Question 1

Which one of the following is NOT a major difference between operational and financial auditing?

Accepted Answer

Testing the effectiveness of internal controls is a component of both operational and financial audits, not a major difference between them.

Question 2

How do the risk and materiality thresholds change in a government audit compared to a financial statement audit of a public company?

Accepted Answer

The answer of How do the risk and materiality thresholds...

Question 3

Professional guidelines for performing internal audits for companies are not as well-defined as for external audits.

Accepted Answer

While there are some general guidelines and standards for internal auditing, the specifics can vary depending on the company and industry. In contrast, external audits are subject to specific regulations and standards established by governing bodies like the SEC or PCAOB.

Question 4

Internal auditors should have the authority to require implementation of suggestions for improvement.

Accepted Answer

Internal auditors can make recommendations, but they do not have the authority to enforce implementation. Management is responsible for deciding whether to implement the suggestions.

Question 5

Auditors involved in planning, performing, or reporting on audits under GAGAS must complete ________ hours of continuing professional education in each two-year period.

Accepted Answer

The answer of Auditors involved in planning, performing, or reporting...

Question 6

The primary source of authoritative literature for doing government audits is the:

Accepted Answer

The Yellow Book, issued by the Government Accountability Office (GAO), is the primary source of authoritative literature for doing government audits in the United States. It contains auditing standards and guidance applicable to both financial and performance audits of government entities, programs, activities, and functions. The Purple Book is a publication of the Office of Management and Budget (OMB) that provides guidance on grants management. The Green Book is a publication of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) that provides guidance on internal control. The Red Book is a publication of the International Federation of Accountants (IFAC) that provides guidance on audit and assurance engagements other than those of historical financial information.

Question 7

Governmental Auditing Standards recognize that because of public accountability over governmental activities the acceptable tolerable misstatement as compared to commercial businesses may be:

Accepted Answer

Governmental activities are subject to higher public accountability and scrutiny, thus the acceptable tolerable misstatement is lower compared to commercial businesses.

Question 8

For financial auditing, the audit report typically goes to many users of financial statements, whereas operational audit reports are intended primarily for management.

Accepted Answer

Financial auditing is intended to provide assurance to a wide range of users of financial statements, including investors, creditors, and regulatory agencies. Operational audits, on the other hand, focus on evaluating and improving management processes and operational efficiency and are primarily intended for use by management.

Question 9

When a state or local government agency receives federal funds, it is subject to the audit requirements of:

Accepted Answer

The answer of When a state or local government agency...

Question 10

An audit designed to provide reasonable assurance of detecting material misstatements resulting from noncompliance with provisions of contracts or grant agreements that have a material and direct effect on the financial statements would be called a(n):

Accepted Answer

A compliance audit is designed to test whether an entity has complied with specific procedures, rules, or regulations. In this case, the audit is focused on identifying any material misstatements resulting from noncompliance with provisions of contracts or grant agreements that have a material and direct effect on the financial statements. The other options (performance audit, management audit, operational audit) do not specifically address noncompliance with contracts or grant agreements.

Question 11

Which of the following is most correct with regard to the comparison of the financial auditing standards of the Yellow Book with the 10 General Auditing Standards for financial audits?

Accepted Answer

The Yellow Book standards are consistent with the 10 General Auditing Standards for financial audits, as they both aim to ensure the quality and reliability of financial audits, although the Yellow Book may include additional requirements specific to government auditing.

Question 12

Which of the following is not one of the major differences between financial and operational auditing?

Accepted Answer

The statement that financial audits are concerned with the information on the financial statements, but operational audits are concerned with the information in the ledgers is incorrect. Financial audits also rely on information from ledgers and other financial records to assess the accuracy and completeness of the financial statements.

Question 13

The "Red Book" specifies all auditing standards issued by the U.S. General Accounting Office.

Accepted Answer

While the U.S. General Accounting Office issues auditing standards, the set of standards is actually called the "Yellow Book," not the "Red Book." Additionally, the Yellow Book is not the only set of auditing standards; there are other sets of standards issued by organizations such as the American Institute of Certified Public Accountants (AICPA).

Question 14

The formal name of the Yellow Book is Government Auditing Standards.

Accepted Answer

The formal name of the Yellow Book is indeed Government Auditing Standards, which provide guidance for auditors conducting audits of government entities and entities that receive government funds.

Question 15

Government auditing standards are included in the Yellow Book.

Accepted Answer

The Yellow Book, also known as the Generally Accepted Government Auditing Standards (GAGAS), contains the auditing standards for auditors performing audits of government entities, programs, activities, and organizations.

Question 16

The Single Audit Act requires that an audit be conducted for recipients who receive total federal funds in any fiscal year of:

Accepted Answer

The Single Audit Act requires that an audit be conducted for recipients who receive total federal funds in any fiscal year of $500,000 or more.

Question 17

A major challenge of operational auditing is in selecting the specific criteria for evaluation whether efficiency and effectiveness have occurred in the client's organization. For example, in financial statement auditing the criteria for consideration is US GAAP or Other Comprehensive Basis of Accounting. There are no such "overriding" objectives in internal auditing.
Discuss below sources of specific criteria that could be used by the internal auditor in planning the engagement.

Accepted Answer

The answer of A major challenge of operational auditing is...

Question 18

In addition to an opinion on whether the financial statements are in accordance with GAAP, identify four other reports required by the OMB Circular A-133.

Accepted Answer

The answer of In addition to an opinion on whether...

Question 19

The correct title of the Yellow Book is:

Accepted Answer

The Yellow Book refers to the Government Auditing Standards, which provide guidelines for auditing federal programs, organizations, and activities. The IIA Practice Standards refer to the guidelines for internal auditing, and the Statement of Responsibilities of Internal Auditing provides a framework for the role of internal auditors. The Statement of Standards on Accounting and Review Services provides standards for accounting and review services.

Question 20

The Internal Auditing Standards Board issues Statements on Internal Auditing Standards.

Accepted Answer

The Internal Auditing Standards Board (IASB) does issue Statements on Internal Auditing Standards (SIAS). These SIAS provide guidance and requirements for internal auditors to follow when performing their work.

Quiz 26: Internal and Governmental Financial Auditing and Operational Auditing