Class 4/8 - Gov't Auditing Flashcards Preview

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Flashcards in Class 4/8 - Gov't Auditing Deck (31):
1

What standards are followed?

GAGAS (Generally Accepted Government Auditing Standards
Yellow Book (Published in Gov't Auditing Standards)
GAO (Established by the Government Accountability Office

2

What engagements follow GAGAS?

-Involve federal government entities, programs, activities, and functions
-State and local governments and not-for-profits that receive federal awards
-When required by contract or state or local law
(Hint - wherever the federal money goes)

3

Types of Governmental Audits

-Financial Statement Audits
-Attestation Engagements
-Performance Audits

4

When do we report on internal control on a regular audit?

If they are an accelerated filer

5

When do we report on internal control on a governmental audit?

always

6

Governmental Financial Statement Audits also require reporting in internal control AND compliance with
1)
2)
3)
4)

1) Laws
2) Regulations
3) Contracts
4) Grant Agreements

7

Examples of attestation governmental audits:
1)
2)
3)

1) Investment performance
2) Descriptions of computer software
3) Effectiveness 0f internal controls over compliance matters

8

Performance Audits may address:
1)
2)
3)
4)

Program effectiveness and results
Economy and efficiency
Internal control
Compliance with legal requirements

9

GAGAS Beyond GAAS - CPE Requirements.

80 hours in related topic every two years (24 hours directly related to gov. audit)

10

GAGAS Beyond GAAS - Peer review

External peer review every 3 years

11

GAGAS Beyond GAAS - Additional communication to ___________________.

Cognizant legislative committees.

12

GAGAS Beyond GAAS - Auditors evaluate _______________.

Corrective actions

13

GAGAS Beyond GAAS - State whether audit in conformity with _________.

GAGAS

14

GAGAS Beyond GAAS - Report any significant instances of __________________.

noncompliance or abuse.

15

GAGAS Beyond GAAS - Distribute Reports to:
1)
2)
3)

1) Those charged with governance
2) appropriate officials of the audited entity
3) Appropriate oversight bodies

16

The Single Audit Act is intended to be the definitive legislation concerning the audit of federal awards administered by nonfederal entities. Which of the following statements is a false statement about the act?

A. The act requires federal auditors to rely on single audit findings, to base any supplemental auditing on them, and to pay any additional auditing costs.

B. Audit reporting should cover an opinion on the fairness of the financial statements, a report on internal control, and a report on compliance with grant requirements.

C. The single audit concept changes the focus from individual grants to grant recipients.

D. The auditor must designate one of the grant providers as a cognizant agency to act as a liaison between the auditee and the federal agencies providing funds.


D. The auditor must designate one of the grant providers as a cognizant agency to act as a liaison between the auditee and the federal agencies providing funds.

Answer D is correct.
A recipient expending more than $50 million per year in federal awards must have a cognizant agency for audit. The designated agency is the federal awarding agency that provides the predominant amount of direct funding, unless the OMB specifies another cognizant agency or the cognizant agency reassigns cognizance to another federal awarding agency. The cognizant agency overseeing the audit process acts as a liaison among the auditor, the auditee, and the granting agencies. Guidance for the application of the Single Audit Act is provided in OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Generally accepted governmental auditing standards (GAGAS) and generally accepted auditing standards (GAAS) apply when appropriate.

17

The concept of materiality for financial statements audited under the Single Audit Act differs from materiality in an audit in accordance with generally accepted auditing standards. Under the act, materiality is

A. Determined by the federal agency requiring the audit.

B. Determined separately for each major federal program.

C. Ignored because all account balances, regardless of size, are fully tested.

D. Calculated without consideration of the auditor’s risk assessment.

B. Determined separately for each major federal program.

Answer B is correct.
The objective of the Single Audit Act is to permit one audit to encompass the entity’s financial statements, its compliance with the terms of federal programs, and internal control. The audit should consider each major federal program individually to determine whether the program is in compliance with applicable laws and regulations. Thus, materiality should be considered at an individual program level.

18

An audit of a local government that expends federal financial assistance is subject to the requirements of Government Auditing Standards. Which of the following is also applicable?

Regulation
S-X...OMB Circular A-133...Single Audit Act

A. Yes...Yes...Yes
B. Yes...Yes...No
C. Yes...No...No
D. No...Yes...Yes

D. No...Yes...Yes

Answer D is correct.
The Single Audit Act establishes audit requirements for recipients of federal financial assistance. The act requires that audits of such entities be in accordance with Government Auditing Standards issued by the GAO. OMB Circular A-133 and the related Compliance Supplement also apply. The act and the circular state certain requirements that exceed those of the GAO.

