Deck 16: Internal Governmental and Fraud Audits

Question 1

The GAO emphasizes the accountability of public officials for the efficient,economical,and effective use of public funds and resources.

Answer 1

True

Question 2

An expert in detecting and investigating fraud is a certified fraud investigator.

Answer 2

False

Question 3

The Government Accountability Office (GAO)is headed by the U.S.Congress.

Answer 3

False

Question 4

Internal auditors are always employed by the organization that they audit such as a bank,hospital,or industrial company.

Question 5

Auditors are concerned about internal control strengths and weaknesses; fraud investigators are mostly concerned about fraud weaknesses.

Question 6

Under the Single Audit Act of 1984,only CPAs and GAO auditors can conduct "single audits."

Question 7

Internal auditors perform operational audits but do not perform financial audits.

Question 8

External auditors accepting engagements to audit federal grants and programs must follow both GAAS and the GAO standards.

Question 9

Having the authority and responsibility to report to the vice president for finance or the treasurer enhances an internal auditor's independence.

Question 10

Internal auditing is an independent,objective assurance and consulting activity designed to add value and improve an organization's operations.

Question 11

Efficiency,economy,and program outputs may be measured only in terms of monetary expenditures.

Question 12

The auditing standards of the Institute of Internal Auditors required of internal auditors are similar to the requirement of GAAS for practicing CPAs.

Question 13

The stated objective of internal auditing is phrased in terms of service to "the organization," not just to management.

Question 14

Internal auditors should be independent when obtaining evidence in the sense of being free from direction or constraint by the manager of the business unit under audit.

Question 15

Governmental and internal auditors are more concerned with management controls because they directly affect economy,efficiency,and program results.

Question 16

The Single Audit Act of 1984 replaced duplicative grant-by-grant audits with a single audit report on which all agencies can rely.

Question 17

The goal of operational auditing is to help managers discharge their management responsibilities and improve profitability.

Question 18

Performance audits determine whether an entity has complied with laws and regulations for those transactions and events that may have a material effect on the financial statements.

Question 19

Forensic accounting is a term used to describe work that is performed on companies that are no longer in business.

Question 20

The GAO standards go beyond the AICPA's GAAS in a number of respects.

Question 21

Senior management has ordered a compliance audit of the organization's employee benefits package.Which of the following do both the chief audit executive and senior management consider a primary engagement objective?

A) The level of the organizational contributions is adequate to meet the program's demands.
B) Individual programs are operating in accordance with contractual requirements and government regulations.
C) Participation levels support continuation of individual programs.
D) Benefits payments, when appropriate, are accurate and timely.

Question 22

Independence permits internal auditors to render impartial and unbiased judgments.The best way for internal audit departments to achieve independence is through

A) Individual knowledge and skills.
B) Organizational knowledge and skills.
C) Supervision within the organization.
D) Organizational status and individual objectivity.

Question 23

Having an audit charter is important for internal audit departments.Which of the following items is generally not a reason to have an audit charter?

A) It provides a commitment from management to support the internal audit department's activities.
B) It defines the skills and competencies required by the internal audit department.
C) It defines the department's authority and responsibility.
D) It defines the reporting requirements for internal audit departments.

Question 24

Which of the following internal audits is generally not a type of government audit?

A) Review of compliance with policies, plans, procedures, laws, and regulations.
B) Review of the economy and efficiency in the use of resources.
C) Review of the means of safeguarding assets.
D) Review of the results of programs.

Question 25

The definition of internal audit includes all of the following except

A) Independence and objectivity.
B) Provision of assurance and consulting activity.
C) Determination of efficient and effective performance.
D) Additional value and improved operations.

Question 26

The purpose of the internal audit's evaluation of the effectiveness of existing risk management processes is to determine that

A) Management has planned and designed the process to provide reasonable assurance of achieving objectives and goals.
B) Management directs processes to provide reasonable assurance of achieving objectives and goals.
C) The organization's objectives and goals will be achieved efficiently and economically.
D) The organization's objectives and goals will be achieved in an accurate and timely manner and with minimal use of resources.

Question 27

The Standards for the Professional Practice of Internal Audit of the Institute of Internal Auditors (IIA)is classified in three major categories.Which of the following is not one of these categories?

A) Attribute standards.
B) Performance standards.
C) Governance standards.
D) Implementation standards.

Question 28

The definition of administrative control does not include reference to

A) Operational efficiency.
B) Accounting errors.
C) Adherence to managerial policies.
D) Plan of organization.

