CGFO Financial Reporting Part 2

Card Set Information

Author:
FSUmom
ID:
246106
Filename:
CGFO Financial Reporting Part 2
Updated:
2013-11-12 19:37:17
Tags:
CGFO Fin Reporting
Folders:

Description:
Financial Reporting of the CGFO exam November 2013
Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user FSUmom on FreezingBlue Flashcards. What would you like to do?


  1. Which of the following is one of the basic sections of a comprehensive annual financial report (CAFR)?
    A. Single Audit Section
    B. Actuarial section
    C. Investment section
    D. None of the above

    • D - At a minimum, every CAFR comprises three basic sections: the introductory section, the financial section, and the statistical section.
  2. Which of the following distinguishes the contents of the cover of the CAFR from the contents of the CAFR's title page?
    A. Use of the full term "comprehensive annual financial report"
    B. Reference to the primary government (if component unit)
    C. Indication of the department responsible for preparing the CAFR
    D. None of the above

    C - The title page should present all information included on the cover of the report. In addition, the title page should indicate the department responsible for preparing the CAFR.
  3. Which of the following distinguishes the contents of the cover of the CAFR from the contents of the CAFR's title page?
    A. Use of the full term "comprehensive annual financial report"
    B. Reference to the primary government (if component unit)
    C. Indication of the department responsible for preparing the CAFR
    D. None of the above

    C - The title page should present all information included on the cover of the report. In addition, the title page should indicate the department responsible for preparing the CAFR.
  4. Which of the following would NOT appear in the introductory section of the CAFR?
    A. Independent auditor's report
    B. Management's discussion and analysis (MD&A)
    C. Required supplementary information (RSI)
    D. All of the above

    • D - The financial section provides the following information: independent auditor's report, MD&A, basic financial statements, RSI, and combining and an individual fund presentations and supplementary information.
  5. Which of the following is not a recommended element of the letter of transmittal?
    A. Summary financial data
    B. Profile of the government
    C. Information useful in assessing economic condition
    D. Awards and acknowledgements

    A - It is recommended that the letter of transmittal contain the following four sections: formal transmittal of the CAFR; profile of the government; information useful in assessing the government's economic condition; and awards and acknowledgements
  6. What is the point of reference for the opinion offered in the independent auditor's report?
    A. The financial statements of the financial reporting entity, taken as a whole
    B. The financial statements of the primary government, taken as a whole
    C. Activity, major fund, other data in aggregate
    D. Fund types (and component units)

    • C - At a minimum, the independent auditor's report offers an opinion on the fair presentation of the various "opinion units" that make up the basic financial statements: governmental activities, business-type activities, individual major governmental funds, individual major enterprise funds, and all other funds/discretely presented component units in the aggregate.
  7. Which of the following statements is true concerning MD&A?
    A. Governments may voluntarily address topics not mandated.
    B. Governments may voluntarily provide additional detail on mandated topics
    C. Both A and B
    D. Neither A and B

    B - Because MD&A constitute required supplementary information, a government may not address additional topics as part of MD&A, although a government is free to provide whatever level of detail it deems appropriate in addressing the specific topics identified by GAAP.
  8. Which of the following is NOT a requirement to use the modified approach for infrastructure reporting?
    A. The government must make an annual estimate of the amount needed to maintain and preserve infrastructure assets at a condition level established and disclosed by the government
    B. The government must expend the amount estimated to be needed to maintain and preserve infrastructure assets at or above the condition level established and disclosed by the government.
    C. The government must document that infrastructure assets are being preserved at or above the condition level established and disclosed by the government
    D. A and C

    B - Disparities between estimated and actual maintenance and preservation expense would not, of themselves, disqualify a government from continuing to use the modified approach. Only a decline in the condition of infrastructure assets below targeted levels would disqualify a government from the continued use of the modified approach.
  9. Which of the following statements is TRUE concerning the schedule of funding progress for pension plans and other post employment benefit (OPEB) plans that use the aggregate actuarial cost allocation method for funding purposes?
    A. Required for both pension plans and OPEB plans
    B. Required for pension plans but not OPEB plans
    C. Required for OPEB plans, but not pension plans.
    D. Required for neither OPEB or pension plans

