Question 1

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.

Accepted Answer

If the chief audit executive reports to the controller, there is a risk that the controller may control the scope of audits and censor audit reports before they are sent to management and the audit committee. This poses a significant problem for internal audit as it undermines their independence and objectivity. The other options may also pose challenges for internal audit, but they are not as significant as the risk of compromised independence and objectivity.

Question 2

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.

Accepted Answer

While a full-time position as an internal auditor may be helpful in gaining the necessary experience, it is not a requirement to become a CIA. Holding a college degree, passing a two-day examination, and meeting an experience requirement are all necessary to become a certified internal auditor.

Question 3

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.

Accepted Answer

The U.S. Government Accountability Office (GAO) is an agency of the U.S. Congress. Its mission is to provide auditing, evaluation, and investigative services for Congress to ensure that the federal government is accountable to the American people.

Question 4

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.

Accepted Answer

The independence of an internal audit department is determined by the organizational level of the chief audit officer, which ensures they have sufficient authority, and the objectivity of the audit staff, which ensures unbiased auditing.

Question 5

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.

Accepted Answer

Government auditing standards require auditors to state that compliance with laws and regulations is the responsibility of the entity's management.

Question 6

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.

Accepted Answer

The answer of Which of the following is a difference...

Question 7

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.

Accepted Answer

The organizational level to which internal auditors report can indicate their objectivity. If they report to a high level, such as the audit committee, it suggests greater independence from management influence.

Question 8

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.

Accepted Answer

Governmental managers have obligations to follow laws and regulations, which generates the demand for compliance auditing under GAGAS to ensure adherence to these requirements.

Question 9

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.

Accepted Answer

The answer of Generally accepted government auditing standards (GAGAS)regarding performance...

Question 10

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.

Accepted Answer

The auditor would write an adverse report on actual compliance because the findings indicate significant noncompliance with laws and regulations.

Question 11

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.

Accepted Answer

The answer of Fraud examiners have four main objectives in...

Question 12

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.

Accepted Answer

The Single Audit Act of 1984 requires an annual audit for entities that spend $500,000 or more in federal funds.

Question 13

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).

Accepted Answer

When auditors report on a financial audit engagement in accordance with generally accepted government auditing standards (GAGAS), the basic report(s) include a Report (opinion) on financial statements, report on internal control, and report on compliance audit regarding laws and regulations. Therefore, option B is the best choice.

Question 14

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.

Accepted Answer

Preserving the chain of custody of the evidence is the process of ensuring the document trail of evidence is securely maintained, properly documented, and indisputably tied to the identity of the evidence. This is a crucial step to avoid tampering or contamination of the evidence, and to ensure its admissibility in legal proceedings.

Question 15

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.

Accepted Answer

External auditors are required to consider the work of the internal audit function as part of obtaining an understanding of a company's internal control structure. However, they are not required to review all work performed by internal auditors or investigate the competence and objectivity of internal auditors. Additionally, external auditors do not share responsibility for the work of internal auditors if it is used for evidence for the financial statement audit.

Question 16

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.

Accepted Answer

Option A pertains to Performance audits, Option C pertains to Sampling in Auditing-General standards, and Option D pertains to Program audits. However, reporting on the scope of testing internal controls is a standard applicable to financial statement audits in accordance with government auditing standards.

Question 17

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.

Accepted Answer

Independent CPAs in public practice must follow both Generally Accepted Auditing Standards (GAAS) and Generally Accepted Government Auditing Standards (GAGAS) when auditing government units or financial assistance recipients. GAGAS provides additional guidance and requirements specific to auditing in the government environment.

Question 18

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.

Accepted Answer

The title of the report clearly indicates that the auditors were evaluating the effectiveness and progress of the Safer Skies Initiative in achieving its program goal of reducing accident rates by 2007, which aligns with the definition of a performance audit.

Question 19

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.

Accepted Answer

Obtaining evidence about the educational and experience qualifications of the internal auditors is the best choice when considering the competence of internal auditors. This evidence helps external auditors assess the skills and knowledge of the internal auditor team and allows them to evaluate whether the team has the necessary competence to perform their job effectively. The other choices (B, C, and D) may be relevant but are not as directly related to assessing the competence of the internal auditors.

Question 20

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.

Accepted Answer

The work of internal auditors may affect the independent auditor's procedures performed in obtaining an understanding of the internal control structure, in assessing the risk of material misstatement, and in performing substantive tests to obtain direct evidence. As such, it is recommended that the independent auditor coordinate and communicate with the internal audit department to avoid duplication of efforts and ensure that the work performed by the internal auditors is reliable and relevant to the audit objectives.

Quiz 16: Internal Governmental and Fraud Audits

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Which of the following statements is true?

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

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

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

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

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