Question 29

When dealing with standards,measurements,and comparisons,input measurements are most important for audits of

A) Economy.
B) Efficiency.
C) Program results.
D) Financial statements.

Question 30

When preparing an audit report,an internal auditor must convince management to take action concerning the report's findings.When reporting on an audit finding,an auditor must include some key elements about that finding in the report.These key elements are

A) Condition, criteria, cause, effect, and recommendation.
B) Condition, criteria, cause, effect, and requirement.
C) Condition, source, cause, effect, and recommendation.
D) Location, criteria, cause, effect, and recommendation.

Question 31

The U.S.Government Accountability Office (GAO)standards do not specifically require a written report in financial statement audits for

A) Recommendations for actions to improve operations.
B) All instances of illegal acts that could result in criminal prosecution.
C) Compliance with applicable laws and regulations.
D) Internal control structure and the control risk assessment.

Question 32

Program audits include determining

A) The degree to which an entity is acquiring, protecting, and using its resources effectively.
B) The effectiveness of an organization's programs, activities, or functions.
C) The causes of an organization's inefficiencies or uneconomical practices.
D) The entity's compliance with laws and regulations concerning matters of efficiency.

Question 33

The proper organizational role of internal auditing is to

A) Assist external auditors in reducing external audit fees.
B) Perform studies to assist in attaining more efficient operations.
C) Serve as an investigative arm of senior management and the board of directors.
D) Serve as an independent, objective assurance and consulting activity that adds value to the organization.

Question 34

The federal law that established uniform requirements for audits of federal assistance provided to state and local governments is called

A) The Single Audit Act of 1984.
B) The Uniform Requirements Act of 1992.
C) The Sarbanes-Oxley Act or 2002.
D) The Audit Reduction Act of 1985.

Question 35

During the audit of the quality control area,an auditor identified that a specific product has a 3 percent failure rate when tested.The specification calls for a failure rate of less than 1.8 percent.Product failure might lead to customer injury and in turn lawsuits against the company.The auditor has communicated this to management.Which of the following is not an acceptable response from management with regard to this risk?

A) Management is aware of the risk and has decided that it is acceptable.
B) Management has decided not to continue manufacturing this product.
C) Management has decided to increase the quality control activity to reduce the manufacture of unacceptable product to an acceptably low level.
D) Management has decided that the test data are unreliable and has decided not to respond to the audit findings.

Question 36

The primary difference between operational auditing and financial auditing is that in operational auditing,the auditor

A) Is concerned only with the audited activity's adherence to company policy and procedures.
B) Is seeking to help management use resources in the most effective manner possible.
C) Starts the process with the financial statements of an activity being audited and works backward to the basic processes involved in producing them.
D) Can use analytical skills and tools that are not necessary in financial auditing.

Question 37

Which of the following is a requirement of the Standards for the Professional Practice of Internal Audit if the Institute of Internal Auditors (IIA)that is not a requirement of an external auditor performing a financial statement audit?

A) Due care.
B) Internal control evaluation.
C) Reporting to the audit committee.
D) Performing a follow-up on audit findings.

Question 38

The Standards for the Professional Practice of Internal Auditing of the Institute of Internal Auditors (IIA)does not include the broad category of

A) Proficiency and due care.
B) Nature of work.
C) Performance of the engagement.
D) Quality control.

Question 39

The reasons for outsourcing an internal audit include

A) More expertise only.
B) More expertise and improved control over audit costs.
C) Improved control over audit costs and improved alignment with company goals.
D) All of the above.

Question 40

Your organization has selected you to develop an internal audit activity.Your approach will most likely be to hire

A) Internal auditors each of whom possess the skills required to handle all engagements.
B) Inexperienced personnel and train them the way the organization wants them trained.
C) Degreed accountants because most internal audit work is accounting related.
D) Internal auditors who collectively have the knowledge and skills needed to perform the responsibilities of the internal audit activities.

Question 41

Which of the following would be considered the most significant problem for internal audit if the chief audit executive reported to the controller?

A) The controller would amend the audit schedule so more audit time was spent on accounting issues.
B) The controller may have no training as an internal auditor.
C) During times when the budget needs to be cut, internal audit would likely be the first to lose funding.
D) The controller can control the scope of audits and censor audit reports before being sent to management and the audit committee.

Question 42

Which of the following is not required to become a certified internal auditor (CIA)?