    C - For pension plans, no schedule of funding progress need be presented when a pension plan uses the aggregate actuarial cost method, because that method does not identify or separately amortize unfunded actuarial liabilities. In the case of OPEB plans, however, this schedule must still be provided even if the aggregate actuarial cost method is used, in which case the entry-age actuarial cost method should be used to provide the additional data needed to produce the schedule.
  10. Which of the following would be included in a combining financial statement?
    A. A major special revenue fund
    B. A major capital projects fund
    C. A major enterprise fund
    D. None of the above

    • D - The CAFR should include a combining statement to support each column in the basic financial statements that aggregates data from more than one fund or discretely presented component unit. Major funds, by definition, are not aggregated in the basic financial statements and therefore do not appear in the combining statements.
  11. Which of the following statements is TRUE concerning a reference to the notes to the financial statements in combining an individual fund financial statements
    A. Such a reference is always necessary
    B. Such a reference is always permitted, but never necessary
    C. Such a reference is never permitted.
    D. None of the above

    D - The basic financial statements should always carry a reference to the notes to the financial statements. Such references, however, are not appropriate for combining and individual fund presentations that are covered by only an in-relation-to opinion from the independent auditor.
  12. Which of the following is NOT required as part of the financial trend schedules reported in the statistical section of the CAFR?
    A. Net assets by category
    B. Reserved fund balance by fund type
    C. Unreserved fund balance by fund type
    D. Debt service expenditures as ratio/percentage of total non-capital expenditures

    • B - A government should provide information about both reserved and unreserved fund balance. This information should be presented separately for
    • 1) the general fund
    • 2) all other governmental funds in the aggregate. There is no requirement to present the components of reserved fund balance. Unreserved fund balance, however, must be reported by fund type.
  13. Information on revenue capacity presented in the statistical section of the CAFR should focus on which of the following?
    A. All major revenue sources
    B. All significant revenue sources
    C. Largest single revenue source (regardless of type)
    D. Largest single own-source revenue

    D - The schedules on revenue capacity should focus on the government's largest single own-source revenue (e.g., property taxes). In situations where one or more other own-source revenues are almost as significant, financial statement preparers are encouraged (but not required) to present information on those revenues as well.
  14. Which of the following types of governments is NEVER required to report information on overlapping governments in the statistical section of the CAFR?
    A. States
    B. Counties
    C. Both A and B
    D. Neither A nor B

    A - The overlapping concept does not apply to state governments, either from their own perspective or from that of their underlying governments. Counties are required to present information on overlapping debt, but not on overlapping revenues
  15. Information on revenue capacity presented in the statistical section of the CAFR?
    A. Total outstanding debt to personal income
    B. Total debt per capita
    C. A and B
    D. A or B

    C - The total outstanding debt burden then needs to be expressed as two ratios: total outstanding debt to personal income and total debt per capita.
  16. Net general obligation debt is calculated by subtracting which of the following from total general obligation debt?
    A. Amounts accumulated for debt service principal payments
    B. Amounts accumulated for debt service principal and interest payments
    C. Amounts externally restricted for debt service principal payments
    D. Amounts externally restricted for debt service principal and interest payments

    C - If resources have been externally restricted for the repayment of the principal of debt, the table should show those amounts as a deduction from general bonded debt to arrive at net general bonded debt.
  17. The presentation of which of the following types of demographic and economic information is purely VOLUNTARY in the statistical section of the CAFR?
    A. Per capita personal income
    B. Unemployment rate
    C. Median age
    D. All of the above

    C - At a minimum, governments are required to present the following specific demographic and economic indicators: population; total personal income; per capita personal income; and unemployment rate. Other items that could be considered for inclusion are median age, education level, and school enrollment.
  18. Which of the following should be the focus of the statistical section of the CAFR?
    A. Governmental funds
    B. Governmental activities/funds
    C. Primary government
    D. Financial reporting entity

    C - The focus of the statistical section, like that of the basic financial statements, should be the primary government rather than the financial reporting entity.
  19. T/F The basic financial statements and RSI are designed to set the minimum standard of acceptable financial reporting for state and local governments.

