Compliance is Cool
Before issuing an unmodified report on a compliance audit, an auditor becomes aware of an instance of material noncompliance occurring after the period covered by the audit. The least appropriate response by the auditor would be to
A) Discuss the matter with management and, if appropriate, those charged with governance.
B) Issue a qualified compliance report describing the subsequent noncompliance.
C) Determine whether the noncompliance relates to conditions that existed as of period end or arose subsequent to the reporting period.
D) Modify the standard compliance report to include a paragraph describing the nature of the subsequent noncompliance.
B) Issue a qualified compliance report describing the subsequent noncompliance.
The Single Audit Act is intended to be the definitive legislation concerning the audit of federal awards administered by nonfederal entities. Which of the following statements is a false statement about the act?
A) The single audit concept changes the focus from individual grants to grant recipients.
B) The act requires federal auditors to rely on single audit findings, to base any supplemental auditing on them, and to pay any additional auditing costs.
C) The auditor must designate one of the grant providers as a cognizant agency to act as a liaison between the auditee and the federal agencies providing funds.
D) Audit reporting should cover an opinion on the fairness of the financial statements, a report on internal control, and a report on compliance with grant requirements.
C) The auditor must designate one of the grant providers as a cognizant agency to act as a liaison between the auditee and the federal agencies providing funds.
Wolf is auditing an entity’s compliance with requirements governing a major federal program in accordance with the Single Audit Act. Wolf detected noncompliance with requirements that have a material effect on the program. Wolf’s report on compliance should express
A) No assurance on the compliance tests.
B) Reasonable assurance on the compliance tests.
C) A qualified or adverse opinion.
D) An adverse opinion or a disclaimer of opinion.
C) A qualified or adverse opinion.
In a compliance audit, the auditor’s primary objective is to
A) Determine that all instances of noncompliance are discovered and reported.
B) Test and express an opinion on internal control over compliance.
C) Obtain sufficient appropriate evidence to form an opinion on compliance.
D) Provide management with recommendations for improvement over compliance.
C) Obtain sufficient appropriate evidence to form an opinion on compliance.
When performing an audit of a city that is subject to the requirements of the federal Single Audit Act, an auditor should adhere to
A) Governmental Accounting Standards Board General Standards.
B) Governmental Finance Officers Association Governmental Accounting, Auditing, and Financial Reporting Principles.
C) Government Auditing Standards.
D) Securities and Exchange Commission Regulation S-X.
C) Government Auditing Standards.
The Single Audit Act concerns the audit of federal assistance expended by state and local governments. Under the act, the auditor should follow
A) Guidance provided by the Office of Management and Budget (OMB) and the Government Accountability Office (GAO).
B) The Governmental Accounting Standards Board’s auditing standards.
C) IRS standards, including the 1954 Internal Revenue Code and subsequent relevant legislation and regulations.
D) Principles adopted by the Governmental Finance Officers Association.
A) Guidance provided by the Office of Management and Budget (OMB) and the Government Accountability Office (GAO).
In an audit of an entity’s compliance with applicable compliance requirements, an auditor obtains written representations from management acknowledging
A) Its responsibilities for compliance, including disclosure of noncompliance.
B) Implementation of controls designed to detect all noncompliance.
C) Expression of positive assurance to the auditor that the entity complied with all applicable compliance requirements.
D) Employment of internal auditors who can report their findings, opinions, and conclusions objectively.
A) Its responsibilities for compliance, including disclosure of noncompliance.
In an audit of compliance with requirements governing awards under major federal programs performed in accordance with the Single Audit Act, the auditor’s consideration of materiality differs from materiality under generally accepted auditing standards. Under the Single Audit Act, materiality for the purpose of reporting an audit finding is
A) Calculated in relation to the financial statements taken as a whole.
B) Determined in relation to a type of compliance requirement for a major program.
C) Decided in conjunction with the auditor’s risk assessment.
D) Ignored, because all account balances, regardless of size, are fully tested.
B) Determined in relation to a type of compliance requirement for a major program.
An audit of a local government that expends federal financial assistance is subject to the requirements of Government Auditing Standards. Which of the following is also applicable?
1. Regulation S-X
2. OMB Audit Requirements for Federal Awards
3. Single Audit Act
A) 1, 2, and 3
B) 1 and 2 only
C) 2 and 3 only
D) 1 only
C) 2 and 3 only
A material weakness in internal control over compliance arises when
A) At a minimum, a deficiency is important enough to merit attention by those charged with governance.
B) A reasonable possibility exists that material noncompliance will not be prevented or timely detected and corrected.
C) A risk of material noncompliance exists prior to the audit.
D) The design or operation of a control does not allow management or employees to detect noncompliance in the normal course of their duties.
B) A reasonable possibility exists that material noncompliance will not be prevented or timely detected and corrected.
Under the Single Audit Act, the auditor should report on compliance with laws, regulations, and the provisions of contracts or grant agreements, noncompliance with which could have a material effect on the financial statements. This report should also express or disclaim an opinion on whether the auditee complied with laws, etc., that could have a direct and material effect on each major program. In accordance with the act and OMB Audit Requirements for Federal Awards (2 CFR 200) Compliance Supplement, which contains policies, procedures, and guidelines to implement the act, the auditor
A) Is not responsible for identifying major federal programs.
B) Should apply a concept of materiality in the audit of major federal programs that is similar to that in an audit under GAAS.
C) Should determine whether the recipient has engaged in activities to which particular types of compliance requirements apply.
D) Is required to restrict control risk and assess inherent and detection risk.
C) Should determine whether the recipient has engaged in activities to which particular types of compliance requirements apply.
A CPA was engaged to audit the financial statements of a municipality that received federal financial assistance and that required a Single Audit for compliance with the terms of the financial assistance. Which of the following guidelines should the CPA consider?
1. GAAS
2. GAS
A) Both 1 and 2
B) 1 only
C) 2 only
D) Neither 1 or 2
A) Both 1 and 2
When an auditor is performing a compliance audit and identifies pervasive risks of material noncompliance, the auditor should
A) Withdraw from the engagement.
B) Develop an overall response to such risks.
C) Perform additional analytical procedures.
D) Issue a disclaimer of opinion.
B) Develop an overall response to such risks.
An auditor is auditing a nonfederal entity’s administration of a federal award pursuant to a major program under the Single Audit Act. The auditor is required to
1. Obtain Evidence Related to Compliance
2. Express or Disclaim an Opinion on Compliance
A) Both 1 and 2
B) 1 Only
C) 2 Only
D) Neither 1 nor 2
A) Both 1 and 2
In accordance with Office of Management and Budget audit requirements for audits of non-federal entities expending federal awards, which of the following statements is accurate regarding federal awards expended?
A) Donated surplus property cannot be valued at the assessed value provided by the federal agency.
B) Food stamps cannot be valued at fair market value at the time of receipt.
C) Government loans are classified as noncash assistance programs.
D) Free rents received as part of an award to carry out a federal program are treated as federal funds expended.
D) Free rents received as part of an award to carry out a federal program are treated as federal funds expended.