19

Under the Single Audit Act, the single audit replaces any financial audit required under a federal award. The auditor

A. Prepares a schedule of expenditures of federal awards.

B. Submits a data collection form.

C. Prepares a schedule of audit findings and questioned costs.

D. Submits a reporting package.

C. Prepares a schedule of audit findings and questioned costs.

Answer C is correct.
The schedule of audit findings and questioned costs includes any instances of (1) known questioned costs greater than $10,000 or (2) known questioned costs when likely questioned costs exceed $10,000 for compliance requirements for a major program. Likely questioned costs (a projection) also must be considered when evaluating the effects of questioned costs on the audit opinion. Furthermore, known questioned costs greater than $10,000 for a nonmajor program also should be included.

20

Wolf is auditing an entity’s compliance with requirements governing a major federal program in accordance with the Single Audit Act. Wolf detected noncompliance with requirements that have a material effect on the program. Wolf’s report on compliance should express

A. No assurance on the compliance tests.

B. Reasonable assurance on the compliance tests.

C. An adverse opinion or a disclaimer of opinion.

D. A qualified or adverse opinion.

D. A qualified or adverse opinion.

Answer D is correct.
Under the Single Audit Act, the auditor should express an opinion on compliance with requirements having a direct and material effect on a major federal program or state that an opinion cannot be expressed. When the compliance audit detects noncompliance with those requirements that the auditor believes have a direct and material effect on the program, the auditor should express a qualified or adverse opinion. The auditor should state the basis for such an opinion in the report.

21

When performing an audit of a city that is subject to the requirements of the federal Single Audit Act, an auditor should adhere to

A. Governmental Finance Officers Association Governmental Accounting, Auditing, and Financial Reporting Principles.

B. Government Auditing Standards.

C. Governmental Accounting Standards Board General Standards.

D. Securities and Exchange Commission Regulation S-X.

B. Government Auditing Standards.

Answer B is correct.
The Single Audit Act establishes audit requirements for recipients of federal awards administered by nonfederal entities. The act requires that audits of such entities be in accordance with Government Auditing Standards issued by the GAO. OMB Circular A-133 and related GAAS also apply. The act and the circular state certain requirements that exceed those of the GAO’s Standards.

22

Under the Single Audit Act, the auditor should report on compliance with laws, regulations, and the provisions of contracts or grant agreements, noncompliance with which could have a material effect on the financial statements. This report should also express or disclaim an opinion on whether the auditee complied with laws, etc., that could have a direct and material effect on each major program. In accordance with the act and OMB Circular A-133, which contains policies, procedures, and guidelines to implement the act, the auditor

A. Is required to restrict control risk and assess inherent and detection risk.

B. Should determine whether the recipient has engaged in activities to which particular types of compliance requirements apply.

C. Is not responsible for identifying major federal programs.

D. Should apply a concept of materiality in the audit of major federal programs that is similar to that in an audit under GAAS.

B. Should determine whether the recipient has engaged in activities to which particular types of compliance requirements apply.

Answer B is correct.
OMB Circular A-133 and the related Compliance Supplement list the types of compliance requirements, e.g., activities allowed or unallowed; allowable costs/cost principles; cash management; eligibility; matching, level of effort, and earmarking; and reporting. The data collection form submitted by the auditee should include, for each federal program, a yes or no statement as to whether there are audit findings for each of the types of compliance requirements and the total of any questioned costs.

23



An auditor is auditing a nonfederal entity’s administration of a federal award pursuant to a major program under the Single Audit Act. The auditor is required to

Obtain Evidence Related to Compliance...Express an Opinion
on Compliance

A. Yes...Yes
B. No...Yes
C. No...No
D. Yes...No

A. Yes...Yes

Answer A is correct.
After an audit of a nonfederal entity that expends federal awards, the audit report on compliance should include an opinion or a disclaimer of opinion as to whether the auditee complied with the applicable compliance requirements, that is, with laws, regulations, rules, and the provisions of contracts or grants. This report also should describe identified noncompliance or refer to an accompanying schedule of noncompliance.

24

The Single Audit Act concerns the audit of federal assistance expended by state and local governments. Under the act, the auditor should follow

A. Guidance provided by the Office of Management and Budget (OMB) and the Government Accountability Office (GAO).

B. Principles adopted by the Governmental Finance Officers Association.

C. The Governmental Accounting Standards Board’s auditing standards.

D. IRS standards, including the 1954 Internal Revenue Code and subsequent relevant legislation and regulations.

A. Guidance provided by the Office of Management and Budget (OMB) and the Government Accountability Office (GAO).

Answer A is correct.
The Single Audit Act establishes audit requirements for recipients of federal financial assistance. The act requires that audits of such entities be in accordance with Government Auditing Standards issued by the GAO. OMB Circular A-133 and the related Compliance Supplement also apply. The act and the circular state certain requirements that exceed those of the GAO.