    True - In defining the minimum standard of acceptable financial reporting for state and local governments, GAAP mandate a complete set of basic financial statements, including accompanying note disclosures, as well as the presentation of certain required supplementary information,
  20. T/F It is not appropriate for a government to present charts and graphs in the letter of transmittal

    False- Given the strong likelihood that less sophisticated users will be drawn to the letter of transmittal, it could particularly benefit from the judicious use of charts and graphs to communicate information.
  21. T/F If a government presents comparative basic financial statements, comparative condensed financial data need not be presented in MD&A

    False - MD&A should include condense, government-wide comparative financial data for both the current fiscal period and the prior fiscal period, regardless of whether comparative data are presented on the face of teh basic financial statements.
  22. T/F MD&A should address significant budget variances for the general fund and major special revenue funds.

    False - MD&A should address significant differences between 1) the original budget for the general fund and the final amended budget; and 2) the final amended budget for the general fund and actual amounts (presented using the basis of budgeting)
  23. T/F RSI as a category is strictly limited to items so designated by the GASB

    • True - The RSI category is strictly limited to items specifically designated by the GASB
  24. T/F A statement of changes in assets and liabilities - all agency funds must be presented in a CAFR
     
    • True - The combining statement for agency funds need to include a combining statement of changes in assets and liabilities-all agency funds, even though this statement does not support one of the basic financial statements
  25. T/F Blended component units may never be included as part of a fund of the primary government because of their separate legal status.
     
    • True - Normally, a government has considerable flexibility in determining what constitutes a "fund" for external financial reporting purposes. Such is not the case, however, for funds that represent blended component units. In such cases, the activity's status as a separate fund for external financial reporting purposes is established automatically by virtue of its status as a legally separate entity.
  26. T/F The presentation of individual fund financial statements is not appropriate unless they present information not otherwise available in the combining financial statements.
     
    • True - There is no reason to provide individual fund financial statements unless these additional presentations furnish information not otherwise already available in the basic financial statements and the combining financial statements
  27. T/F Individual financial statements should be grouped by type of statement (e.g., first all individual fund balance sheets, then all individual fund operating statements)
     
    • False - Sets of financial statements should always be presented together as a unit.
  28. T/F All of the information presented in the statistical section of the CAFR must be organized around four specific objectives.

    • False - All the information presented in the statistical section is organized around five specific objectives:
    • 1) provide information on financial trends
    • 2) provide information on revenue capacity, 3)provide information on debt capacity
    • 4) provide demographic and economic information
    • 5) provide operating information
  29. T/F Pension plans often present an additional investment section in their CAFR

    True - Investing is a major activity of pension/OPEB plans and governmental external investment pools. Thus it is common for pension/OPEB plans and governmental external investment pools that publish CAFRs to devote a separate section of the CAFR to investments
  30. T/F The CAFR is an appropriate document for meeting the disclosure requirement of SEC Rule 15c2-12

    True - GFOA has formally recognized the CAFR as an appropriate document for meeting the disclosure requirements of SEC Rules 15c2-12
  31. Which of the following is an objective of the Certificate Program?

    A. To assist governments to prepare and publish an easily readable and understandable comprehensive annual financial report (CAFR)

    B. To provide an independent evaluation of a government's financial health

    C. To avoid the need to rely exclusively upon the work of the independent auditor

    D. All of the above
     
    • A - The certificate of Achievement Program has three key objectives: to encourage governments to prepare and publish an easily readable and understandable CAFR; to assist governments in meeting the first goal by providing educational materials, comments, and suggestions for improvements; and to recognize governments and individuals that have met the challenge of preparing and issuing a high-quality CAFR.
  32. Which of the following individuals would NOT be eligible to serve as a judge for a report submitted to either the Certificate Program or the Popular Annual Financial Reporting Program

    A. A judge from the same state as the government submitting the report

    B. A judge from the same level of government as the government submitting the report

    C. A judge from the same audit firm that audited the CAFR

    D. A and C
     
    • D - As a matter of policy, reports are never assigned to a reviewer from the same state as the report under review, nor to a reviewer from the same audit firm that audited the report.
  33. T/F A primary government that does not include its component units within its CAFR may participate in the Certificate Program, provided that the scope of the report is clearly disclosed.





     
    • False - To qualify as "comprehensive," the CAFR must include all funds and component units of the entity, in accordance with GAAP as established by the GASB.
  34. T/F It is recommended that departmental reports submitted to the Certificate Program always be accompanied by management's discussion and analysis.

