Exam 3 - Section 5 audit

Question 1

Who does an audit report inform and what does it tell you?

Answer 1

• oversight bodies, and the public
• Tell us how well a governmental entity has performed its function

Question 2

What is an audit?

Answer 2

• An independent, systematic, objective, and unbiased assessment provide answers to a set of questions
• The auditor generally expresses an opinion, or reaches a conclusion about what was audited
• Questions can be explicit or implicit

Question 3

What question is answered in financial audits?

Answer 3

Whether the financial statements fairly present in all material respects the financial conditions, results, and use of resources of the entity

Question 4

What are some examples of questions that performance audits can answer?

Answer 4

• What is organization operating in an economical manner?
• Did this organization achieve its program objectives?
• did the costs claimed under the federal grant conform to the grant requirements?
• Was the program program operated in compliance with laws and regulations

Question 5

What type of assurance do auditors give in their opinion?

Answer 5

Reasonable assurance in all material respects

Material and inaccuracy can exist without impacting the auditors opinion

Question 6

How is the term material used?

Answer 6

Material is used in the context of whether a reasonable and informed third-party would consider that an omission or misstatement would have changed their opinions regarding the auditors conclusion

Question 7

How is materiality determined?

Answer 7

• auditors use professional judgment determine what material/significance is
• Financial audit must follow specific material criteria in the GAO/CIGIE financial audit manual

Question 8

How are materiality levels different in the government versus private industry?

Answer 8

Materiality levels in the government may be lower than they would be in a private firm

Question 9

What are the three types of engagements according to GAS?

Answer 9

1. Financial audits.
2. Attestation engagements and reviews of financial statements
3. Performance audits.

Question 10

What standards did the AICPA issue for financial statement audit engagement?

Answer 10

Statements on accounting standards (SAS)

These are incorporated by reference in GAS

Question 11

What type of opinion does a financial statement audit usually render?

Answer 11

An opinion on whether the financial statements present fairly, in all material respects, the financial of the auditee at the point in time and for the fiscal period then ending

Question 12

What does an opinion of an audit the financial statements mean?

Answer 12

The financial statements were prepared, usually in accordance with appropriate, generally accepted accounting principles (GAAP) (but occasionally with another set of principles)

Question 13

Who establishes GAAP for public and private companies and for not for profit organizations?

Answer 13

The financial accounting standards board (FASB)

Question 14

Who establishes GAAP for state and local governments?

Answer 14

Governmental accounting standards board (GASB)

Question 15

Who establishes GAAP for the federal government?

Answer 15

The federal accounting standard advisory board (FASAB)

Question 16

What other types of audits can financial audits include?

Answer 16

• Ones that are not the complete set of financial statements
• Reporting on a single financial statement or specified elements, accounts, or line items on a financial statement
• Issuing letters for underwriters and certain other requesting parties
• Auditing applicable compliance and internal control requirements relating to one or more government programs
• Conducting an audit of internal control over financial reporting that is integrated with an audit of financial statements (integrated audit)

Question 17

What do attestation engagements cover?

Answer 17

Abroad range of financial or non-financial objectives about the subject matter or assertion, depending on the users needs

Question 18

What standards did the AICPA issue for attestation engagements?

Answer 18

The statements on standards for attestation engagements (SSAE) which are incorporated by reference in GAS

Question 19

How can attestation engagements be performed?

Answer 19

As standalone engagements, or performed in conjunction with a financial or performance audit

Question 20

What are the three types of attestation engagements?

Answer 20

1. Examination.
2. Review.
3. Agreed-upon procedure engagements.

Question 21

In an attestation engagement, what do auditors issue and examination, for review, or an agreed-upon procedure on?

Answer 21

Report on a subject matter or an assertion about a subject matter that is the responsibility of another party

Question 22

What does an auditor do an examination?

Answer 22

Obtain reasonable insurance by obtaining sufficient, appropriate evidence about the measurement or evaluation of subject matter against criteria in order to be able to draw reasonable conclusions on which to base the auditors opinion about whether the subject matter is an accordance with/based on the criteria or the assertion is fairly stated, and all material respects

Question 23

What level of assurance does an examination provide?

Answer 23

The same level of assurance as a financial statement audit

Question 24

What does an auditor do in a review?

Answer 24

Obtain limited assurance by obtaining sufficient appropriate review evidence about the measurement or evaluation of subject matter against criteria in order to express a conclusion about whether any material modification should be made to the subject matter in order for it to be in accordance with/based on the criteria, or to be the assertion in order for it, to be fairly stated

Question 25

What do reviews not include?

Answer 25

Reporting on internal control or compliance with provisions of law, regulation, contracts, and grant agreements

Question 26

What level of assurance does a review provide?

Answer 26

The same level of assurance as a review of financial statements

Question 27

What does an auditor do in agreed-upon procedure engagements?

Answer 27

An auditor performs specific procedures on subject matter or an assertion, and reports on the findings, without providing an opinion, or a conclusion on it

They specified parties to the engagement, agree upon, and are responsible for this sufficiency of the procedures for their purposes. And the specified parties are the intended users to whom the report is limited.

Question 28

What are some possible subjects for attestation engagements?

Answer 28

• Historical or perspective, performance or condition, historical or perspective financial information, performance measurements, or backlog data
• physical characteristics, such as narrative descriptions, or the square footage of facilities
• Historical events, such as the price of a market basket of goods on a certain date
• analysis such as break analysis
• Systems and processes such as internal control
• behavior, such as corporate governance, compliance with laws and regulations, and HR practices

Question 29

What policies/guidelines can auditors use for attestation engagements?

Answer 29

Depending on the nature of the engagement, or subject matter being audited, they can use the standards for attestation engagements, or performance audits.

Question 30

What do performance audits provide?

Answer 30

Objective analysis, findings, and conclusions to assist management in those charge with governance and oversight with, among other things, improving performance and operations; reducing costs; facilitating decision-making by parties, responsible for overseeing or initiating corrective action; and contributing to public accountability

Question 31

What determines what type of sufficiency in appropriate evidence is needed in performance audits?

How is testing determined? (How much)

Answer 31

The sufficiency and appropriateness of evidence needed, and the testing of evidence are determined by the auditors based on the audit objectives, findings, and conclusions.

Question 32

What objectives can performance audits cover?

Answer 32

• assessing internal controls
• Determining the resources, used in compliance with laws, regulations, and other requirements
• Assessing the extent to which legislative, regulatory, or organizational goals, and objectives are being achieved
• Assessing the reliability of alternative approaches to yield better program performance, or eliminating factors that inhibit program effectiveness
• Analyzing the relative effectiveness of a program or activity
• Determining whether a program produced intended
• Determining whether the entity used resources, efficiently, effectively and economically

Question 33

What type of non-audit services can auditors assist management with?

Answer 33

• Analyzing data
• Developing or implementing accounting system
• Developing internal control systems
• Providing specific information without verifying its accuracy

Non-governmental entities as advisory or consulting services
Government are limited to protect their independence

Question 34

What standards do non-audit services follow?

Answer 34

Do not follow oddity standards because they’re not auditing

Question 35

What are some of the standards that auditors follow?

Answer 35

• Government auditing standards/GAS issued by GAO
• Generally accepted auditing standards/GAAS issued by AICPA
• international standards for the professional practice of internal auditing issued by the institute of internal auditors/IA

Question 36

What policies does the auditing standards board of the AICPA issue?

Answer 36

• statements on auditing standards/SAS, which are annually codified into a single publication
• Statements on standards for attestation engagements/SSAE

Question 37

What did the budgeting and accounting act of 1921 establish

Answer 37

GAO as a non-partisan agency of Congress

Question 38

Who is GAO headed by?

Answer 38

The comptroller general of the United States

Question 39

What does GAO do?

Answer 39

They perform the audit function for Congress

Question 40

What are the provisions in GAS that App apply to financial audits, attestation, engagements, and performance audits?

Answer 40

• General requirement for compliant with GAS
• Ethics, independence, and professional judgment
• Competence and continuing professional education
• Quality control and peer review

Question 41

What does GAGAS incorporate by reference for financial audits and attestation agreements?