A) Hold a college degree.
B) Pass a two-day examination.
C) Have a full-time position as an internal auditor.
D) Meet an experience requirement.

Question 43

The U.S.Government Accountability Office is an agency of

A) The U.S. Congress.
B) The Executive Office of Management and Budget.
C) The U.S. Supreme Court.
D) The Federal Accounting Standards Board.

Question 44

Which of the following would be considered in determining whether an internal audit department is independent?

A) The organizational level of the chief audit officer and the objectivity of the audit staff.
B) A requirement for the auditors to report to the audit committee and the composition of the audit committee.
C) The organizational status of the audit committee and the individual independence of internal auditors in the department.
D) The nature of the audit charter and the objectivity of the audit staff.

Question 45

In performing a financial statement audit in accordance with government auditing standards,an auditor is required to report on the entity's compliance with laws and regulations.This report should

A) State that compliance with laws and regulations is the responsibility of the entity's management.
B) Describe the laws and regulations with which the entity must comply.
C) Provide an opinion on overall compliance with laws and regulations.
D) Indicate that the auditor does not possess legal skills and cannot make legal judgments.

Question 46

Which of the following is a difference between performing an audit and performing a fraud examination?

A) Auditors are not concerned with the nature of a financial misstatement; fraud examiners are concerned with the nature of the misstatement.
B) Auditors use analytical procedures, such as trend analysis, to identify risks of misstatements; fraud examiners are not interested in analytical procedures because they must identify specific items that prove the occurrence of fraud.
C) Auditors are generally not concerned with small immaterial misstatements; fraud examiners generally do not believe that any fraud is immaterial.
D) Auditors are concerned only with financial statement errors; fraud examiners are concerned only with the theft of assets by employees.

Question 47

In assessing the objectivity of internal auditors,an independent auditor should

A) Evaluate the quality control program in effect for the internal auditors.
B) Examine documentary evidence of the work performed by the internal auditors.
C) Test a sample of the transactions and balances that the internal auditors examined.
D) Determine the organizational level to which the internal auditors report.

Question 48

The demand for compliance auditing in generally accepted government auditing standards (GAGAS)terms is generated by

A) Acts discreditable to the profession.
B) Financial statement audits performed in accordance with generally accepted auditing standards.
C) Governmental managers' obligations to follow laws and regulations.
D) Public reports on government managers' following laws and regulations.

Question 49

Generally accepted government auditing standards (GAGAS)regarding performance reporting standards requires the reports to tell about which of the following

A) Presentation of financial statements in accordance with GAAP and abuse of public money and property.
B) Presentation of financial statements in accordance with GAAP and internal control design and strength of operation.
C) Abuse of public money and property and management's noteworthy positive accomplishments.
D) Abuse of public money and property and internal control design and strength of operation.

Question 50

After performing work in a compliance attestation engagement and finding that a governmental agency's managers failed to install and perform even the most elementary controls to ensure compliance with laws and regulations and,in fact,committed numerous violations,an auditor most likely would

A) Write an adverse report on actual compliance.
B) Write an unqualified report on actual compliance.
C) Write a report modified to disclose particular noncompliance events (specific violations of laws and regulations).
D) Write a disclaimer of opinion related to knowledge of noncompliance.

Question 51

Fraud examiners have four main objectives in performing an investigation.Which of the following is not one of those objectives?

A) Determine whether a fraud exists.
B) Determine who was involved in the fraud.
C) Determine how the fraud occurred.
D) Determine the effect on financial statement users.

Question 52

The Single Audit Act of 1984 requires an annual audit of all governments,agencies,and nonprofit organizations that

A) Receive $300,000 or more federal funds.
B) Receive $500,000 or more federal funds.
C) Spend $300,000 or more federal funds.
D) Spend $500,000 or more federal funds.

Question 53

When auditors report on a financial audit engagement in accordance with generally accepted government auditing standards (GAGAS),the basic report(s)include a

A) Disclaimer of opinion on financial statements, report on internal control, and report on compliance audit regarding laws and regulations.
B) Report (opinion) on financial statements, report on internal control, and report on compliance audit regarding laws and regulations.
C) Report on internal control and report(s) on efficiency and effectiveness of operations.
D) Report on compliance regarding laws and regulations and report(s) on achievement of program goal(s).

Question 54

When performing a fraud examination,the fraud examiner takes great care to preserve and identify any documents that may indicate fraud,which is called

A) Preserving the chain of custody of the evidence.
B) Establishing evidential procedure.
C) Marking an evidential exhibit.
D) Forensic auditing.