    True - GFOA recommends that departmental reports always be accompanied by management's discussion and analysis.
  35. T/F Ongoing participants in the Certificate Program are required to respond to the prior year's comments to be eligible to continue to participate

    True - If the government participated in the program in the preceding year, its submission package must include written responses to all of the prior year's comments and suggestions for improvements
  36. Financial plans are most commonly associated with which of the following fund types?

    A. General fund

    B. Special revenue funds

    C. Capital projects funds

    D. Enterprise funds
     
    • D - Frequently, proprietary fund budgets serve on as financial plans.
  37. Annual appropriated budgets are LEAST FREQUENTLY encountered in connection with which of the following fund types?
    A. Special revenue funds
    B. Debt service funds
    C. Capital projects funds
    D. Permanent funds

    D - Annual legal budgets are uncommon for fiduciary funds, where other forms of control (such as trust agreements) typically are in place. In this regard, although permanent funds are a governmental fund type, they tend to operate more like fiduciary funds unless there is a legal requirement to adopt an annual appropriated budget for all governmental funds.
  38. Which of the following types of information will be furnished automatically by an integrated budget?
    A. Unrealized revenue
    B. Uncommitted appropriations
    C. Both A and B
    D. Either A or B





     
    C - When an accounting system is designed to automatically provide timely information concerning the uncommitted balance of appropriations and unrealized revenues, it is said to have integrated the budget.
  39. Which of the following is NOT a budgetary account?
    A. Estimated revenues
    B. Encumbrances
    C. Budgetary fund balance
    D. Fund balance - reserved for encumbrances

    D - Reserving fund balance for encumbrances outstanding at year end involves the regular accounts used for financial reporting purposes rather than the specialized budgetary accounts.
  40. In which of the following locations could a budgetary comparison for the general fund be found?

    A. Basic financial statements

    B. Required supplementary information (RSI)

    C. Financial section of the comprehensive annual financial report (CAFR) (outside of the basic financial statements and RSI)

    D. All of the above

     
    • D - Budget-to-actual comparisons are required in connection with the basic financial statements for the general fund and any major individual special revenue funds for which annual (or biennial) budgets are legally adopted. These comparisons normally may be presented either a one of the basic financial statements for governmental funds, or as required supplementary information (RSI). If the budgetary comparisons presented for the general fund and major individual special revenue funds in connection with the basic financial statements and RSI meet this requirement, no additional presentation need be made for these funds elsewhere within the CAFR. If the comparisons do not meet this requirement, a presentation that is sufficiently detailed to demonstrate compliance at the legal level of budgetary control must be presented for these funds also within the CAFR.
  41. At what level of detail must budgetary comparisons be presented within the CAFR for a non-major special revenue fund with a legally adopted annual budget
    A. Function
    B. Activity
    C. Object
    D. Legal level of control

    D - Budget to actual comparisons must be presented at the legal level of budgetary control within the CAFR for all individual governmental funds with legally adopted annual budgets
  42. At what level of detail must budgetary comparisons be presented within the CAFR for a non-major special revenue fund with a legally adopted annual budget if a separate budgetary report is issued and referenced in the notes to the financial statements?
    A. Function
    B. Activity
    C. Legal level of control
    D. None of the above

    A - Reference to a separately issued budgetary report does not eliminate the need to present budgetary comparisons within the CAFR for all individual governmental funds with legally adopted annual budgets. Rather, the level of detail for individual fund budgetary comparisons simply need not exceed the level associated with the basic financial statements (that is, expenditures by function).
  43. T/F All budgetary comparisons within the CAFR should present both the original and the final amended budget

    False - There is no requirement to present the original budget for other budgetary comparisons presented within the CAFR (i.e. outside the basic financial statements and RSI), although the original budget may be presented voluntarily to anticipate potential questions that might otherwise arise.
  44. Which of the following BEST describes the purpose of a comprehensive framework of internal control?