Answer 41

AICPA statements on auditing standards and statements on standards for attestation engagements

GAGAS also add a number of additional requirements because of the need of greater accountability of government activities

Question 42

What does GAGAS incorporate by reference for performance audits?

Answer 42

AICPA standards are not referenced because they do not address performance audits

GAGAS provides separate fieldwork and reporting standards for performance audits

Question 43

What standards does IIA issue?

Answer 43

International standards for the professional practice of internal auditing

Question 44

What is IIA?

Answer 44

An international association dedicated to the continuing professional development of the individual internal auditor and internal auditing profession

Question 45

What do IIA standards provide?

Answer 45

Guidance for the conduct of internal oddity, which is an independent objective assurance and consulting activity, designed to add value and improve an organizations operations

Question 46

What do the IIA standards concern?

Answer 46

Internal audit, structure, proficiency and professional care taken by internal auditors, and the scope and performance of internal auditing

Question 47

What is the objective of internal auditing?

Answer 47

To assist members of the organization in the effective discharge of the responsibilities

Focus on performance rather than financial

Question 48

What is the focus of internal auditing?

Answer 48

Risk and control

Question 49

What are the two categories of engagements from IIA?

Answer 49

• assurance
• Consulting

Question 50

Does the government follow IIA standards?

Answer 50

Local governments follow IIA standards, but may follow GAS or both

Question 51

Why was PCAOB established and what did they oversee?

Answer 51

Public company, accounting oversight board

Was created as a result of publicly traded companies, financial reporting fraud

PCA O B overseas the audits of companies who’s stock is publicly traded in order of protect The interest of investors and further the public interest in the preparation of informative, fair and independent auto reports

Question 52

What types of standards does the PCAOB establish and who do they apply to?

Answer 52

• establish auditing and related at test, standards, quality control, standards, and ethic standards
• Standards apply to registered public accounting firms that prepare an issue audit reports of public companies
• They do not apply to government entities, but may influence future auditing standards that affect government auditing

Question 53

What is the objective of the international auditing and assurance standards board (IAASB)?

Answer 53

To serve the public interest by setting, independently, and under its own authority, high-quality standards, dealing with auditing, review, and other assurances, quality control, and related services; and by facilitating the convergence of national international standards

• IAASB may influence future auditing standards that affect audits of government entities
• The auditing standards board of the AICPA is converging. It’s auditing standards with the international standards on auditing (ISA) issued by the IAASB

Question 54

What is the international organization of supreme audit institutions (INTOSAI) and what does is it provide?

Answer 54

• Operates as an umbrella organization for the external government audit community
• provides an institutionalized framework for national audit offices to provide the development and transfer of knowledge, improve government, auditing worldwide and enhance professional, capacities standing and influence about 200 members in their respective countries
• non-government organization with special consultative status with the economic and social council/ECOSOC of the United Nations
• May influence future standards affect audits of government entities

Question 55

When was GAO‘s first yellow book published? And when was the latest version issued?

Answer 55

• 1972
• July 2018

Question 56

When is the 2018 GAS revision effective?

Answer 56

• for financial audits, attestation, engagements, and reviews of financial statements. Ending on or after June 30, 2020.
• For performance audits beginning on or after July 1, 2019

Question 57

Who is required to conduct audits in accordance with yellow book?

Answer 57

• all federal inspector generals
• Audits of federal financial statements required by the CFO act, GMRA and the accountability of tax dollar act
• All audits of state and local governments and other recipients of federal financial assistance required under the single audit act
• State government and/or law and policies require auditors to adopt GAGAS
• Many local governments follow IIA standards (red book), yellow book or a mix

Question 58

What was the major point of the April 2021GAO technical update to the yellow book?

Answer 58

Updated the concept of accountability for use of public resources and government authority. It added “equitably” to the list

“ the administration of the government program or activity is equitable when it consistently serves members of the public…”

Question 59

What are the two categories of professional requirements that GAGAS uses to describe the degree of responsibility they impose on auditors and audit organizations?

Answer 59

• unconditional requirement
• presumptively mandatory requirement

Question 60

When must auditors and audit organizations comply with an unconditional requirement? What is used to indicate it’s an unconditional requirement?

Answer 60

• All cases were such requirement is relevant
• and unconditional requirement uses the word must

Question 61

When must auditors and audit organizations comply with a presumptively mandatory requirement? What word is used to indicate a presumptively mandatory requirements

Answer 61

• in all cases were such a requirement is relevant
• alternative procedures to achieve the attempt of the acquirement must be performed in the rare case of departing from it. Document documentation of the justification for departure, and how alternative procedures were performed as required
• The word

Question 62

What is explanatory material? What words are used to describe explanatory information?

Answer 62

• explanatory material is in the form of application guidance within GAGAS text other than requirements (outside of the box)
• May, might, and could

Question 63

What must an auditor do if it departs from an unconditional requirement?

Answer 63

Include a modified GAGAS compliance statement in the report on the GAGAS engagement

Question 64

What if the auditor departs from a presumptively mandatory requirement?

Answer 64

• Perform alternative procedures to achieve the attend of that requirement
• Document the justification for the departure

Question 65

What must a report include if an auditor followed all GAGAS requirements?

Answer 65

An unmodified GAGAS compliance statement

The statement indicates that the “ engagement was conducted in accordance with GAGAS”

Question 66

What should a report include when an auditor departs from GAGAS requirements?

Answer 66

• a “ modified GAGAS compliance statement”
• Indicate that either:
  1. Engagement was conducted in accordance with GAGAS, except for specified requirements that were not followed
  2. The departures from GAGAS requirements were so significant that the auditors were evil to conduct the engagement in accordance with GAGAS

Question 67

What should the modified compliance statement include if auditors were unable to conduct the engagement in accordance with GAGAS?

Answer 67

• disclosure of the requirements not followed
• The reasons not followed
• Not following the requirement affected or could have affected the engagement and its resulting assurance

Question 68

What situations may lead to a modified statement?

Answer 68

scope limitations, such as restrictions on access to records, government officials, or other individuals needed to conduct the engagement

Question 69

How is public interest defined?

Answer 69

The collective well-being of the community of people and entities that the auditors serve. The yellow book and bodies the concept of accountability for public resources, which is fundamental serving the public interest in honoring the public trust.

Question 70

What does integrity include?

Answer 70

Auditors conducting their work with the attitude that is objective, fact-based, non-partisan, non-ideological with regard to audited entities and users of the audit reports

Question 71

What does yellow book say about proper use of government, information, resources, and positions?

Answer 71

• there to be used for official purposes only and not inappropriately for the auditors personal gain, or in the manner contrary to law, or detrimental, took the legitimate interest of the audit entity, or audit organization
• Includes proper handling of classified information or resources

Question 72

What does professional behavior include?

Answer 72

Auditors put it forth and honest effort, and performing their duties in accordance with the relevant, technical and professional standards

The high expectations for auditors include compliance with law and regulations, and avoidance of any conflicts of interest

Question 73

What is the most important GAGAS requirement?

Answer 73

Independence

Question 74

What does the concept of independence cover?

Answer 74

The attitude of the auditor in the way, they would be perceived by knowledgeable third parties

Question 75

What are the two most important aspects of independence?

Answer 75

1. Independence of mind.
2. Independence of appearance.

Question 76

What is independence of mind?

Answer 76

The state of mind that permits, the conduct of an engagement, without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise, objectivity and professional skepticism

Question 77

What is independence in appearance?

Answer 77

The absence of circumstances that would cause a reasonable and informed third-party to reasonably conclude that the integrity, objectivity, or professional skepticism of an audit organization, or member of the engagement team has been compromised

Question 78

When must an otter be independent from an audited entity?

Answer 78

• any period of time falls within the period covered by the financial statements, or subject matter of the engagement
• The period of a professional engagement

Question 79

what is the conceptual framework approach (also, sometimes called threats and safeguards approach)?

Answer 79

1. Identifying the threats to independence.
2. Evaluating the significance of the threat identified.
3. Applying safeguards, as necessary to eliminate the threats or reduce them to an acceptable level.

