Chapter 20 -- Governmental Audits Flashcards
Section 20.1: Government Auditing Standards
What are the ethical principles under GAGAS?
- The public interest
- Integrity
- Objectivity
- Proper user of government information
- Professional behavior
Section 20.1: Government Auditing Standards
What is a performance audit under GAGAS?
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.
Section 20.1: Government Auditing Standards
What are the objectives of a performance audit under GAGAS?
- 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
Section 20.1: Government Auditing Standards
What is reported in a performance audit under GAGAS?
- 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
Section 20.1: Government Auditing Standards
What are the components of a performance audit under GAGAS?
- Program effectiveness and results
- Economy and efficiency
- Internal control
- Compliance with legal requirements
- Providing prospective analysis, guidance and summary information.
Section 20.1: Government Auditing Standards
What type of reports are issued under GAGAS?
- Financial statement audit
- Written report on internal control over financial reporting
Section 20.1: Government Auditing Standards
What is included in a report of internal control in GAGAS?
- 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
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?
- 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.
Section 20.1: Government Auditing Standards
What type of engagements can be performed under GAGAS?
- Financial audits
- Performance audits
- Attestation engagements
Section 20.1: Government Auditing Standards
How is the report on internal controls over financial reporting presented under GAGAS?
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.
Section 20.1: Government Auditing Standards
What are the elements of a finding in a financial audit under GAGAS?
- Criteria
- Condition that a situation exists
- Cause reason for the explanation for the condition
- Effect or potential effect
Section 20.1: Government Auditing Standards
What are examples of attestation engagements under GAGAS?
- 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.
Section 20.1: Government Auditing Standards
What is included in an auditor’s documentation under GAGAS?
- 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
Section 20.1: Government Auditing Standards
What is presumptively manadatory in GAGAS?
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.
Section 20.1: Government Auditing Standards
What causes a departure from a presumptively mandatory requirement?
- A specific procedure must be performed
- The procedure would be ineffective in achieving the intent of the requirement.
Section 20.1: Government Auditing Standards
What government management function would cause the CPA to be impaired?
Developing entity program policies
Section 20.2: Compliance Audits
What is the auditor’s objective in a compliance audit of a Governmental entity?
- 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
Section 20.2: Compliance Audits
What are the steps in performing a compliance audit of a governmental entity?
- Obtain written representation from management
- Document the audit process and conclusions
- Consider subsequent events through the date of the report
Section 20.2: Compliance Audits
What standards should an auditor follow when performing a compliance audit of a government entity?
GAAS is adapted to meet the circumstances of the compliance audit
Section 20.2: Compliance Audits
What are management’s responsibilities in a compliance audit of a governmental entity?
- 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
Section 20.2: Compliance Audits
When should test of controls be performed when reporting on a compliance audit of a governmental entity?
- 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)
Section 20.2: Compliance Audits
What is a material weakness in internal control over compliance?
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
Section 20.3: Federal Audit Requirements and the Single Audit Act
What is the single audit act?
- 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.
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?
- Activities allowed or unallowed
- Allowable costs/cost principles
- Cash management
- Eligibility
- Matching, level of effort, and earmarking
- Reporting
Section 20.3: Federal Audit Requirements and the Single Audit Act
What are the auditor’s responsibilities under the Single Audit Act?
- 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.
Section 20.3: Federal Audit Requirements and the Single Audit Act
When is the schedule of audit findings created under the single audit act?
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.
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?
- Known questioned costs greater than $25,000
- Known questioned costs when likely questioned costs exceed $25,000 for compliance requirements for a major program.
Section 20.3: Federal Audit Requirements and the Single Audit Act
What is a subsrecipient?
A subrecipient is a nonfederal entity that expends federal awards received from another entity to carry out a federal program.
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?
- Obtain evidence related to compliance
- Express or disclaim an opinion on compliance
Section 20.3: Federal Audit Requirements and the Single Audit Act
What are the components of the Single Audit Act?
- 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