    A. To facilitate the independent audit of the financial statements
    B. To minimize the possibility of fraud
    C. To ensure that management will meet its various responsibilities
    D. To reduce the costs and increase productivity

    C - The fulfillment of management's responsibilities cannot be left to chance. Management must create a framework of internal control to ensure that it will meet its responsibilities.
  45. Which of the following is NOT one of the essential elements of a comprehensive framework of internal control?
    A. Communication
    B. Monitoring
    C. Independent audit
    D. A and C

    • C - A comprehensive framework of internal control mus:
    • 1) provide a favorable control environment 2) provide for the continuing assessment of risk
    • 3) provide for the design, implementation, and maintenance of effective control-related policies and procedures
    • 4) provide for the effective communication of information
    • 5) provide for ongoing monitoring of the effectiveness of control-related policies and procedures, as well as the resolution of any potential problems identified.
  46. What is the key element in a favorable control environment?
    A. The presence of an effective audit committee
    B. The presence of an effective internal audit function
    C. A pattern of regular independent financial audits
    D. Management's attitude as demonstrated through its actions

    D - The key element in a favorable control environment is management's attitude, as demonstrated through its actions. Management must lead by example, creating a "tone at the top" that set the standard for the entire organization.
  47. Which of the following statements is FALSE regarding risk assessments?
    A. Change is a key factor resulting in increased levels of risk
    B. Risk assessment needs to address both internal and external factors
    C. Risk assessment should take a primarily macro approach to ensure adequate coverage while avoiding unnecessary detail
    D. None of the above

    C - Effective risk assessment must include both macro and micro components and necessarily involves managers at all levels.
  48. Which of the following often is the only practical means of determining if data in the financial statements are complete?
    A. Properly designed records
    B. Periodic reconciliations
    C. Periodic reviews
    D. Analytical review

    D - Analytical review is particularly important because it is often the only practical means of determining if data in the financial statements are complete.
  49. Which of the following is a PERVASIVE CHARACTERISTIC of a sound internal control framework?

    A. Control environment

    B. Communication

    C. Control-related policies and procedures

    D. Monitoring

     
    • B - To emphasize its importance, communication usually is treated as a separate control-framework element in its own right. As a practical matter, however, communication really is a pervasive characteristic that must permeate all elements of the internal control framework if the framework is to function effectively.
  50. Who is PRIMARILY responsible for the adequacy of a government's framework of internal control?
    A. Governing body
    B. Management
    C. Internal auditors
    D. Independent auditors

    B - Management is primarily responsible for the effectiveness of internal control, just as it is accountable for all other aspects of its performance.
  51. Who is ULTIMATELY responsible for the adequacy of a government's framework of internal control?

    A. Governing body
    B. Management
    C. Internal auditors
    D. Independent auditors

    A - An entity's governing board oversees management's performance. So while management is primarily responsible for internal control, the governing board is ultimately responsible for ensuring that management fulfills its duty.
  52. Which of the following is an example of an inherent limitation on the effectiveness of internal control?
    A. Cost/benefit considerations
    B. Potential for management override of controls
    C. Risk of collusion
    D. All of the above

    D - A key limitation on internal control is that cost considerations will prevent management from ever installing a "perfect" system. A second important limitation of internal control is that control-related policies and procedures are potentially subject to management override. The risk of collusion is the third limitation of internal control.
  53. Which of the following is a key advantage of identifying control cycles in the process of evaluating control-related policies and procedures?
    A. Consistency
    B. Efficiency
    C. Effectiveness
    D. B and C

    D - There are two key advantages in using control cycles to evaluate control - related policies and procedures. Using control cycles: 1) promotes efficiency by avoiding the duplication that can result when a single policy or procedure benefits multiple related activities; and 2) highlights the natural links that exist among policies and procedures, thereby improving the effectiveness of the evaluation process.
  54. What is the purpose of documenting how events and transactions are processed in a control assessment?
    A. To demonstrate compliance
    B. To ensure the continued adequacy of the documentation of accounting policies and procedures
    C. To identify potential risks and weaknesses as well as compensating controls
    D. To provide sufficient, competent evidential matter for the financial statement audit

    C - The purpose of documenting the flow of transactions and events is to provide management with a practical tool for identifying potential risks and weaknesses as well as compensating controls.
  55. Which of the following statements is FALSE concerning the periodic evaluation of internal controls?
    A. As a general rule, there should be at least one compensating control for each identified risk.
    B. The design of controls should be evaluated before they are tested
    C. If it is determined that a control is not properly functioning as designed, it may be appropriate in some cases simply to eliminate that control.
    D. None of the above