Evaluation and reevaluation of possible threats is an ongoing process during the audit since new information can arise, in fact, can change

Question 80

What are the seven different types of threats to independence?

Answer 80

1. Self interest.
2. Self review.
3. Bias.
4. Familiarity.
5. Undue influence.
6. Management participation.
7. Structural.

Question 81

What is a self interest threat?

Answer 81

The threat that a financial or other interest will inappropriately influence an auditors judgment or behavior

Question 82

What is self review threat?

Answer 82

The threat that an auditor or audit organization has provided non-audit services that will not appropriately evaluate the results of previous judgments made or services provided as part of the non-audit services when forming a judgment significant to a GAGAS engagement

Question 83

What is a biased threat?

Answer 83

The threat that an auditor will, as a result of political, ideological, social, or other conviction, take a position that is not objective

Question 84

What is the familiarity threat?

Answer 84

The threat that aspects of a relationship with management or personnel of an audited entity, such as a close or long relationship, or that of an immediate or close family member, will lead an auditor to take up position that is not objective

Question 85

What is an undue influence threat?

Answer 85

The threat the influences or pressures from sources external to the audit organizations, will affect the auditors ability to make objective judgments

Question 86

What is the management participation threat?

Answer 86

The threat that results from an auditors taking on the role of management, or otherwise performing management functions on behalf of the audited entity, which will lead an auditor to take a position is not objective

Question 87

What is the structural threat?

Answer 87

The threat that an audit organizations placement with a government identity in combination with the structure of the government entity, being audited, will affect the audit organizations ability to perform work and report results objectively

Question 88

What should auditors do if they conclude that the threats are not acceptably low level?

Answer 88

Determine whether appropriate safeguards can be applied to eliminate the threads or reduce them to an acceptable level

Yellow book requires auditors to evaluate threats, both quantitatively and quantitatively. If threats cannot be reduced to an acceptable level, auditors should decline to perform the audit or terminate, if the audit already started.

Question 89

What are some non-audit services that impair an auditors ability to conduct GAGAS?

Answer 89

• Preparing accounting records, and financial statements
• Internal audit assistance, services provided by external auditors
• Internal control evaluation as a non-audit service
• providing IT services to an audited entity that relate to the period under audit

Question 90

What should auditors do if they are required to provide non-audit services because of constitutional or statutory requirements that they have no control over, and they can neither implement safeguards to reduce the threat to an acceptable level, nor decline to provide, or terminate a non-audit service that is incompatible with engagement responsibilities?

Answer 90

Disclose the nature of the threat they could not be eliminated or reduced to an acceptable level and modify the GAGAS compliance statement

Determining how to modify the GAGAS compliance statement is a matter of professional judgment

Question 91

How does yellow book define safeguards?

Answer 91

Actions or other measurements, individually, or in combination, the auditors and audit organizations, take to effectively eliminate threats to independence or reduce them to an acceptable level

Question 92

There are some examples of safeguards for threats?

Answer 92

• Consulting, an independent third-party, such as a professional organization, a professional regulatory body, or another auditor to discuss the engagement issues or assess issues that are highly technical, or that require significant judgment
• involving another audit organization to perform or re-perform part of the engagement
• Having an auditor who is not a member of the engagement team review the work performed
• Removing an auditor from an engagement team when the auditors, financial or other interests or relationship pose threat to independence

Question 93

What should an auditor do if they conclude no safeguards have or can be applied to sufficiently mitigate independence threats?

Answer 93

Independence is impaired, and thus the auditor should decline to perform the engagement or terminate the engagement if it has been started

Question 94

What should auditors do before agreeing to non-audit services for an entity that the auditors are auditing or will audit?

Answer 94

Determine if the non-audit service creates a threat to independence either by itself or in conjunction with other non-audit services.

If threats cannot be mitigated, the auditors should decline to perform the non-audit service or decline to continue performing non-audit services

Question 95

What are some steps auditor should take before undertaking and engagement to perform a non-audit service?

Answer 95

1. Determine that the audited entity has designated a person with suitable skill, knowledge, or experience to oversee the non-audit engagement.
2. Document consideration of the entity management ability to oversee and take responsibility for the non-audit engagement
3. Obtain an agreement from entity management.
4. Establish document auditors understanding with entity management.

Question 96

What are some things that must be included on the agreement for non-audit services from entity management, and what they will do?

Answer 96

• assume all management responsibilities
• Oversee the non-audit services by designating, a specific person who possesses suitable skill, knowledge, or experience to oversee the non-audit engagement
• Evaluates the adequacy of the results of services provided
• Responsibility for the results of the services provided

Question 97

What should auditors establish in document regarding their understanding with entity management?

Answer 97

• objectives of the non-audit service
• Services to be provided
• Audited entities acceptance of the responsibilities as discussed above
• Auditors responsibilities
• Any limitations on the provision of non-audit services?

Question 98

What does yellow book identify as non-audit services that create threats that cannot be mitigated using safeguards and will automatically impair the auditors independence

Answer 98

• preparing accounting records, such as journal entries, approving/authorizing entity, transactions, preparing/changing source documents without manage approval
• providing internal audit services, such as setting internal audit policies/strategic direction, performing procedures that form internal control, such as changing employee, data access privileges, determining internal audit scope
• Providing or supervising ongoing monitoring procedures over an entities internal control
• Providing IT services
• providing appraisal, evaluation, actuarial services when the services involve subjectivity in the results are material to the financial statements
• Assuming management responsibility
  a administering a benefit plan
• Executive or employee recruiting
• Investment advisory, or management

Question 99

What does yellow book stipulate regarding preparing year end these financial statements related to non-audit services

Answer 99

Auditors should conclude that preparing financial statements in their entirety from a client, provided trial balance, or underlying accounting records, create significant threats to auditors independence, and should document the threats and see words applied to eliminate and reduce threats to an acceptable level in accordance with paragraph 3.33 or declined to provide the services

Question 100

In all situations related to threats, safeguards, and non-audit services, what are auditors required to do?

Answer 100

• document that identified threats, applied, safeguards, and whether threats have been effectively mitigated
• Document consideration of entity management ability to effectively oversee non-audit services provided

Question 101

What type of non-audit services are always unlikely to be considered a significant threat?

Answer 101

typing, formatting, printing, binding financial statements

Question 102

What does yellow book require about professional judgment?

Answer 102

Professional judgment includes exercising, reasonable care, and professional skepticism. Reasonable care includes acting diligently in accordance with applicable professional standards, and ethical principles. attributes of professional skepticism include a questioning mind, awareness of conditions that may indicate possible misstatement owing to error, war, fraud, and a critical assessment with evidence

Question 103

What is competence?

Answer 103

The knowledge, skills, and abilities obtained from education and experience, necessary to conduct a GAGAS engagement

Competence enables auditors to make sound professional judgments

It includes possessing the technical knowledge and skills necessary for the assigned role, and the type of work being done including knowledge about GAGAS

Question 104

What are some roles generally in GAGAS engagements?

Answer 104

• non-supervisory auditors
• Supervisory auditors
• Partners and directors

Question 105

What do non-supervisory auditors do?

Answer 105

Plan and perform engagement procedures

Have low levels of ambiguity, complexity, and uncertainty

Have a basic level of proficiency

Question 106

What do supervisory auditors do?

Answer 106

Plan engagements, perform engagement, procedures, or direct engagements

Have moderate levels of ambiguity, complexity, and uncertainty

Have at least an intermediate level of proficiency

Question 107

What do your partners in directors do?

Answer 107

Plan, engagements, perform engagement, procedures, or direct or report on engagements

Maybe be responsible for reviewing engagement quality prior to issuing report, signing the report, or both

High levels of ambiguity, complexity, and uncertainty, and advanced level of proficiency

Question 108

What standards should financial auditors be familiar with?

Answer 108

• AICPA standards as expressed in the SAS since their referenced in yellow book
• GAAP

Question 109

What should auditors conducting at attestation engagements have knowledge of what policies?

Answer 109

AICPA SSAE

Question 110

What does GAGAS paragraph 6.04 state about the knowledge of auditors conducting financial audits?