Question 55

Which of the following statements is true?

A) External auditors must consider the internal audit function as part of obtaining an understanding of a company's internal control structure.
B) External auditors must review all work performed by internal auditors.
C) External auditors must investigate the competence and objectivity of internal auditors.
D) External auditors must share responsibility for the work of internal auditors if it is used for evidence for the financial statement audit.

Question 56

Which of the following statements is a standard applicable to financial statement audits in accordance with government auditing standards?

A) Assess whether the entity has reportable measures of economy and efficiency that are valid and reliable.
B) Report on the scope of the auditor's testing of internal controls.
C) Briefly describe in the auditor's report the method of statistical sampling used in performing tests of controls and substantive tests.
D) Determine the extent to which the entity's programs achieve the desired level of results.

Question 57

When independent CPAs in public practice take engagements to audit government units or financial assistance recipients,they must follow

A) GAAS only.
B) GAAS and GAGAS.
C) GAGAS only.
D) Internal auditing standards.

Question 58

A GAO audit report entitled Aviation Safety: Safer Skies Initiative Has Taken Initial Steps to Reduce Accident Rates by 2007 is most likely a report based on work the auditors performed during a

A) Financial statement audit.
B) Compliance audit of air safety regulations.
C) Performance audit of program goal achievement.
D) Performance audit of air control regulation effectiveness.

Question 59

When considering the competence of internal auditors,external auditors should obtain evidence about the

A) Educational and experience qualifications of the internal auditors.
B) Organizational status of the internal auditors.
C) Lines of communication within the entity of the internal auditors.
D) The size of the internal audit department.

Question 60

The work of internal auditors may affect the independent auditor's

A) Procedures performed in obtaining an understanding of the internal control structure and in assessing the risk of material misstatement only.
B) Procedures performed in obtaining an understanding of the internal control structure and substantive tests performed in gathering direct evidence only.
C) Procedures performed in assessing the risk of material misstatement and substantive tests performed in gathering direct evidence only.
D) Procedures performed in obtaining an understanding of the internal control structure and in assessing the risk of material misstatement and substantive tests performed in gathering direct evidence.

Question 61

A typical objective of an operational audit is for the auditor to

A) Determine whether the financial statements fairly present the company's operations.
B) Evaluate the feasibility of attaining the company's operational objectives.
C) Make recommendations for achieving company objectives.
D) Report on the company's relative success in attaining profit maximization.

Question 62

When auditing with "fraud awareness," auditors should especially notice and review employee activities under which of these conditions?

A) The company always estimates the inventory but never takes a complete physical count.
B) The petty cash box is always locked in the desk of the custodian.
C) Management has published a company code of ethics and sends frequent communication newsletters about it.
D) The board of directors reviews and approves all investment transactions.

Question 63

The federal Single Audit Act of 1984 requires auditors to determine and report several things about state and local governments that receive federal funds.Which of the following is not normally required to be reported?

A) An opinion on the fair presentation of the financial statements in accordance with generally accepted accounting principles.
B) A report on the government's internal control related to federal funds.
C) The government's performance in meeting goals set in enabling legislation.
D) A report on the government's compliance with applicable laws and regulations.

Question 64

The best way to enact a broad fraud-prevention program is to

A) Install airtight control systems of checks and supervision.
B) Name an "ethics officer" who is responsible for receiving and acting upon fraud tips.
C) Place dedicated "hotline" telephones on walls around the workplace with direct communication to the company ethics officer.
D) Establish a corporate culture conducive to ethical behavior in the workplace.

Question 65

Which of the following is the least important consideration for a governmental auditor who needs to be objective when auditing and reporting on an agency's achievement of program goals?

A) Measure the actual output results of agency activities.
B) Compare the agency's actual output results to quantitative goal standards.
C) Perform a comprehensive review of management controls.
D) Determine quantitative standards that describe goals the agency was supposed to achieve.

Question 66

Compliance auditing in audits performed under the Single Audit Act of 1984 in accordance with GAGAS is necessary for an auditor's

A) Report on the auditee's internal control, including reportable conditions and material weaknesses.
B) Opinion on the auditee's observance, or lack thereof, of applicable laws and regulations.
C) Opinion on the auditee's financial statements.
D) Report of a supplementary schedule of federal assistance programs and amounts.