    D - As a rule, there should be at least one compensating control for each identified risk. The first step in evaluating the adequacy of control-related policies and procedures is to evaluate the effectiveness of their design. Management must determine whether each compensating control is designed so that it could reasonably be expected to accomplish its intended purpose if it were properly implemented and maintained. If not, it would be of little use to test whether the control was implemented and remains operational. Sometimes a control is not operational because some other control is accomplishing the same purpose, and the government's personnel are relying on the alternative control. In that case, the preferred control should be used and the unnecessary control eliminated. Sometime a control is not operational because the cost of the control clearly exceed the benefits. In that case, the government should replace the inefficient control with a more efficient control , or eliminate the control altogether.
  56. T/F A key advantage of a well designed internal control framework is that it often will be sufficient to counteract a poor control environment

    False - It is difficult or impossible for even the best-designed internal control framework to function effectively in such an environment.
  57. T/F Individuals access to assets and records should be based on the specific needs of their position

    True - Individuals should have access to assets or records based on the specific needs of their positions
  58. T/F From the perspective of the segregation of incompatible duties, a duty is considered to be incompatible if an employee can commit an irregularity and then conceal the irregularity with the assistance of another employee

    False - Duties are said to be "incompatible" from an internal control perspective if they allow a single individual to commit an irregularity and then conceal it.
  59. T/F Ideally, incompatible duties should be segregated between individuals in the same department

    False - Incompatible duties should be segregated - ideally among different departments.
  60. T/F Analytical review may involve comparisons of financial data with non-financial data.
     
    • True - Analytical review is the process of attempted to determine the reasonableness of financial data by comparing their behavior with other financial and non-financial data.
  61. T/F The control environment is the key factor in determining how likely a control failure is to occur

    True - A vulnerability assessment functions on the premise that governments should evaluate high-risk control cycles before low-risk control cycles. A control cycle's degree of risk can be assessed based on two questions: 1) If a control failure were to occur, how significant would the potential effect be? and 2) How likely is it that a control failure will occur? The answer to the first question often is determined on the basis of management's assessment of the inherent risk connected with a particular control cycle. The answer to the second question typically is based on management's assessment of the quality of the control environment.
  62. T/F Any sound control-related policy or procedure will both prevent and detect errors and irregularities

    False - Individual control-related policies and procedures can be divided between those that are designed to prevent the occurrence of errors and irregularities and those that are designed to detect errors and irregularities after they have occurred.
  63. Which group is responsible for setting generally accepted government auditing standards (GAGAS)?

    A. GASB
    B. SEC
    C. ASB
    D. GAO

    D - These standards are set by the Comptroller General of the United States and are found in the Government Accountability Office's (GAO) publication, Government Auditing Standards, commonly referred to as the Yellow Book.
  64. Which of the following statements BEST describes the relationship that exists between GAGAS and GAAS?

    A. GAGAS replace GAAS in the public sector
    B. GAAS govern financial audits while GAGAS govern performance audits
    C. GAGAS incorporate and supplement certain GAAS standards
    D. GAGAS are limited to Single Audits

    C - GAGAS incorporate all of the GAAS standards of fieldwork AND reporting (unless specifically excluded) and supplement those standards with additional GAGAS standard of field work.
  65. Which of the following is a key goal of the independent auditor of the financial statements?

    A. To ensure the accuracy of the data presented in the financial statements

    B. To provide reasonable assurance concerning the reliability of the financial statements

    C. To serve as guarantor for the information presented in the financial statements

    D. To meet the duty of due diligence imposed by law
     
    • B - The goal of the auditor is to obtain reasonable - not absolute - assurance that the financial statements are fairly presented.
  66. Which of the following statements is FALSE concerning the application of the concept of materiality?
    A. A misstatement may be judged material because of its size
    B. A potential misstatement may be judged regardless of size
    C. Potential legal violations are often considered to be material
    D. None of the above

    D - Given the objective of reasonable assurance, an auditor is primarily concerned with those potential misstatements that could have a material (important or significant) impact on how a financial statement user evaluates an entity's finances. In making a judgment regarding the materiality of a potential misstatement, an auditor must consider its quantitative and qualitative aspects. Many financial statement users consider potential misstatements involving legal violations to be qualitatively material by their very nature.
  67. On what basis does the independent auditor express an opinion in the context of the basic fund financial statements?
    A. For individual major funds
    B. For fund type
    C. For fund categories (i.e., governmental funds, proprietary funds, fiduciary funds)
    D. Both A and B