Answer 110

Financial auditors in the US who do not work for a government audit organization should be licensed CPAs, persons, working for licensed, CPA firms, or licensed accountants in states that have multi class licensing systems that recognize licensed accountants, other than CPAs

Question 111

What sources should be considered in assessing the qualifications incompetence of use of specialist?

Answer 111

• certifications and licensing
• Reputations in standing in the views of peers
• Experience and previous work in the subject matter
• Prior experience using the specialist work
• The specialist knowledge of technical performance standards, or industry requirements
• The specialist knowledge of auditing standards

Question 112

What are the CPE requirements for auditors who plan, direct, perform, or prepare reports under GAGAS?

Answer 112

• 80 hours of CPE every two years
• 24 hours directly related to government, auditing, the government environment, or specific or unique environment in which the audited entity operates
• 20 hours of the two year. Period.

Question 113

What are exemptions and exceptions to CPE requirements?

Answer 113

• auditors who spend less than 20% of their time annually to GAGAS engagements and are only involved in performing audit procedures (not planning, directing, reporting) may be exempt from the 56 hour requirement, but not exempt from the 24 hour requirement
• External specialists don’t need to meet CPE requirements
• Internal specialist who are involved in planning directing or performing engagement procedures are required to meet GAGASCPE requirements

Question 114

Who is not considered a specialist?

Answer 114

Individuals with special skill or knowledge related to specialized areas within the field of accounting, or auditing, such as income tax and IT

Question 115

What is a CPE program?

Answer 115

Any structured educational activities with learning objectives that are designed to maintain or enhance, auditor competence, including:
- Internal training programs
- Education and development programs presented at conferences, conventions, meetings, and seminars
- Training programs presented by other audit or educational organizations
- Web-based seminars and individual study or e-learning programs
- Audio conferences
- College courses (credit and non-credit)
- 

Question 116

What is the maximum number of CPE hours that may be granted to an auditor as a speaker, instructor, discussion, leader, or prepare of course materials?

Answer 116

40 hours for any two-year. Period

Question 117

What is the maximum CPE time granted for writing articles or materials that are published?

Answer 117

20 hours for any two-year period

Question 118

What should organizations do for their system of quality control?

Answer 118

• document is quality control policies and procedures
• Communicate these policies and procedures to its personnel
• Document compliance with its policies and procedures
• Maintain this documentation for a period of time sufficient to enable and support monitoring and peer review

Question 119

What should organizations do to support, independent, legal, and ethical requirements

Answer 119

Have policies and procedures in place designed to provide reasonable assurance to independence and legal and ethical requirements are being met

Organization should obtain at least annually, written, confirmations of compliance from all personnel required to be independent 

Question 120

How often must GAGAS auto organizations undergo an external peer review by an independent reviewer?

Answer 120

Once every three years or if affiliated with one of the five organizations listed in GAGAS paragraph 5.61

Question 121

What should the scope of a peer review include?

Answer 121

The scope of peer reviews should be sufficient to provide a reasonable basis for determining whether:
1. The reviewed audited organization system of quality control is suitably designed.
2. The organization is complying with its quality control system 

Question 122

What are the three peer review ratings?

Answer 122

1. Pass.
2. Pass with deficiencies.
3. Fail.

Question 123

What is a pass peer review review rating?

Answer 123

I conclusion that the audit organization system of quality control has been suitably designed and applied with to provide the audit organization with reasonable assurance up, performing and reporting in conformity with professional standards, and applicable legal and regulatory requirements, and all material respects

Question 124

What is a pass with deficiencies peer review rating?

Answer 124

 a conclusion that the audit organization system of quality control has been suitably designed in applied with to provide the audit organization, with reasonable assurance of performing and reporting in conformity with professional standards in applicable legal and regulatory requirements in all material respects, with the exception of a certain deficiency or deficiencies described in the report

Question 125

What is a fail peer review rating?

Answer 125

A conclusion, based on the significant deficiencies described in the report, that the audit organization system of quality control is not suitably designed to provide the audit organization, with reasonable assurance of performing and reporting and conformity with the professional standards, and applicable legal and regulatory requirements, and all material respects, or that the audit organization has not complied withits system of quality control to provide the audit organization with reasonable assurance of performing and reporting and conformity with professional standards, and other applicable legal and regulatory requirements, and all material respect

Question 126

What are the two sets of peer review requirements in yellow book?

Answer 126

1. Requirements for audit organizations affiliated with one of the five organizations listed in GAGAS paragraph 5.61. Such organizations should comply with both the requirements of the organization with which they are affiliated and additional requirements in GAGAS paragraphs 5.66 through 5.80
2. Requirements for audit organizations not affiliated with one of the five organizations listed and GAGAS paragraph 5.61. Such organization should comply with the minimum requirements in GAGAS paragraph 5.66 through 5.94

Question 127

What policy does GAGAS include for financial statement?

Answer 127

They reference the AICPA statements on auditing standards (SAS) also referred to as GAAS

GAAS developed and issued in the form of SAS and are codified into the AU-C sections

Question 128

What type of opinion does GAAS require orders to give for financial statement audits?

Answer 128

Auditor should obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due to fraud or error, to serve as the basis for the auditor’s opinion

Question 129

What does GAAS contain to help an auditor obtain reasonable assurance?

Answer 129

Objectives, requirements, and application and other explanatory materials

Question 130

What does GAAS require for financial auditors?

Answer 130

• Independent during engagement in accordance with GAAS
• Comply with ethical requirements relating to financial statement audit engagements
• Exercise professional judgment and maintain professional skepticism throughout planning and performance
• ID and assassin risks of MM whether due to fraud or error Based on an understanding of environment, including IC
• obtain sufficient appropriate evidence about whether material statements exist, through designing and implementing appropriate responses to assessed risks
• Comply with AU-C sections relevant to the audit
• Form anOpinion on the financial statements or determined opinion cannot be formed based on the evaluation evidence obtained

Question 131

What are GAGAS requirements for licensing and certification of financial statement auditors?

Answer 131

Auditors (non gov audit orgs) who conduct financial audits in the US or outside must be a:
- CPA
- be working for a licensed CPA firm
- licensed accountants in states that have multi class licensing systems recognize license accountants other than CPAs

Question 132

What is required communication for GAGAS financial statement audits?

Answer 132

• Auditors must communicate with those charged with governance
• if the audited entity is identified in a law or regulation, the auditor must use professional judgment when communicating pertinent information to person or oversight bodies requiring the audit
• Early communication so management can take action

Question 133

What must auditors do with information from previous engagements during GAGAS financial statement audits?

Answer 133

• During planning, ask the audited entity to identify previous audits, attestation engagements, and other studies that directly really to the audit objectives and whether related recommendations were implemented
• Evaluate whether the audited entity took appropriate, corrective actions, when addressing the finding and recommendations from previous engagements, they may have a significant effect on the subject matter and use this information to determine the nature, extent, and timing of current audit work and in determining to what extent the auditor will test the implementation of corrective actions

Question 134

What are auditors required to do with regard to investigations or legal proceedings for GAGAS financial statement audits?

Answer 134

• ask the audited entities management, whether any investigations or legal proceedings have been initiated or are in the process with respect period under audit
• Evaluate the affect of initiated or in process, investigations or legal proceedings on the current audit

Question 135

What are auditors required to do for noncompliance with provisions of laws, regulations, contracts, and grant agreements in accordance with GAGAS financial statement audits?

Answer 135

Extend the AICPA requirements, concerning consideration of noncompliance with laws and regulations to include consideration of noncompliance with provisions of contracts, and grant agreements

Question 136

What does GAGAS require for findings in financial statement audits?

Answer 136

• auditors should identify findings, they plan to perform procedures to develop the criteria, condition, cause, and effect to the findings to the extent that these elements are relevant and necessary to achieve the audit objectives
• Consider internal control deficiencies in their evaluation of identified findings when developing the cause of the findings
• They also consider including consideration of internal control deficiencies, that result in waste or abuse (waste or abuse, detection, and financial statement audits can be subjective so specific procedures are not required)

Question 137

What are some examples of financial statement audit findings?

