditor is engaged to audit the Eastern Planning and Development District, a not-for-profit entity that receives federal financial assistance. The auditor designed his audit to provide reasonable assurance of detecting material misstatements resulting from illegal acts. What additional requirements does the auditor have with regard to compliance? a) None. b) The auditor must design the audit to provide reasonable assurance of detecting noncompliance with terms of grants and contracts. c) The auditor must design the audit to provide reasonable assurance of detecting all misstatements resulting from illegal acts. d) The auditor must design the audit to provide reasonable assurance of detecting any fraud.

b) The auditor must design the audit to provide reasonable assurance of detecting noncompliance with terms of grants and contracts.

1. The GAO publication Government Auditing Standards (commonly known as the Yellow Book) is applicable in which of the following audit situations? a) To independent CPAs conducting a performance audit of a government that receives no federal financial assistance. b) To independent CPAs auditing a nongovernment entity that receives federal financial assistance. c) To independent CPAs auditing a government that receives no federal financial assistance. d) To state auditors auditing a local government that does not receive federal financial assistance.

b) To independent CPAs auditing a nongovernment entity that receives federal financial assistance.

39. Which of the following must have an audit under GAGAS? a) A state government that receives more than $500,000 in federal awards during the year. b) A local government that receives more than $501,000 in federal awards during two years. c) A state government that expends more than $500,000 in federal awards during the year. d) A local government that expends more than $501,000 in federal awards during two years.

c) A state government that expends more than $500,000 in federal awards during the year.

13. An independent auditor has conducted an audit of the financial statements of an entity that receives federal financial assistance, but that is not subject to the OMB standards. What report(s) must the auditor issue at the completion of this engagement? a) Only an opinion (or disclaimer of opinion) on the financial statements. b) An opinion (or disclaimer of opinion) on the financial statements and a report on internal control. c) An opinion (or disclaimer of opinion) on the financial statements, a report on internal control, and a report on compliance. d) An opinion (or disclaimer of opinion) on the financial statements, a report on internal control, and an opinion (or disclaimer of opinion) on compliance.

c) An opinion (or disclaimer of opinion) on the financial statements, a report on internal control, and a report on compliance.

3. A performance audit includes which of the following? a) Economy and efficiency audit. b) Program audits. c) Both a) and b). d) None of the above.

c) Both a) and b).

7. What amount of continuing professional education would an auditor, who is not a CPA but who is engaged in the audit of a City that receives significant amounts of federal financial assistance, be required to complete? a) Twenty-four hours every two years. b) Forty hours a year. c) Eighty hours every two years. d) None because the auditor is not a CPA.

c) Eighty hours every two years.

30. If a program to be subjected to a performance audit lacks clearly defined objectives, what can the auditor do? a) Decline the audit until the entity defines its objectives. b) Personally discern the objectives based on the auditor's opinion. c) Examine the legislation to see if the legislation articulated the goals and objectives of the program. d) Create a list of goals and objectives.

c) Examine the legislation to see if the legislation articulated the goals and objectives of the program.

29. Which of the following is NOT a key difference between financial and performance audits? a) Financial statement audits focus on the entity as a whole whereas performance audits generally focus on a specific program or activity. b) Financial statement audits generally are conducted annually whereas performance audits generally are conducted irregularly. c) Financial statement audits are conducted using very well defined standards whereas performance audits are conducted without reference to any standards. d) Specialists in accounting generally conduct financial statement audits whereas performance audits may require more program-specific knowledge and fewer accounting skills.

c) Financial statement audits are conducted using very well defined standards whereas performance audits are conducted without reference to any standards.

34. Which of the following is not a unique characteristic that distinguishes ethical decisions made by employees of governments from those made by employees of for-profit entities? a) The public holds employees of governments to a higher standard of conduct than those of businesses. b) Governments are guardians of public funds and are accountable to the public as to how they use them. c) Government employees must safeguard assets. d) Government activities are carried out in open view.

c) Government employees must safeguard assets.

22. Each federal financial assistance program has specific compliance requirements. Which of the following is not an example of the general nature of the specific compliance requirements? a) Eligibility of individuals or groups to participate in the program. b) Allowability of certain types of goods or services that may be acquired. c) Maximum dollar amounts of expenditures. d) Matching fund requirements.

c) Maximum dollar amounts of expenditures.

12. An independent CPA is conducting an audit of an entity that is subject to the GAO audit standards, but is not subject to the OMB audit standards. While conducting the audit, the CPA found that the entity had violated a law that had a large, but not material, potential penalty associated with such violation. There was no accrual for the potential penalty or disclosure of the violation. What action(s) must the CPA take with regard to this violation? a) Nothing, since the financial statements are not materially misstated. b) Must issue an adverse opinion if the financial statements are not changed to reflect the violation. c) Must issue a report that details the violation and the potential dollar effect. d) Must report the incident to the local law enforcement agency.

c) Must issue a report that details the violation and the potential dollar effect.

9. An independent CPA is conducting an audit of an entity that receives federal financial assistance and is subject to the GAO standards (GAGAS). The auditor must design the audit to provide reasonable assurance of detecting which of the following? a) Immaterial misstatements, if they result from illegal acts. b) Noncompliance with entity policies and procedures. c) Noncompliance with the terms of contracts or grant agreements. d) All of the above.

c) Noncompliance with the terms of contracts or grant agreements.