Question 67

The Government Accountability Office (GAO)describes expanded-scope governmental auditing to include all of the following except

A) Financial statement audits.
B) Attestation engagements.
C) Compliance audits.
D) Performance audits.

Question 68

In an internal auditor's report,audit findings would include all of the following except

A) The effect of the audit finding on the auditee or the company.
B) The cause of the audit finding.
C) The relevance of the audit finding on the audit.
D) The recommendation to correct the audit finding.

Question 69

Governmental auditors' independence and objectivity are enhanced when they report the results of an audit assignment directly to

A) Managers of the government agency under audit and in which the auditors are employed.
B) The audit committee of directors of the agency under audit.
C) Political action committees of which they are members.
D) The congressional committee that ordered the audit.

Question 70

A reason to believe that a fraud has occurred is called

A) Deliberation.
B) Forensics.
C) Predication.
D) Restitution.

Question 71

A governmental auditor assigned to audit the financial statements of the state highway department would not be considered independent if the auditor

A) Also held a position as a project manager in the highway department.
B) Was the state audit official elected in a general statewide election with responsibility to report to the legislature.
C) Normally works as a state auditor employed in the department of human services.
D) Was appointed by the state governor with responsibility to report to the legislature.

Question 72

In government and internal performance auditing,which of the following is the least important consideration when performing the fieldwork?

A) Determining the applicable generally accepted government accounting principles pronounced by the GASB.
B) Defining problem areas or opportunities for improvement and defining program goals.
C) Selecting and performing procedures designed to obtain evidence about operational problems and production output.
D) Evaluating evidence in terms of economy, efficiency, and achievement of program goals.

Question 73

Which two of the following characterize the work of fraud examiners? I.Analysis of control weaknesses for determination of acceptable fraud risk.
II)Analysis of control strengths as a basis for planning other audit procedures.
III)Determination of a materiality amount that represents a significant misstatement of the financial statements.
IV)Thinking of a materiality amount in cumulative terms-that is,becoming large over a number of years.

A) I & II.
B) II & IV.
C) I & III.
D) I & IV.

Question 74

Governmental auditing can extend beyond audits of financial statements to include audits of an agency's efficient and economical use of resources and

A) Constitutionality of laws and regulations governing the agency.
B) Evaluation of the personal managerial skills shown by the agency's leaders.
C) Correspondence of the agency's performance with public opinion regarding the social worth of its mission.
D) Evaluations concerning the agency's achievements of the goals set by the legislature for the agency's activities.

Question 75

Which of the following would you not expect to see in an auditor's report(s)on the financial statements of an independent government agency?

A) A statement that the audit was conducted in accordance with generally accepted government audit standards.
B) A report on the agency's compliance with applicable laws and regulations.
C) Commentary by the agency's managers on the audit findings and recommendations.
D) A report on the agency's internal controls.

Question 76

In all audits of governmental units performed according to GAGAS,the most important work is

A) Compliance auditing.
B) Obtaining a sufficient understanding of internal control.
C) Documentation of the audit.
D) Exit interviews with managers in the governmental unit.

Question 77

Which of the following best describes how the detailed audit plan of a financial statement auditor compares with the audit client's comprehensive internal audit plan?

A) The comprehensive internal audit plan covers areas that an external auditor would normally not review.
B) The comprehensive internal audit plan is more detailed although it covers fewer areas than an external auditor would normally cover.
C) The comprehensive internal audit plan is substantially identical to the audit program used by an external auditor because both review substantially identical areas.
D) The comprehensive internal audit plan is less detailed and covers fewer areas than an external auditor would normally review.

Question 78

Which of the following is not an internal audit objective designed to add value to a purchasing department?

A) A review of the bidding process indicates that a company may be operating under two different names and therefore purchasing is not getting the three independent bids required by policy.
B) The purchasing process is causing unnecessary delays in ordering product.
C) The purchasing department is not following a new human resource policy requiring a six-month performance review for new employees.
D) The director of purchasing is new to the organization and has made several decisions regarding vendor approvals with which the auditor does not agree.

Question 79

Which of the following is considered different and more limited in objectives than the others?

A) Operational auditing.
B) Performance auditing.
C) Management auditing.
D) Financial statement auditing.

Question 80

Which of the following is usually not part of an internal audit department's audit charter?

A) A commitment from management to ensure the independence of the internal audit department.
B) A definition of the scope of the audit department's activities.
C) The organizational structure of the internal audit department.
D) The reporting requirements of the internal audit department.