Answer 137

• deficiencies in internal control
• Noncompliance with provisions of laws, regulations, contracts, and grant agreements
• Instances of fraud

Question 138

What audit documentation is required for financial statement audits?

Answer 138

• supervisor review of the evidence that supports the findings and conclusions before the report release date
• departures from GAGAS requirements and the effect on the audit and on the auditors conclusions when the audit is not in compliance with applicable GAGAS requirements because of law, relation, scope, limitations, restrictions, on access to records, or other issues affecting the audit

Question 139

What does AICPA SAS required for financial statement audit opinion?

Answer 139

Auditors are to form an opinion on whether the financial statements are presented fairly, and all materials or specs, and accordance with the applicable financial reporting framework

Informing the opinion, the auditor should conclude whether they have obtained reasonable assurance about whether the financial statements, as a whole, are free from material statement, whether due to fraud or error

Question 140

What is an unmodified opinion (previously or clean opinion)?

Answer 140

An auditor concludes that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework

Question 141

When should financial statement audit issue a modified opinion?

Answer 141

When the auditor concludes that, based on the audit evidence obtained, the financial statements, as a whole, or material mated, or is unable to obtain sufficient appropriate audit evidence to conclude the financial statements, as a whole, are free from material statement

Question 142

What type of modified opinions are there?

Answer 142

• qualified opinion
• Adverse opinion
• Disclaimer of opinion

Question 143

What should auditors include when reporting on auditors compliance with GAGAS?

Answer 143

• when auditors comply with all applicable GAGAS requirements, they should include a statement in the report that they conducted the audit in accordance with GAGAS
• They should use a modified GAGAS compliance statement when they conducted the engagement in accordance with GAGAS except for specific applicable requirements that were not followed
• The AICPA does not need to be mentioned

Question 144

What must auditors include about internal control and compliance with laws, regulations, contracts, and grant agreements, when providing an opinion on the financial statements?

Answer 144

• They required to report on them, regardless, whether they identify internal control deficiencies, or instances of noncompliance
• Would providing an opinion or disclaimer on financial statements, auditors are to report, as findings, any significant deficiencies or material weaknesses and internal control over financial reporting identified based on the engagement work performed

Question 145

What must auditors include on the report on internal control or compliance?

Answer 145

• relevant information about noncompliance and fraud
• A description of the scope of testing of internal control, over financial reporting, and of compliance with provisions, laws, regulations, contracts, and grant agreements
• State in the report whether the tests they performed provides sufficient, appropriate evidence to support opinions on the effectiveness of internal control, and on compliance with provisions of laws, regulations contracts, and grant agreements

Question 146

When must auditors communicate to the audit entity officials in writing about internal control and compliance with provisions of laws, regulations, contracts, or grant agreements?

Answer 146

• when identified or suspected noncompliance, which provisions of laws, regulations, contract, or grant agreements come to the auditors attention, having an effect on the financial statements is less than material, but warrants the attention of those charge with governance
• Evidence obtained of identified or suspected instances of fraud that have an effect on the financial statements that are less than material, but we warrant the attention of those charge with governance

Question 147

And what two circumstances are auditors required to report, identified or suspected noncompliance with provisions of laws, regulations, contracts, and grant agreements and instances of fraud directly to parties outside of the audited entity?

Answer 147

1. When audited entity management fails to satisfy, legal or regulatory requirements to report such information to external parties specified in law or regulation
2. When audited entity management fails to take timely, inappropriate steps to respond to fraud or noncompliance with provisions of laws, regulations, contracts, grant agreements that 1. is likely to have a material effect on the subject matter and 2. Involves funding received directly or indirectly from a government agency.

Question 148

What should the auditor do with responsible officials only provide oral comments to the report findings, conclusions, and recommendations in the audit report?

Answer 148

Prepare and include a summary of the oral comments in the report

Question 149

How should auditors report on confidential or sensitive information?

Answer 149

Disclose in the report that certain information has been omitted, and the circumstances in the report that make omission necessary

Question 150

How does an auditor determine materiality in planning and performing an audit?

Answer 150

• material reality is a matter of professional judgment, and it is affected by the auditors perception of the needs of users of the financial statements
• when establishing overall audit strategy, the auditor should determine materiality for the financial statements as a whole, and in specific circumstances, materiality level for classes of transactions, account, balances, or disclosures
• It should be revised when auditors become aware of information during the audit that causes them to determine different amounts than initially determined

Question 151

What does the AICPA SAS require in a discussion with engagement team members and the engagement partner about fraud in a financial statement audit?

Answer 151

• how and where the entities financial statements might be susceptible to material the statement due to fraud
• how Management penetrate and conceal fraudulent financial reporting
• How assets of the entity could be miss appropriated

Question 152

How are audits of private sector and federal sector different than audits of state and local governments?

Answer 152

• private sector and federal agencies report on the entity as a whole
• stay local governments are based on reporting units and opinion units

Question 153

For state and local governments, what reports are required for primary government - government wide level?

Answer 153

• governmental activities
• Business type activities

Question 154

For state and local governments, what reports are required for primary government - fund level?

Answer 154

• each major governmental fund
• All other governmental funds
• Each major enterprise fund
• All other enterprise funds
• Aggregate internal service funds
• Aggregate pension (and other employee benefit) trust funds
• Aggregate, private purpose trust fund
• Agency funds

Question 155

For state and local governments, what reports are required for component units?

Answer 155

Discreetly presented component units

Question 156

What state and local reporting units require an audit opinion?

Answer 156

• Governmental activities
• Business activities
• Each major governmental and enterprise major fund
• The aggregated remaining fund information

Question 157

What must the scope paragraph of a state or local audit opinion cover?

Answer 157

• The audit opinion must state which units are covered by the opinion
• it’s possible for an auditor to modify an opinion for what unit while reporting on modified opinions for the remaining units. The reason for the modification would be stated in the auditors report.

Question 158

What must an auditor do when planning an audit of a state or local government unit?

Answer 158

• determine the number of units for which an opinion is required
• Determine the level of materiality for each opinion unit rather than materiality for the entity as a whole

Question 159

What are the three attestation engagement levels of service that can be provided according to the AICPA?

Answer 159

1. An examination engagement.
2. A review engagement.
3. Agreed upon procedure engagement

Question 160

What AICPA standards are for requirements and providing application guidance for performing and reporting examination, review, and agreed upon procedure engagements?

Answer 160

Statements on Standards for Attestation Engagements (SSAE)

Question 161

What are the 3 AiCPA attestation standards?

Answer 161

• section 205, examination engagement
• Section 210, review engagements
• Section 215, agreed upon procedure engagements

Question 162

What do the AIcPA sections on attestation engagements contain?

Answer 162

Requirements and application guidance specific examination, Review, procedure engagements.

Incremental performance, and reporting requirements and application guidance unique to specific subject matters, such as prospective financial information, or compliance with laws and regulations

Question 163

What is the purpose of an attestation engagement?

Answer 163

To provide users of information with an opinion, conclusion, or findings, regarding their reliability of subject matter or assertion about subject matter as measured against suitable and available criteria

Question 164

What are the results of examination, review, and agreed-upon procedure engagement?

Answer 164

• Examination results in an opinion
• review results in a conclusion
• Agreed upon procedures result in findings

Question 165

What is the intended purpose of a practitioners attestation engagement report?

Answer 165

Degree of confidence that intended users place in subject matter

Question 166

What is the responsible party of an engagement responsible for?

Answer 166

• Subject matter (and applicable appropriation in presentation of the subject matter) in accordance with or based on the criteria
• Surgeon about the subject matter
• Measuring, evaluating, and when applicable presenting subject matter that is free from material in the statement due to fraud or error
• providing the practitioner with: accessible information, additional information, and unrestricted access to persons

Question 167

What are practitioners responsible for all services provided under the attestation standards?

Answer 167

• having the appropriate competence and capabilities to perform the engagement
• complying with relevant ethical requirements
• maintaining professional skepticism
• Exercising professional judgment throughout the planning and performance of the engagement

Question 168

What is expressed in an examination?

