Chapter 20 -- Governmental Audits

Question 1

Section 20.1: Government Auditing Standards

What are the ethical principles under GAGAS?

Answer 1

• The public interest
• Integrity
• Objectivity
• Proper user of government information
• Professional behavior

Question 2

Section 20.1: Government Auditing Standards

What is a performance audit under GAGAS?

Answer 2

Performance audits include economy and efficiency audits.

Groups included in performance audits consist of:
* Government entities, programs, activities and functions
* Government assistance administered by contractors, not-for-profit entities and other nongovernmental activities.

Question 3

Section 20.1: Government Auditing Standards

What are the objectives of a performance audit under GAGAS?

Answer 3

• Whether the entity is acquiring, protecting and using its resources economically and efficiently.
• The causes of any inefficiencies
• Whether the entity has complied with laws and regulations concerning matters of economy and efficiency

Question 4

Section 20.1: Government Auditing Standards

What is reported in a performance audit under GAGAS?

Answer 4

• The audit objectives and the audit scope and methodology
• The views of the audited program’s responsible officials concerning the auditor’s findings
• All significant instances of noncompliance
• Instances of abuse

Question 5

Section 20.1: Government Auditing Standards

What are the components of a performance audit under GAGAS?

Answer 5

• Program effectiveness and results
• Economy and efficiency
• Internal control
• Compliance with legal requirements
• Providing prospective analysis, guidance and summary information.

Question 6

Section 20.1: Government Auditing Standards

What type of reports are issued under GAGAS?

Answer 6

• Financial statement audit
• Written report on internal control over financial reporting

Question 7

Section 20.1: Government Auditing Standards

What is included in a report of internal control in GAGAS?

Answer 7

• A description of the scope of the auditor’s testing of compliance with laws and regulations.
• Whether tests provided sufficienct evidence to support an opinion on compliance or internal control over financial reporting
• Such opinions are provided

Question 8

Section 20.1: Government Auditing Standards

What are types of significant deficiencies that would be reported in the report of the auditor’s testing of internal control under GAGAS?

Answer 8

• Significant deficiencies and material weakness in internal control
• Instances of fraud and noncompliance with provisions of laws and regulations that have a material effect on the audit, as well as cause attention to those charged with governance.
• Noncompliance with provisions of contracts and grant agreements that has a material effect on the audit.
• Abuse that has a material effect on the audit.

Question 9

Section 20.1: Government Auditing Standards

What type of engagements can be performed under GAGAS?

Answer 9

• Financial audits
• Performance audits
• Attestation engagements

Question 10

Section 20.1: Government Auditing Standards

How is the report on internal controls over financial reporting presented under GAGAS?

Answer 10

The report on internal control may be reported either in:
* A separate report. A note should be made in the scope paragraph of the audit report stating that a separate report was made.
* Included in the report on the financial statements.

Question 11

Section 20.1: Government Auditing Standards

What are the elements of a finding in a financial audit under GAGAS?

Answer 11

• Criteria
• Condition that a situation exists
• Cause reason for the explanation for the condition
• Effect or potential effect

Question 12

Section 20.1: Government Auditing Standards

What are examples of attestation engagements under GAGAS?

Answer 12

• An entity’s internal control over financial reporting
• An entity’s compliance with requirements of specified laws, regulations, policies, grants, or contracts.
• MD&A
• Prospective financial and performance information
• The accuracy and reliability of performance measures
• Allowable, reasonable, or final contract costs
• The quantity, condition or valuation of inventory or assets.

Question 13

Section 20.1: Government Auditing Standards

What is included in an auditor’s documentation under GAGAS?

Answer 13

• The supervisory review of the evidence that supports the findings, conclusions and recommendations.
• Departures due to law
• Departures due to regulations
• Any scope limitations
• Restrictions on access to records
• Any other issues

Question 14

Section 20.1: Government Auditing Standards

What is presumptively manadatory in GAGAS?

Answer 14

Presumptively mandatory is a professional requirement to comply with a standard. If the auditor chooses not to comply, then they must provide an explanation for not doing so.

Question 15

Section 20.1: Government Auditing Standards

What causes a departure from a presumptively mandatory requirement?

Answer 15

• A specific procedure must be performed
• The procedure would be ineffective in achieving the intent of the requirement.

Question 16

Section 20.1: Government Auditing Standards

What government management function would cause the CPA to be impaired?

Answer 16

Developing entity program policies

Question 17

Section 20.2: Compliance Audits

What is the auditor’s objective in a compliance audit of a Governmental entity?

Answer 17

• To obtain sufficient appropriate evidence to form an opinion
• Report at the level specified by the government audit requirement on whether the entity complied, in all material respects, with the applicable compliance requirements.
• Identify audit and reporting requirements in the governmental audit requirements that supplement GAAS and GAGAS.
• Perform and report on related procedures

Question 18

Section 20.2: Compliance Audits

What are the steps in performing a compliance audit of a governmental entity?

