Accounting For Governmental & Nonprofit Entities 18th Edition By Reck – Test Bank

Chapter 11 Auditing of Government and Not-for-Profit Organizations

1) When financial statements are accompanied by the report of an independent auditor, users have the assurance that the statements have been prepared in conformity with accounting and financial reporting standards established by authoritative bodies, and that all material facts have been disclosed.

Answer: TRUE
Difficulty: 1 Easy
Topic: Financial audits by independent CPAs
Learning Objective: 11-01 Explain the essential elements of financial audits by independent CPAs, including: The objective(s) of financial audits; The source and content of generally accepted auditing standards (GAAS): Audit report formats and opinions; The audit process.
Bloom’s: Remember
AACSB: Knowledge Application
AICPA: FN Reporting

2) Some of the auditing issues faced by auditors of government and not-for-profit entities are unique to the public sector.

3) The U.S. Office of Management and Budget issues generally accepted auditing standards which provide general guidelines for government audits and address the minimum responsibilities of the auditor.

Answer: FALSE
Difficulty: 1 Easy
Topic: Government auditing standards
Learning Objective: 11-02 Explain what is meant by generally accepted government auditing standards (GAGAS), the source of GAGAS, how GAGAS are broader than GAAS, and types of GAGAS audits.
Bloom’s: Remember
AACSB: Knowledge Application
AICPA: FN Reporting

4) Auditing standards issued by the U.S. General Accountability Office include specific reference to ethical requirements relating to an audit of financial statements, however, auditing standards issued by the Auditing Standards Board do not address ethics.

5) Governments may engage one auditor to audit the primary government and other auditors to audit certain component units.

6) Generally accepted government auditing standards (GAGAS) apply to financial audits of state and local governments only if they expend $750,000 or more in federal financial assistance.

Answer: FALSE
Difficulty: 1 Easy
Topic: Governmental auditing standards
Learning Objective: 11-02 Explain what is meant by generally accepted government auditing standards (GAGAS), the source of GAGAS, how GAGAS are broader than GAAS, and types of GAGAS audits.
Bloom’s: Remember
AACSB: Knowledge Application
AICPA: FN Reporting

7) To help identify threats to independence, generally accepted government auditing standards establish a conceptual framework that requires auditors to identify, evaluate, and apply safeguards to appropriately address threats to independence.

Answer: TRUE
Difficulty: 1 Easy
Topic: Governmental auditing standards
Learning Objective: 11-02 Explain what is meant by generally accepted government auditing standards (GAGAS), the source of GAGAS, how GAGAS are broader than GAAS, and types of GAGAS audits.
Bloom’s: Remember
AACSB: Knowledge Application
AICPA: FN Reporting

8) Performance audits are independent assessments of performance against objective criteria.

Answer: TRUE
Difficulty: 1 Easy
Topic: Types of audits and engagements
Learning Objective: 11-02 Explain what is meant by generally accepted government auditing standards (GAGAS), the source of GAGAS, how GAGAS are broader than GAAS, and types of GAGAS audits.
Bloom’s: Remember
AACSB: Knowledge Application
AICPA: FN Reporting

9) Only state and local governments and their component units must have single audits; colleges and universities and other not-for-profit organizations that expend federal financial awards are not required to have single audits.

Answer: FALSE
Difficulty: 1 Easy
Topic: Single audits
Learning Objective: 11-03 Explain the essentials of a single audit, including: The purpose and scope of a single audit; Major program identification; Audit work required; Reports that must be submitted.
Bloom’s: Remember
AACSB: Knowledge Application
AICPA: FN Reporting

10) In evaluating an entity’s system of internal controls, a material weakness is a deficiency in the design or operation of internal controls such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.

Answer: TRUE
Difficulty: 1 Easy
Topic: Reporting audit findings
Learning Objective: 11-03 Explain the essentials of a single audit, including: The purpose and scope of a single audit; Major program identification; Audit work required; Reports that must be submitted.
Bloom’s: Remember
AACSB: Knowledge Application
AICPA: FN Reporting

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