Answer 168

To express an opinion in an engagement, the practitioner obtain reasonable assurance about whether the subject matter, or an assertion about the subject matter, is free from material statement, whether due to fraud or error

Question 169

What must the practitioner do in an attestation engagement to obtain reasonable assurance?

Answer 169

• Plan the work and properly supervise other members of the engagement team
• identify and assess the risk of material statement, whether due to fraud or error based on an understanding of the subject matter, it’s measurements or evaluation, the criteria and other engagement circumstances
• Obtain sufficient appropriate evidence about whether the material statements exist by designing and implementing appropriate responses to the risks. Examination procedures may involve inspection, observation, analysis, inquiry, reperformance, recalculation, or confirmation outside parties.

Question 170

What must the practitioner do to express a conclusion in a review?

Answer 170

obtain limited assurance about whether the material modification should be made to the subject matter in order for it to be in accordance with or based on the criteria, or to an assertion about the subject matter in order for it to be fairly stated. In a review, the nature and extent of the procedure of substantially less than in an examination.

Question 171

How do practitioners obtain limited assurance in a review?

Answer 171

• plans to work in properly supervisors and members of the engagement team
• Focuses procedures in those areas which practitioner believes increases the risk of misstatements exist, whether due to fraud or error, based on the practitioners understanding of the subject matter measurements or evaluation, the criteria, and other engagement circumstances
• obtains review evidence through inquiry and analytical procedures or other procedures, as appropriate

Question 172

What must practitioners do to report on the application of agreed-upon procedures?

Answer 172

Apply procedures, determined by dispensed parties, who are the intended users of practitioners report into our responsible for sufficiency of the procedures for their purposes

Question 173

What do practitioners do in agreed-upon procedures engagements?

Answer 173

• plans work and properly supervises other members of the engagement team
• applies the procedures agreed to by the specified parties and reports on their results

Question 174

What does the practitioners report provide for an examination?

Answer 174

An opinion about whether the subject matter, as measured against the criteria, in accordance with (or based on) the criteria (or whether the assertion about the subject matter is fairly stated), in all material respects

Question 175

What does the practitioners report provide for a review?

Answer 175

Expresses a conclusion about whether, based on the limited procedures, the practitioner is aware of any material modification that should be made the subject matter in order for it to be in accordance with (or based on) the criteria or to the assertion, or to order for it to be fairly stated

Question 176

What does the practitioners report provide for an agreed-upon procedure?

Answer 176

Practitioner describes the specified procedures that were applied to the subject matter and the results of those procedures

Question 177

What additional GAGAS and AICPA requirements must auditors comply with when siding GAGAS in their review or agreed-upon procedures engagement reports?

Answer 177

• Licensing and certification
• Compliance with provisions of law, regulations, contracts, and grant engagements
• reporting auditors compliance with GAGAS
• Distributing reports

Question 178

What additional GAGAS and AICPA requirements must auditors comply with when siding GAGAS in their examination engagement reports?

Answer 178

• licensing and certification
• Auditor communication
• Results of previous engagements
• Investigations or legal proceedings
• Noncompliance with provisions of laws, regulations, contracts, and grant agreements
• Findings
• Examination engagement document
• Availability of individuals and document
• Reporting the auditors compliance with GAGAS
• Reporting deficiencies and internal control
• reporting on non compliance, provisions of laws, regulations, and grant agreements or instances of fraud
• Presenting findings in the report
• Obtaining and reporting on the reviews for responsible officials
• Reporting confidential or sensitive information
• Distributing reports

Question 179

What are the three framework concepts for conducting performance audits?

Answer 179

1. Evidence.
2. Significance.
3. Audit risk.

Question 180

What should the design of the performance audit methodology enable the auditor to obtain?

Answer 180

Sufficient, appropriate evidence that provides a reasonable basis for findings and conclusions, based on the audit objectives, and to reduce audit risk to acceptably low level

Question 181

What are performance audit objectives?

Answer 181

Questions about the program the auditors seek to answer, based on evidence obtained, and assessed against criteria

Question 182

How is significance to defined?

Answer 182

The relative importance of a matter, within the context, in which it is being considered, including quantitative and qualitative factors

Factors include the magnitude of the matter, in relation to the subject matter of the audit, the nature and effect of the matter, the relevance of the matter, the needs and interest of an objective third-party with knowledge of the relevant information, and the matters effect on the audited program or activity

Question 183

How does significance assist in throughout the performance of an audit?

Answer 183

When deciding the type and extent of audit work, and when evaluating the results of the audit and developing the report and related findings and conclusions

Question 184

What is audit risk?

Answer 184

Possibility that the auditors findings, conclusions, and recommendations or assurance may be improper or incomplete as a result of the factors, such as evidence that is not sufficient or appropriate, an inadequate audit process, or intentional omissions or misleading information because of representation or fraud

Question 185

What does the assessment of audit risk include?

Answer 185

Qualitative and qualitative considerations

Question 186

What are some factors that affecting audit risk?

Answer 186

• Time frames, Complexity, Sensitivity of the work
• size of the program in terms of dollar amount and the number of citizens served
• the audited entity’s systems and processes for preventing and detecting inconsistencies, significant errors, or fraud
• Auditors access to records

Question 187

How can audit risk be reduced?

Answer 187

• increasing the scope of work
• adding specialists, additional reviewers, or other resources conduct on it
• changing the methodology to obtain additional evidence, higher quality evidence, or alternative forms of corroborating evidence
• aligning the findings and conclusions to reflect the evidence obtained

Question 188

What are the five general fieldwork requirements for performance audits?

Answer 188

1. Planning the audit.
2. Conducting the engagement
3. Supervision
4. Evidence
5. Audit documentation.

Question 189

What does GAGAS require auditors to do in the planning phase of performance audits?

Answer 189

• plan work to address the objectives
• document to work in an audit plan
• Plan audit to reduce audit risk to an acceptable low level
• designed methodology to obtain sufficient , appropriate evidence that provides a reasonable basis for the findings and conclusions based on the audit objectives and to reduce audit risk to low level
• Identify and use suitable criteria
• Define objective
• define the scope and methodology to achieve those objectives
• communicate an overview of the objectives, scope and methodology and timing of the audit and report, unless doing so would significantly impair auditors obtain appropriate evidence
• ask management of audited entity, whether any investigations or legal procedures, significant to audit objectives or process and evaluate effect on the current audit

Question 190

What should auditors gain an understanding of when assessing audit risk and its significance within the context of the audit objectives?

Answer 190

• The nature and profile of the programs and the needs the potential users of the report
• Internal control related into specific objectives and scope of the audit
• Information system controls for the purposes of assessing

Question 191

How do you performance audits differ than financial audits?

Answer 191

The complexity of identifying criteria, against which to measure what the auditor finds

Question 192

What is some criteria that can be used in performance audits?

Answer 192

• laws and regulations applicable to the operation of the audited entity
• Goals, policies, and procedures established by the officials of the audited entity
• Technically developed standards or norm
• Expert opinions
• Prior period performance
• Defined business practices
• Contract or grant agreements
• benchmark against which performance is compared, including performance of other entities or sectors

Question 193

What should the auditors communicate during the performance audit?

Answer 193

• Objectives, scope and methodology, and the timing of the performance audit and planned reporting, unless doing so it could significantly impair the auditors ability to obtain sufficient, appropriate evidence to address the audit objectives

Question 194

Who should the performance auditors communicate to?

Answer 194

• Management of the audited entity
• Those charge with governance
• Individual contracting for or requesting the audit services
• The cognizant legislative committee

Question 195

What should an auditor understand from the entities nature and profile?

Answer 195

• visibility, sensitivity, and relevant risks associated with the program under the audit
• Age of the program or changes and its condition
• The size of the program in terms of total, number of citizens affected or other measure
• Level and extent of review or forms of independent oversight
• Programs strategic plan and objectives
• External factors or conditions that could directly affect the program
• consider documenting whether internal control is significant to the audit objective. Obtain understanding if it is.