25. Under which set of auditing standards is the auditor required to express an opinion on compliance with laws and regulations applicable to each major program? a) AICPA standards. b) GAO standards. c) OMB standards. d) All of the above.

c) OMB standards.

6. Which of the following is NOT included in the general standards of GAGAS?a) Qualifications. b) Quality control. c) Planning. d) Independence.

c) Planning.

36. An elected state auditor, employed by the state, would NOT be considered independent when auditing which of the following entities? a) A component unit of the state. b) An agency of the state. c) The office of the state auditor. d) All of the above.

c) The office of the state auditor.

35. Which of the following is NOT a consideration in resolving an ethical dilemma? a) What are the facts? b) Who is affected? c) Who will know about this action? d) What are the alternative courses of action?

c) Who will know about this action?

14. Reports issued by CPAs conducting audits subject to the GAO standards must include all of the following except: a) A description of the scope of compliance testing. b) A description of the scope of internal control testing. c) A description of any irregularities and illegal acts found. d) A description of any sampling methodology and sampling plans used.

d) A description of any sampling methodology and sampling plans used.

37. An independent CPA is engaged to audit the financial statements of Holland City . The city has a variety of revenue sources including a $350,000 grant from the U.S. Department of Housing and Urban Development. Which of the following audit standards must the CPA use when conducting the audit? a) The AICPA audit standards. b) The GAO audit standards. c) The OMB audit standards. d) All of the above.

d) All of the above.

33. Which of the following is true about the public availability of audit reports prepared under GAGAS? a) Only financial statements should be publicly available. b) Only performance audits should be publicly available. c) Neither financial statement audits nor performance audits should be publicly available. d) Both financial statement audits and performance audits should be publicly available.

d) Both financial statement audits and performance audits should be publicly available.

32. GAO standards specify that performance audit reports should be timely and include several items. Which of the following items is NOT required under the GAO standards? a) Significant audit findings. b) Recommendation as to how to correct problems. c) Explanation of the audit's objectives and of its scope and methodology. d) Details about the number of items tested and the sampling techniques used.

d) Details about the number of items tested and the sampling techniques used.

4. A program audit would include which of the following? a) Determining if sound procurement policies are being practiced. b) Determining if efficient operating procedures are being used. c) Determining if resources are being used efficiently. d) Determining the factors inhibiting satisfactory performance.

d) Determining the factors inhibiting satisfactory performance.

23. What is the auditor's responsibility for the Schedule of Expenditures of Federal Awards? a) No responsibility for this Schedule. b) Report on the Schedule without issuing an opinion. c) Express an opinion on the fair presentation of the Schedule. d) Express an opinion on the fair presentation of the Schedule in relation to the basic financial statements taken as a whole.

d) Express an opinion on the fair presentation of the Schedule in relation to the basic financial statements taken as a whole.

19. A CPA has conducted an audit of the financial statements of an entity that received federal financial assistance and had one program that qualified as a major program. The CPA's responsibility related to reporting on compliance for this entity is to a) Issue a report on compliance related to the entity. b) Issue an opinion on compliance related to the entity. c) Issue a report on compliance related to the entity and a report on compliance related to the federal program(s). d) Issue a report on compliance related to the entity and an opinion on compliance related to the federal program(s).

d) Issue a report on compliance related to the entity and an opinion on compliance related to the federal program(s).

20. The Single Audit Act distinguishes between major and nonmajor federal programs. One factor that distinguishes a major from a nonmajor program is inherent risk. Which of the following is NOT a characteristic of "inherent risk"? a) Significant prior audit findings. b) Significant violation of the terms of a specific grant due to a misunderstanding of the requirements. c) Weakness in the entity's internal controls. d) Lack of oversight by federal agencies.

d) Lack of oversight by federal agencies.

8. An independent CPA who conducts audits of entities that receive federal financial assistance has what responsibility related to a peer review? a) Does not have to have one unless he/she belongs to the AICPA Private Companies Practice Section. b) Must have one every year. c) Must have one at least every two years. d) Must have one at least every three years.

d) Must have one at least every three years.

44. Financial audits generally are conducted annually. Performance audits generally are conducted a) Every year. b) Every two years. c) Every five years. d) On an irregular basis.

d) On an irregular basis.

5. Which the following is not included in the GAO auditing standards for financial statement audits? a) General standards. b) Field work standards. c) Reporting standards. d) Statistical sampling standards.

d) Statistical sampling standards.

11. A CPA prepares 'working papers' in an audit of an entity that receives federal financial assistance. Which of the following statements is true with regard to such 'working papers'? a) There is no specific standard requiring working papers. b) The AICPA has no specific standard requiring working papers, but the GAO standards require working papers. c) The AICPA and the GAO standards concerning working papers are the same. d) The GAO standards concerning working papers are more rigorous than the AICPA standards.

d) The GAO standards concerning working papers are more rigorous than the AICPA standards.

16. Which of the following is an objective of audits under the Single Audit Act? To ensure that a) The entity's financial statements are not affected by immaterial errors or misstatements. b) The entity has not committed fraud. c) The entity has in place a system of internal control sufficient to ensure that financial statements are prepared in accordance with generally accepted accounting principles. d) The entity is satisfying the laws, regulations, and provisions that apply to each specific federal award.

d) The entity is satisfying the laws, regulations, and provisions that apply to each specific federal award.