The scope of a single audit engagement includes all of the following EXCEPT
A. financial statements.
B. internal controls.
C. performance results.
D. compliance with terms of the award.
What is the basis for determining materiality for financial audits?
A. The auditee determines what is material based on their understanding of how the financial statements may be used by third parties.
B. The auditor establishes materiality based on whether a misstatement would influence the judgement made by a reasonable user of the financial statements.
C. The entity's main provider of resources typically sets materiality levels for financial reporting.
D. The auditor sets a standard percentage for all entities by transaction class.
A township wants to buy a new piece of equipment that will reduce costs by $20,550 at the end of year 2. If the township could invest its funds at a rate of 10%, what is the most the township should spend now to get the return it desires?
A. $16,440
B. $16,983
C. $18,495
D. $20,550
Explanation: What Are We Solving For?
We are calculating thepresent value (PV)of $20,550 to be received at theend of
year 2using a discount rate of10%.
The formula for present value is: PV=FV(1+r)nPV = \frac{FV}{(1 +
r)^n}PV=(1+r)nFV Where:
Calculation:
PV=20,550(1+0.10)2PV = \frac{20,550}{(1 + 0.10)^2}PV=(1+0.10)220,550
PV=20,550(1.10)2PV = \frac{20,550}{(1.10)^2}PV=(1.10)220,550 PV=20,5501.21PV =
\frac{20,550}{1.21}PV=1.2120,550 PV16,983PV 16,983PV16,983
Why Other Options Are Incorrect:
A. $16,440:Results from incorrect discounting for one year instead of two.
C. $18,495:Results from applying a lower discount rate or an incorrect formula.
D. $20,550:This is the future value, not the present value.
A local government is reviewing the performance of a contractor that is collecting trash for the county. Performance can be measured based upon the cost
A. per mile travelled.
B. per ton of trash collected.
C. comparison with closest comparable jurisdiction.
D. per employee.
Explanation: Why Measure Performance Based on Cost per Ton of Trash Collected?
Cost per ton of trash collected is a direct, objective, and quantifiable measure of the
contractor’s performance. It reflects how efficiently the contractor is operating
relative to the amount of trash being managed.
This measure aligns with the principle of output-based performance evaluation,
which focuses on results (e.g., tons of trash collected) rather than inputs or
unrelated factors.
Why Other Options Are Incorrect:
A. Per mile traveled: Mileage is not directly tied to performance; it depends on the
route structure and geography, not the quantity of trash collected.
C. Comparison with closest comparable jurisdiction: While this may provide
context, it is not a specific performance measure.
D. Per employee: Employee count does not directly measure performance or
efficiency in trash collection operations.
The ratios used to determine an organization's ability to meet its creditor's demands are
A. budgetary cushion ratios.
B. liquidity ratios.
C. debt burden ratios.
D. turnover ratios.
Explanation:
Which of the following disbursement techniques can be used to ensure timely payments?
A. warrants
B. checks
C. drafts
D. bank cards
Explanation:
What Are Disbursement Techniques?
Disbursement techniques refer to the methods used by organizations to pay
vendors or settle financial obligations. The timeliness of payments depends on the
technique used.
Why Are Drafts the Best Option for Timely Payments?
Adraftis a payment instrument issued by an organization’s bank, drawn against its
account, and typically includes specific payment timing instructions.
Drafts allow the payer to specify the timing of payments, ensuring they are made
on time.
Why Other Options Are Incorrect:
A. Warrants: Warrants authorize payments but do not ensure timeliness as they
require additional processing before funds are disbursed.
B. Checks: Checks rely on postal delivery and clearing times, which may delay
payments.
D. Bank cards: While convenient, bank cards are typically used for immediate
payments, not for ensuring future timely disbursements.
In addition to the Yellow Book, which group's external audit standards can the GAO reference?
A. Public Company Accounting Oversight Board
B. International Auditing and Assurance Standards Board.
C. International Organization of Supreme Audit Institutions
D. AICPA
Explanation:
GAO and External Audit Standards: The Government Accountability Office (GAO)
uses the Yellow Book as its primary standard. However, it may also reference
external standards from recognized international and professional auditing
organizations. INTOSAI is specifically mentioned in the Yellow Book as a source of
additional standards for governmental audits.
The first step in the internal control evaluation process is
A. identifying the effectiveness of management activities.
B. assessing the adequacy of controls.
C. documenting how transactions of events are processed.
D. identifying potential risks.
Explanation: What Is Internal Control Evaluation? Internal control evaluation is the
process of assessing an organization’s internal controls to ensure they are adequate and
effective in mitigating risks, ensuring compliance, and achieving objectives.
Why Is Identifying Potential Risks the First Step?
The entire purpose of internal controls is to mitigate risks. Therefore, before
evaluating the controls, you need to identify the risks they are meant to address.
Once risks are identified, the organization can evaluate whether the existing
controls are adequate and effective in mitigating those risks.
This approach aligns with risk-based frameworks like the COSO Internal Control
Framework, which emphasizes risk identification as the foundation for effective
controls.
Why Other Options Are Incorrect:
A. Identifying the effectiveness of management activities: This is part of control
evaluation but occurs after risks and controls are identified.
B. Assessing the adequacy of controls: Controls cannot be assessed until the risks
they address are identified.
C. Documenting how transactions or events are processed: While this step is
important, it comes later in the process, after risks and controls are identified.
Internal control over financial reporting means that management can reasonably make which of the following assertions?
A. Sufficient spending authority and financial resources exist to support reported expenditures.
B. A physical inventory has been conducted of all assets meeting the jurisdiction's capitalization threshold.
C. All assets and liabilities have been properly valued and, where applicable, all costs have been properly allocated.
D. Management has met its legislatively directed program goals.
Explanation: What Is Internal Control Over Financial Reporting?
Internal control over
financial reporting (ICFR) ensures the reliability of an entity’s financial statements. It
focuses on maintaining accurate, complete, and properly valued financial information that
complies with accounting standards and meets the needs of users.
Why Is Option C Correct?
Proper valuation of assets and liabilities is a critical component of ICFR. It ensures
that financial statements fairly represent the entity's financial position.
Cost allocation is also essential where applicable, such as assigning costs to
programs or projects.
Why Other Options Are Incorrect:
A. Sufficient spending authority and financial resources exist: This relates to
budgetary control, not financial reporting.
B. Physical inventory of capitalized assets: Conducting a physical inventory is part
of asset management, not financial reporting assertions.
D. Legislatively directed program goals: Meeting program goals is related to
performance reporting, not ICFR.
The basic steps in fraud audits include all of the following EXCEPT
A. consulting legal counsel.
B. reporting the results.
C. follow-up on control weaknesses.
D. considering political ramifications.
Explanation:
Fraud Audit Objective: Fraud audits aim to detect and investigate fraudulent
activities, strengthen internal controls, and report findings to stakeholders.
A program manager at a local agency needs to understand if program participation varies significantly from enrollment. The information changes daily. The best way to quickly analyze this would be to use
A. crosstab.
B. portable document format.
C. text file.
D. dashboard
One of the five components of COSO ERM is
A. performance.
B. changing environment.
C. complex calculations.
D. accepting risk
Explanation: What Is COSO ERM?
The COSO Enterprise Risk Management (ERM)
Framework is a widely accepted framework that helps organizations identify, assess, and
manage risks while creating value. The five components of COSO ERM are:
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