Answer 18

• Obtain written representation from management
• Document the audit process and conclusions
• Consider subsequent events through the date of the report

Question 19

Section 20.2: Compliance Audits

What standards should an auditor follow when performing a compliance audit of a government entity?

Answer 19

GAAS is adapted to meet the circumstances of the compliance audit

Question 20

Section 20.2: Compliance Audits

What are management’s responsibilities in a compliance audit of a governmental entity?

Answer 20

• Identify the entity’s government programs and understanding and complying with the compliance requirements.
• Designing, implementing and maintaining effective controls over compliance
• Evaluating and monitoring compliance
• Taking necessary corrective action to ensure compliance

Question 21

Section 20.2: Compliance Audits

When should test of controls be performed when reporting on a compliance audit of a governmental entity?

Answer 21

• The auditor’s risk assessment includes an expectation of the operating effectiveness of controls related to the applicable compliance requirement (ACR)
• Substantive procedures alone do not provide sufficience audit evidence.
• Tests of controls are required by the governmental audit requirements (GAR)

Question 22

Section 20.2: Compliance Audits

What is a material weakness in internal control over compliance?

Answer 22

It occurs when a reasonable possibility that material noncompliance with a compliance requirement will not be prevented, or detected and corrected, on a timely basis

Question 23

Section 20.3: Federal Audit Requirements and the Single Audit Act

What is the single audit act?

Answer 23

• The emphasis of the audit is on major programs related to federal awards administered by nonfederal entities that expends $750,000 or more in federal awards in one fiscal year.
• Audit is in accordance with GAO and OMB Requirements.
• The auditor determines on whether a deficiency in internal control is a signficiant deficiency or a material weakness in relation to the type of compliance.
• The auditor should identify all significant deficiences and material weaknesses.

Question 24

Section 20.3: Federal Audit Requirements and the Single Audit Act

What are examples of types of OMB audit requirements under the Single Audit Act?

Answer 24

• Activities allowed or unallowed
• Allowable costs/cost principles
• Cash management
• Eligibility
• Matching, level of effort, and earmarking
• Reporting

Question 25

# Section 20.3: Federal Audit Requirements and the Single Audit Act What are the auditor's responsibilities under the Single Audit Act?

Answer 25

* Determine whether the financial statements are presented fairly, in all material respects, in conformity with GAAP. * Determine whether the schedule of expenditures of federal awards is presented fairly, in all material respects, in relation to the financial statements as a whole. * With respect to controls over compliance, obtain an understanding of those controls, assess control risk, and perform tests of controls unless the controls are ineffective. * Determine whether the nonfederal entity has complied with the provisions of laws, regulations, and contracts or grants that have a direct and material effect on each major program. * Report audit findings in a schedule of findings and questioned costs.

Question 26

# Section 20.3: Federal Audit Requirements and the Single Audit Act When is the schedule of audit findings created under the single audit act?

Answer 26

The auditor must report a schedule of findings and questioned costs. Questioned costs result from an audit finding of: * A violation or possible violation of a law, regulation, contract, grant, or agreement or document governing the use of federal funds, including matching funds * Inadequate documentation of costs at the time of the audit. * Costs that appear unreasonable and do not reflect the actions a prudent person would take in the circumstances.

Question 27

# Section 20.3: Federal Audit Requirements and the Single Audit Act What is the threshhold in creating the schedule of audit findings created under the single audit act?

Answer 27

* Known questioned costs greater than $25,000 * Known questioned costs when likely questioned costs exceed $25,000 for compliance requirements for a major program.

Question 28

# Section 20.3: Federal Audit Requirements and the Single Audit Act What is a subsrecipient?

Answer 28

A subrecipient is a nonfederal entity that expends federal awards received from another entity to carry out a federal program.

Question 29

# Section 20.3: Federal Audit Requirements and the Single Audit Act What is an auditor required to do when auditing a nonfederal entity’s administration of a federal award pursuant to a major program under the Single Audit Act?

Answer 29

* Obtain evidence related to compliance * Express or disclaim an opinion on compliance

Question 30

# Section 20.3: Federal Audit Requirements and the Single Audit Act What are the components of the Single Audit Act?

Answer 30

* Single audit concept changes the focus from individual grants to grant recipients * Audit report or reports should cover the financial statements, internal control, and compliance with grant requirements * Act requires federal auditors to rely on single audit findings, to base any supplemental auditing on them, and to pay any additional auditing costs * Requires that audits of such entities be in accordance with Government Auditing Standards issued by the GAO. * OMB Audit Requirements for Federal Awards (2 CFR 200) Compliance Supplement and related GAAS also apply