Question 196

What are some examples of yellow book gives of control deficiencies

Answer 196

• ineffective oversight by those in charge with governance over financial reporting, performance reporting, or internal control, or overall ineffective governance structure
• ineffective, internal control, function or risk assessment function at an entity for which such functions are important to the monitoring or risk assessment component of internal control, such as a large or complex entity
• Failure management, or those charge with governments to assess the effect of a deficiency previously communicated to them, and either to correct it, or to conclude that it does not need to be corrected
• In inadequate controls for safeguarding ass
• inadequate design of information systems, and user controls
• Failure of an application control caused by deficiency in the design or operation of an information systems general controls
• Employees or management who lack the qualifications and training to fulfill their functions

Question 197

What should audit supervision provide?

Answer 197

Sufficient, guidance and direction to auditors assigned to the audit to address the audit objectives and follow applicable requirements while staying informed about significant and problems encountered, reviewing the work performed, and providing effective on the job training

Question 198

What should a auditor do when assessing sufficiency?

Answer 198

The quantity of information

Consider whether it is enough to persuade a knowledgeable person that the findings are reasonable

Question 199

What should an auditor do when assessing the appropriateness/quality of evidence?

Answer 199

Determine if it’s relevant, valid and reliable

Question 200

What is waste?

Answer 200

The act of using, or expanding resources, carelessly, extravagantly, or to no purpose

It relates to mismanagement, inappropriate actions, and inadequate oversight

Question 201

What is abuse?

Answer 201

Deficient or improper, when compared with behavior of prudent person, would consider reasonable and necessary, business practice, given the fax in circumstances

Example: unnecessary overtime, requesting staff to perform personal work or service/errands, miss using official position for personal gain

Question 202

What must sufficient documentation enable an experience auditor to do?

Answer 202

Understand the audit documentation
- Nature, timing, extent, and results of the audit procedures performed
- The evidence obtained and its source
- the conclusions reached, including evidence that supports the auditor significant judgments and conclusions

Question 203

What should report content include?

Answer 203

• objectives, scope and methodology
• Audit results, including findings, conclusions, and recommend
• Internal control
• Summary of the views of responsible officials
• If applicable the nature of any confidential or sensitive information omitted

Question 204

What does audit risk consist of?

Answer 204

1. Inherent risk.
2. Control risk.
3. Detection risk.

Question 205

What is inherent risk in terms of financial audits and performance audits?

Answer 205

Financial audits: this susceptibility of an assertion (existence or completeness) about a transaction or account balance to a misstatement that could be material before consideration of any related controls in a financial statement audit

Performance: the nature or essential character of something; some items or activities have greater risks than others (cash, changing technology)

Question 206

What is control risk in financial statement audits, and performance audits?

Answer 206

Financial: possibility that an error, such as a misstatement of the financial statements, it could occur, but not be detected and corrected by the internal control

It is the function of the effectiveness of an internal control

Performance: an agencies control system did not detect or exclude in eligible individuals

Question 207

What is detection risk?

Answer 207

The possibility that an auditor will not detect a deficiency

In financial statement audits, that deficiency could result in a material mist statement in the financial statements

And a performance audit covering compliance, detection risk is the possibility that an auditor would not detect the organization failure to follow the program requirements

It’s a function of the effectiveness of the oddity and procedures in the auditors application of those procedures

Question 208

What should an auditor do if the inherent risk is assessed as low and internal controls are designed and operating effectively?

Answer 208

There is a reduced likelihood of errors

Therefore, the auditor could limit the nature, timing, and extent of testing

Question 209

What should an auditor do if inherent risk is assessed as high and the control systems do not appear strong enough to mitigate the inherent risk?

Answer 209

Increase the extent of testing

Question 210

What are the three main purposes of audit documentation?

Answer 210

1. Support audit conclusions, and the information contained in the audit report.
2. The audit, supervisors and managers in monitoring and directing the audit.
3. Facilitating review of audit quality by an outside reviewer.

Question 211

What does a financial audits manager representation letter consist of?

Answer 211

• Management responsibilities for the financial statement preparation
• Management responsibilities for the implementation of internal controls
• Management responsibilities for compliance with laws and regulations
• lack of collusion among management officials
• All documentation and records were made available to the auditors
• To the best of management knowledge, no illegal acts took place
• There are no contingencies of which management was aware other than those stated in the financial statements

Question 212

Are auditors required to obtain management written representations about the accuracy incompleteness of information provided in performance audits?

Answer 212

No. It is not mandatory requirement however, it can be requested if auditors find it useful specifically to support, in writing.

Question 213

What do oral or written responses to a draft report include (performance audit)?

Answer 213

• concur with the facts as presented
• concur with the auditors conclusions
• Concur with the audit recommendations
• What act on the recommendations?

Question 214

What must management do when preparing audible, financial statements?

Answer 214

• prepare them in accordance with generally excepted accounting principles
• fairly present, the financial position and results of operations of the audited entity

Question 215

What must management do if the auditors identify material statements in the financial statements?

Answer 215

Make necessary adjusting entries

Question 216

What is one method to help ensure the corrective action plans are adequately and timely implemented?

Answer 216

Cooperative audit resolution (CAR)

Question 217

What does section 200.513 of the uniform guidance require?

Answer 217

Federal awarding agencies are to use CAR with their recipients

Question 218

What does the cooperative audit resolution (CAR) provide?

Answer 218

Today’s government officials with a concrete tool to improve programs and address, fiscal, and programmatic challenges

It was first developed by the department of education and then mid 1990s

It can play a role in preventing and resolving audit findings and oversight issues, and contributed to the success of some governments most significant initiatives

Question 219

What did the CFO act of 1990 require?

Answer 219

• 24 executive agencies to have annual audits of trust funds, real funds, financial activities, and 10 pilot agencies completed within nine months after the end of the fiscal year
• Cover the fairness of statements, the agencies internal control over financial reporting, compliance with laws and regulations
• Must be conducted in accordance with yellow book

Question 220

What did the Government Management Reform Act of 1994 do?

Answer 220

• expanded the financial statement requirements to cover all activities of the 24 agencies
• all same requirements
• ## completed within five months after end of fiscal year

Question 221

What did the Federal Financial Management Improvement Act of 1996 require?

Answer 221

Auditors report on whether the agencies are in substantial compliance with federal financial system requirements, federal accounting standards (FASAB), US standard general ledger at the transaction level (the department of treasury)

Question 222

What did the Accountability of Tax Dollars Act of 2002 require?

Answer 222

Expanded the financial statement and audit requirements from the 24 largest agencies to executive branch departments and agencies and components thereof and government corporations

Listed in OMB bulletin 21-04, June 11, 2011

Question 223

Who issued the financial audit manual (FAM) what did it do?

Answer 223

• GAO and CIGIE
• Presents a methodology for performing financial statement audits for federal entities in accordance with professional standards

Question 224

What are state and local government level audits frequently required by?

Answer 224

• The single audit act, if financial assistance has been obtained from the federal government
• state constitutions, local charters, statues, and/or ordinances
• underwriters of securities and organizations lending money to the governments 

Question 225

What are internal auditors concerned with?

Answer 225

• Concentrate on assisting their organization to operate in a more effective and efficient manner with a focus on governance, risk, and control
• Less concerned with accountability to outsiders

Question 226

What standards do internal auditors audits?

Answer 226

• performance audits under GAGAS
• International Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors (IIA)

Question 227

How does the IIA define internal auditing?

Answer 227

An independent, objective assurance and consulting activity designed to add value and improve in organizations operations. It helps an organization accomplish its objectives by bringing the systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Question 228

What are the IIA’s Attribute Standards?

Answer 228

• purpose, authority and responsibility of internal auto activity is formally defined in a charter and approved by the board
• Independent and objective
• Proficiency and due professional care
• Quality assurance and improvement program to cover all aspects of the internal activity and continually monitors its effectiveness

Question 229

What are the IIA’s 7 Performance Standards?