25

In an audit of compliance with requirements governing awards under major federal programs performed in accordance with the Single Audit Act, the auditor’s consideration of materiality differs from materiality under generally accepted auditing standards. Under the Single Audit Act, materiality for the purpose of reporting an audit finding is

A. Determined in relation to a type of compliance requirement for a major program.

B. Calculated in relation to the financial statements taken as a whole.

C. Ignored, because all account balances, regardless of size, are fully tested.

D. Decided in conjunction with the auditor’s risk assessment.

A. Determined in relation to a type of compliance requirement for a major program.

Answer A is correct.
Under the Single Audit Act, the emphasis of the audit effort is on major programs related to federal awards administered by nonfederal entities. According to OMB Circular A-133 issued pursuant to the Single Audit Act, the schedule of findings and questioned costs includes instances of material noncompliance with laws, regulations, contracts, or grant agreements related to a major program. The auditor’s determination of whether a noncompliance is material for the purpose of reporting an audit finding is in relation to a type of compliance requirement for a major program or an audit objective identified in the OMB Circular A-133 Compliance Supplement. Examples of types of compliance requirements include (1) activities allowed or unallowed; (2) allowable costs/cost principles; (3) cash management; (4) eligibility; (5) matching, level of effort, and earmarking; and (6) reporting.

26

How does Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, define a subrecipient?

A. As a dealer, distributor, merchant, or other seller providing goods or services that are required for the conduct of a federal program.

B. As a nonfederal entity that expends federal awards received from another entity to carry out a federal program.

C. As a nonfederal entity that provides a federal award to another entity to carry out a federal program.

D. As an individual who receives and expends federal awards received from a pass-through entity.

B. As a nonfederal entity that expends federal awards received from another entity to carry out a federal program.

Answer B is correct.
OMB Circular A-133 defines a subrecipient as a nonfederal entity that expends federal awards received from another entity, often another governmental body, to carry out a federal program.

27

Although the scope of audits of recipients of federal awards in accordance with federal audit regulations varies, audits under the Single Audit Act generally have which of the following elements in common?

A. The auditor is required to express both positive and negative assurance that fraudulent acts that could have a material effect on the recipient’s financial statements are disclosed to the inspector general.

B. The materiality levels are lower and are determined by the government entities that provided the federal awards to the recipient.

C. The auditor should obtain written management representations that the recipient’s internal auditors will report their findings objectively, without fear of political repercussion.

D. The auditor is to determine whether the federal financial assistance has been administered in accordance with applicable laws and regulations.

D. The auditor is to determine whether the federal financial assistance has been administered in accordance with applicable laws and regulations

Answer D is correct.
According to the Single Audit Act, the scope of federal audits may vary, but the auditor should
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.

28

A CPA has performed an examination of the general-purpose financial statements of Big City. The examination scope included the additional requirements of the Single Audit Act. When reporting on Big City’s internal control over the administration of federal awards, the CPA should

A. Communicate significant deficiencies and material weaknesses that are material in relation to a type of compliance requirement for the federal program.

B. Express negative assurance on the systems used to administer awards under major federal programs and express no opinion on the systems used to administer awards under nonmajor federal programs.

C. Communicate all control deficiencies related to all federal awards.

D. Express an opinion on the systems used to administer awards under major federal programs and express negative assurance on the systems used to administer awards under nonmajor federal programs.

A. Communicate significant deficiencies and material weaknesses that are material in relation to a type of compliance requirement for the federal program.

Answer A is correct.
Under the Single Audit Act, the auditor’s determination of whether a deficiency in internal control is a significant deficiency or material weakness is in relation to a type of compliance requirement for a major program or an audit objective identified in the OMB Circular A-133 Compliance Supplement. The auditor also should identify all significant deficiencies and weaknesses.

29

The auditor’s responsibilities under the Single Audit Act include

A. Designating the cognizant agency.

B. Submitting a data collection form.

C. Reporting on compliance with grant requirements.

D. Expressing an opinion on internal control.

C. Reporting on compliance with grant requirements.

Answer C is correct.
Under the Single Audit Act, audit reporting should include an opinion on the fairness of the financial statements, a report on internal control, and a report on compliance with grant requirements.

30

The scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies. Which of the following elements do these audits have in common?

A. The accounts should be 100% verified by substantive tests because certain statistical sampling applications are not permitted.

B. The materiality levels are higher and are determined by the government entities that provide the federal financial assistance to the recipients.

C. The auditor is required to document an understanding of internal control established to ensure compliance with the applicable laws and regulations.

D. The auditor is required to disclose all situations and transactions that could be indicative of fraud, abuse, and noncompliance with laws and regulations to the federal inspector general.

C. The auditor is required to document an understanding of internal control established to ensure compliance with the applicable laws and regulations.

Answer C is correct.
The auditor’s consideration of internal control includes obtaining and documenting an understanding of internal control established to ensure compliance with the laws and regulations applicable to the federal financial assistance. In some instances, federal audit regulations require tests of controls to evaluate the effectiveness of the design and operation of the policies and procedures in preventing or detecting material noncompliance.

31

3 Key Points to Remember in Government Auditing:

1)
2)
3)

1) Controls
2) Compliance
3) Crimes