Governmental Audits

Question 1

How do reporting standards under Government Auditing Standards (GAS) differ from reporting standards under generally accepted auditing standards (GAAS)?

Answer 1

GAGAS require the CPA to;

• Present the results of the auditor’s tests of controls
  e. g. GAGAS incorporate AICPA standards but include additional reporting requirements for internal control

Furthermore, the CPA should communicate in the report on internal control significant deficiencies and material weaknesses in internal control

Question 2

What is the Purpose of a Performance Audit under GAGAS?

Answer 2

To determine if the desired results of a program are being achieved

• They provide findings or conclusions based on an evaluation of sufficient appropriate evidence against stated criteria

E.g. specific requirements, measures, or defined business practices

Question 3

What is the First step in a Performance Audit?

Answer 3

Identify the legislative intent of the program being audited

E.g. It attempts to measure the accomplishments and relative success of the undertaking

NOTE: the measurement depends on the actual intent of the legislation that established the program

Question 4

What are the CPA’s responsibilities under the Single Audit Act?

Answer 4

Reporting on compliance with grant requirements

E.g. this type of report involves providing; an opinion on the fairness of the financial statements, a report on internal control, and a report on compliance with grant requirements

Question 5

Under Government Auditing Standards (GAS), what should a report include if procedures have disclosed material instances of noncompliance with regulations?

Answer 5

The report should;

• Place the findings in proper perspective

What does this mean? - It means that the report SHOULD indicate;

• the instances identified related to the population or the number of cases examined and quantify in terms of monetary amounts

E.g. This gives the reader a basis for judging the prevalence and consequences of deficiencies

Question 6

What type of service can a CPA conduct under Government Auditing Standards without impairing its independence with respect to the audited entity?

Answer 6

The CPA may Prepare tax filings

Why? Because this service does NOT involve;

(1) Providing nonaudit services involving management functions
(2) auditing one’s own work; or
(3) providing nonaudit services when the services are significant or material to the subject matter being audited

Question 7

What are some examples of Noncash government assistance and what are the rules surrounding their assessed value?

Answer 7

Food stamps - must be valued at fair market value at receipt or the assessed value

Donated surplus property - must be valued at fair market value at receipt or the assessed value

Question 8

What are the ELEMENTS OF a finding for a financial audit under Government Auditing Standards?

Answer 8

1. Condition - a situation that exists
2. Cause - the reason or explanation for the condition
3. Effect - a clear, logical link to establish the impact or potential impact of the difference between the situation that exists (condition) and required or desired state (criteria)

Question 9

What is considered a “quality control requirement” under government auditing standards?

Answer 9

A CPA seeking to enter into a contract to perform an audit should;

• provide the CPA’s most recent external peer review report to the party contracting for the audit

E.g. an audit organization conducting an audit in accordance with these standards must undergo an external peer review at least every 3 years

Question 10

What must a CPA report under the Single Audit Act?

• Specifically involving questionable findings?

Answer 10

The auditor must report a schedule of findings and questioned costs

The findings result from;

(1) a violation or possible violation of a law
(2) inadequate documentation of costs
(3) costs that appear unreasonable and do not reflect the actions a prudent person

Question 11

What governmental body issues standards for audits of recipients of federal awards?

Answer 11

The Government Accountability Office (GAO)

• This federal agency is concerned with accounting and auditing standards for U.S. government programs and services

NOTE: They issue GAGAS = Generally Accepted Government Accounting Standards

Question 12

What is the purpose of the Governmental Accounting Standards Board GASB?

Answer 12

The Governmental Accounting Standards Board promulgates standards for financial accounting and reporting by state and local governments

Question 13

What should the auditor do in relation to the OMB Audit Requirements for the Federal Awards (2 CFR 200) Compliance Supplement under the Single Audit Act?

Answer 13

They should determine;

• whether the recipient has engaged in activities to which particular types of compliance requirements apply

Question 14

What written report should be completed by a CPA that is auditing an entity’s financial statements in accordance with generally accepted government auditing standards?

Answer 14

The CPA’s report should include a written report on the their testing of internal controls

Question 15

What should a report for a financial statement audit under Government Auditing Standards include?

Answer 15

The report should state whether the evidence supports an opinion on internal control

e. g. The report (or separate reports) on financial statements should describe the scope of the auditor’s testing of internal control over financial reporting (ICOFR); and
- compliance with laws and regulations and grant or contract provisions

NOTE: An opinion on internal control is not expressed unless sufficient appropriate evidence is obtained

Question 16

How does materiality for financial statements audited under the Single Audit Act differ from GAAS?

Answer 16

The materiality is determined separately for each major federal program

E.g. materiality should be considered at an individual program level

Question 17

What should an audit report on compliance with requirements applicable to a governmental entity address?

Answer 17

The report SHOULD address;

• Scope of Testing
• Sufficiency and Appropriateness of testing

**This information may be included in a separate report

NOTE: the report also should state whether the tests performed provided sufficient appropriate evidence to support the opinion on compliance

Question 18

What documentation WOULD enable an experienced auditor having no previous connection with the audit to conclude that sufficient appropriate evidence was collected?

Answer 18

The Auditor’s working papers

E.g. The “working papers” should be sufficient to permit an experienced auditor with no prior connection to the audit to understand how the audit was completed; and

• The sufficiency of the evidence collected

Question 19

Under what situation would an auditor most like report a falsification of accounting records to the Inspector General?

Answer 19

WHEN the matter is communicated by the auditor to the auditee; and

• the auditee fails to make a required report of the matter

E.g. The auditor has the federal inspector general or a state attorney general as options to make this report

Question 20

What is a “Sub recipient” according to the Office of Management and Budget Audit Requirements for Federal Awards (2 CFR 200)?

Answer 20

They are Nonfederal entities that expend federal awards received from another entity to carry out federal programs