Answer 229

1. Managing the internal activity - the chief audit executive management to ensure it value to the organization
2. Nature of work - hello, evaluate and contributes to the improvement of risk management, control and governments systems
3. Engagement planning. - develop and record a plan for each engagement.
4. Performing the engagement. - identify, analyze, and record sufficient information to achieve engagement objectives
5. Communicating results promptly.
6. Monitoring, progress, distribution results to management.
7. Management exceptions risks.

Question 230

What should the chief audit executive if they believe senior management is accepted the level of risk unacceptable to the organization?

Answer 230

Discussed the matter with senior management. if the decision regarding residual risk is not resolved, the chief audit executive and senior management should report the matter to the board for resolution

Question 231

What is a state or local government audit committee?

Answer 231

Standing committee of the governing board

Persons are not board members are appointed to committees, in order to provide expertise or greater public oversight

Question 232

How do audit committees assist state and local governing boards?

Answer 232

• reviewing significant financial information for reliability, timeliness, clarity, appropriateness, disclosure, and compliance with GAAP and legal requirements
• ascertaining that the internal control structure is appropriately designed and functioning effectively
• Evaluating independent firms and selecting one for approval by the governing board
• overseeing the scope and performance of the independent audit functions and internal audit functions
• ensuring auditors recommendations for improvements in internal controls and operating methods receive management of attention and are implemented timely
• Providing an effective communication link between auditors and company board

Question 233

What do state and government audit committees enable government boards to do?

Answer 233

• Stretch the use of its limited time and resources
• provide a more technically savvy sounding board for management, independent auditors, and internal Auditors
• give comfort to taxpayers and creditors that the government board is actively involved in fiscal affairs

Question 234

What are some of the beneficial roles of the federal audit committee/financial management advisory committee?

Answer 234

• Reviewing the effectiveness of agencies, risk management, internal control, and compliance with major laws, regulations, and agreements
• reviewing the agency’s financial or business performance
• reviewing the agency’s audited financial statements, annual performance report and highlights, or summary report if prepared
• reviewing the manner in which the plan is considered in management decision-making
• Reviewing the agencies plan and progress Addressing the agencies human capital needs
• Tracking the status of other management issues for which the agency had has a major concern

Question 235

Who can federal audit advisory committee assist?

Answer 235

• Agency head
• The chief financial officer
• The chief information officer
• The performance improvement officer
• IG
• Others as they attempt to mitigate risks and demonstrate accountability

Question 236

When managers are contemplating to contract for a yellow audit, what should they always request a copy of?

Answer 236

1. The audit organizations latest peer review report.
2. Any letter of comment referenced in the peer review report for review

Question 237

What should you first do when selecting a contractor during the procurement process?

Answer 237

Determine which auditots can competently conduct the necessary audit:
- The potential auditors understanding of auditee’s needs
- The proposed approaches for conducting the audit
- Size of potential audit organization in relation to the amount of work to be done
- potential auditor’s experience and performance conducting similar audits, as well as experience of the personnel they are willing to commit to the audit

Question 238

Why did Congress enact the Single Audit Act of 1984 (amended in 1996)? What did it require?

Answer 238

• Ensure uniformity among federal agencies for the audit of federal entities expending federal awards
• Requires audits to be made on an organization wide basis rather than a grant by grant basis
• Performed in accordance with GAS

Question 239

What was the Single Audit Act designed to do?

Answer 239

• improve the financial management of federal financial assistance programs
• establish uniform requirements for audits federal financial assistance
• promote efficient and effective use of audit resources and reduce administrative burden on the recipients of the federal funds
• promote cooperation between auditors
• Agencies rely on audit work done pursuant to the Single Audit Act to the max extent possible

Question 240

When must a Single Audit be performed?

Answer 240

nonfederal entities expending $750,000+ annually in federal awards must have single or program-specific audit conducted for that year

Question 241

For a Single Audit Act, what do federal awards include? Not include?

Answer 241

Include: grants or cost-reimbursement contracts received directly from federal agencies or indirectly through pass-through entities, such as a state agency

Not included: procurementcontracts that are used to buy goods and services from contractors

Question 242

What does an audit under the Single Audit Act cover?

Answer 242

Both entity’s financial statements and its federal awards, and includes testing of internal controls and adherence to compliance requirements

Question 243

What is a pass-through entity?

Answer 243

One that receives federal grants, and then subgrants the funding to other lower level agencies

Examples: states department of education, receives many grants from the department of Ed, and are intended to be passed onto the local level where services are performed

Question 244

Who oversees subgrants?

Answer 244

Pass-through entity

Question 245

How is the definition of pass-through entity at the federal level than under GASB?

Answer 245

Under GASP, the grant is considered a pass through Grant only if the federal agency makes the determination of the entities receiving the subgrant and the amount of those subgrants

Question 246

What can entities do if they expend federal funds more then $750,000 but only for one federal program and the program doesn’t require an audit if it’s financial statements?

Answer 246

Auditee may elect have a program-specific audit conducted instead of a single audit

Question 247

What must non-federal entities the expend less than the established amount annually in federal awards do?

Answer 247

They are exempt from federal audit requirements for that year, but records must be available for review or audit by appropriate officials of the federal agency, pass through entity and GAO

Question 248

What does an auditor do under the Single Audit Act?

Answer 248

Conduct an audit of the entities, financial statements in accordance with GAGAS and an audit of its federal programs

Question 249

In addition to expressing an opinion, on the financial statements, what do auditors do under the Single Audit Act?

Answer 249

• Obtain an understanding of internal controls, perform tests of internal controls over federal programs and report on internal controls
• Perform procedures to determine whether the audit has complied with laws, regulations, and provisions of contracts or agreements, that could have a direct immaterial effect on the federal programs, and report on compliance
• Follow up on prior audit findings and assess the reason of the summary schedule of prior audit findings prepared by the auditee

Question 250

What is the audited required to submit to the federal government under the Single Audit Act?

Answer 250

Data collection from containing information on the audit and its results

Question 251

What did OMB issue that covers the Single Audit act?

Answer 251

• OMB Circular A-133 which subsequently incorporated into the Uniform Guidance in 2013, to provide guidance on implementing the Single Audit Act
• OMB publishes Compliance Supplement containing a great deal of information about individual programs, and the necessary areas that single auditors must consider

Question 252

What four reports must auditors provide under the Single Audit Act?

Answer 252

1. Opinion, as to whether the financial statements are fairly presented in accordance with generally excepted accounting and principles, and an opinion, as to whether the schedule of federal awards is presented fairly.
2. Reports on internal controls related to the financial statements and major programs, including material weaknesses.
3. Any opinion, as to whether the organization, complied with laws, regulations, and provisions of contract or grant agreements.
4. A schedule of findings and questioned costs

Question 253

How does the Single Audit Act supplement the requirements of yellow book the auditors review for noncompliance?

Answer 253

In addition to the requirements of GAGAS, the auditors shall determine whether the auditee has complied with laws, regulations, and the provisions of contracts, or grant agreements that may have a direct material effect on each of its major programs

Question 254

What does compliance testing under the Single Audit Act look like when determining whether an audit complied with the program requirements?

Answer 254

The compliance testing shall include tests of transactions, and other auditing procedures, necessary to provide the auditor sufficient evidence to support an opinion on compliance

Question 255

What are the three components that the schedule of findings and questioned cost should include?

Answer 255

1. A summary of the auditors results.
2. Findings related to the financial statements which are required to be reported in accordance with GAGAS.
3. Findings and question cost for federal awards, including:
   - Significant deficiencies in internal control over major programs
   - Material noncompliance with the provisions of laws, regulations, contracts, or grant agreements related to a major program
   - Known questioned costs that are greater than $25,000 for compliance requirements of major programs
   - an explanation if the auditors report on compliance for major programs is other than an non-modified opinion
   - Known fraud affecting a federal award

Question 256

What are single audit follow-up procedures?

Answer 256

• follow up on prior audit findings and perform procedures to assess the reasonableness of the summary schedule of prior audit findings prepared by the auditee organization
• Report, as a current year audit, finding, when the auditor concludes that the summary schedule a prior audit, finance materially misrepresents the status of any prior audit finding
• Conduct follow-up procedures, regardless of whether prior audit finding relates to a major program in the current year