Study Unit 20 - Govermental Audits

Question 1

Who establishes generally accepted government auditing standards (GAGAS) and issues the Government Auditing Standards (the Yellow Book)?

Answer 1

The Government Accountability Office (GAO) establishes GAGAS and issues the Government Auditing Standards (the Yellow Book).

Question 2

What are the two categories of professional requirements under GAGAS?

Answer 2

Unconditional requirement - Must be complied with

Presumptively mandatory requirement - Should be complied with

Question 3

What are the five ethical principles under GAGAS that guide the work of governmental auditors?

Answer 3

1. The public interest
2. Integrity
3. Objectivity
4. Proper use of government information, resources, and positions
5. Professional behavior

Question 4

How often must an audit organization preforming audits or engagement in accordance with GAGAS have an external peer review?

Answer 4

The organization is required to have an external peer review at least once every 3 years.

Question 5

To whom should audit organization in government entities distribute audit reports?

Answer 5

• Those charges with governance
• The appropriate officials of the audited entity
• The appropriate oversight bodies or organization requiring or arranging for the audits

Question 6

In addition to the opinion on the financial statements, what findings should be reported in an audit under GAGAS?

Answer 6

• Significant deficiencies and material weaknesses in internal control
• Instances of fraud and non compliance with provisions of laws, regulations contracts, or grants that have a material effect on the financial statement or other financial data significant to the audit objectives
• Abuse or waste that has a material effect on the audit

Question 7

What is the documentation of an audit under GAGAS?

Answer 7

• Evidence that supports the findings, conclusions, and recommendations
• Supervisory review of evidence
• Any departures from GAGAS
• Effects on the audit of noncompliance

Question 8

Describe a compliance audit in accordance with GAAS, financial audit standards in Government Auditing Standards and the governmental audit requirement (GAR).

Answer 8

A compliance audit is a program-specific or organization-wide audit of compliance with requirements (laws, rules, regulations, contracts, or grants) that apply to government programs. It normally is performed with a financial statement audit.

Question 9

What are management’s responsibilities for governmental compliance audits?

Answer 9

• Identifying the entity’s government programs
• Understanding and complying with compliance requirements
• Designing, implementing, and maintaining effective controls over compliance
• Evaluating and monitoring compliance
• Taking necessary corrective action

Question 10

What are the auditor’s objectives for governmental compliance audits?

Answer 10

• Obtain sufficient appropriate evidence to form an opinion and report at the level specified in the GAR on whether the entity complied, in all material respects, with the compliance requirements
• Identify audit and reporting requirements in the GAR that supplement GAAS and Government Auditing Standards
• Perform and report on related procedures

Question 11

What does the risk of material noncompliance of a governmental audit combine?

Answer 11

Similar to the rick of material misstatement for an audit of a business entity, the risk of noncompliance combines (1) the inherent risk of noncompliance and (2) the control risk of noncompliance.

Question 12

What is the documentation of a governmental compliance audit?

Answer 12

• Risk assessment procedures performed
• Materiality levels and how they were determined
• Responses to the assessed risks of material noncompliance
• Procedures to test compliance
• Compliance with supplementary GARs

Question 13

When is a single audit or a program- specific audit of a non federal nonbusiness entity needed?

Answer 13

The Single Audit Act required a single audit or a program-specific audit of a nonfederal nonbusiness entity that expends $750,000 or more of federal awards in 1 fiscal year.

Question 14

What is the approach used in determining major federal programs in a governmental audit?

Answer 14

The auditor uses a risk-bases approach in determining which federal programs are major programs.

Question 15

What does the schedule of audit findings and questioned costs include?

Answer 15

It includes any instances of
1. Known questioned costs greater that $25,000
2. Known questioned costs when likely questioned costs exceed $25,000