    A - In the public sector, the independent auditor's report on the basic financial statements offers separate opinions on a series of opinion units. These opinion units are governmental activities, business-type activities, each major governmental fund, each major enterprise fund, and in the aggregate, non-major funds and discretely presented component units.
  68. Which of the following best describes the independent auditor's responsibility for required supplementary information (RSI)
    A. The auditor must render an opinion on its fair presentation
    B. The auditor must render an in relation to opinion on its fair presentation
    C. The auditor must perform certain limited procedures.
    D. The auditor has no responsibility for RSI

    C - By definition, required supplemental information (RSI) falls outside the scope of the financial statement audit. Nonetheless, GAAS have established certain limited procedures that ordinarily must be performed by the independent auditor in connection with RSI.
  69. Which of the following sections of a comprehensive annual financial report (CAFR) typically would contain audited data?
    A. Statistical section
    B. Introductory section
    C. Both A and B
    D. Neither A nor B

    D - Like RSI, the contents of the CAFR's introductory and statistical sections also fall outside the scope of the independent audit of the financial statements.
  70. Which of the following statements is true concerning reportable conditions and material weaknesses?
    A. Every material weakness is also a reportable condition.
    B. Everyone reportable condition is also a material weakness.
    C. The terms reportable condition and material weakness are mutually exclusive.
    D. The term reportable condition is used in the private sector in place of material weakness.

    A - By definition, all material weaknesses are reportable conditions, while a reportable condition need not be a material weakness.
  71. How many reports does the independent auditor typically issue in connection with a financial audit performed in conformity with GAGAS?
    A. One
    B. Two
    C. Three
    D. Four




    B - The auditor prepares one report in an ordinary financial statement audit conducted in accordance with GAAS, two reports in a GAGAS engagement, and three reports in a single audit engagements.
  72. What term is used to describe amounts that the independent auditor determines may be subject to refund to a grantor?
    A. Disallowed costs
    B. Contingent costs
    C. Questioned costs
    D. Unallowable costs

    C - Amounts that the auditor determines may be subject to refund to the grantor are known as questioned costs.
  73. Which of the following is NOT considered to be an essential characteristic of an effective audit procurement process?
    A. Competition
    B. Preparation of comprehensive request for proposals
    C. Preparation of a written agreement
    D. Focus on identifying low bidder

    D - To avoid a substandard audit, a government's audit procurement process should exhibit four specific characteristics:

    • 1) openness and competition
    • 2) preparation of a comprehensive request for proposals
    • 3) focus on auditor qualifications
    • 4) preparation of a written agreement.
  74. Which of the following is an "overarching principle" for evaluating auditor independence under the Yellow Book?

    A. Auditors may not perform management functions

    B. Auditors may not provide tools or methodologies to clients

    C. Auditors may not answer material technical questions

    D. All of the above
     
    A - The Yellow guidance can be summarized in the form of two overarching principles:

    1) auditors should not perform management functions or make management decisions

    • 2) auditors should not audit their own work or provide non-audit services in situations where the amounts or services involved are significant/material to the subject matter of the audit.
  75. What is the recommended size of an audit committee?

    A. Three to five members

    B. Five to seven members

    C. Seven to ten members

    D. Five to ten members
     
    • B - An audit committee should be small enough to operate efficiently, yet large enough to ensure that its members possess all skills necessary to realize the committee's objectives. As a rule, no less than five and no more than seven members should comprise an audit committee.
  76. What is the primary goal of an internal auditor?

    A. To reduce costs by assisting the independent auditor

    B. To provide independent assurance concerning the reliability of internal financial reports

    C. To prevent and detect fraud

    D. To help management to function more efficiently and effectively
     
    • D - The goal of the internal auditor is to help management function more efficiently and effectively.
  77. T/F There are three categories of GAAS
     
    True - There are ten basic generally accepted auditing standards, which are traditionally grouped into three categories: general standards, standards of field work, and standards of reporting.
  78. T/F All state and local government audits must be performed in accordance with GAGAS

    False - All audits performed in conformity with federal audit requirements (e.g., Single Audits) must be conducted in accordance with GAGAS. Likewise, a number of states have voluntarily mandated the use of GAGAS standards for state and local government financial audits, even in the absence of a federal requirement to employ GAGS. Absent such a requirement, financial audits of state and local governments, like those of private-sector businesses and nonprofit organizations, are performed in conformity with GAAS.
  79. T/F A potential misstatement that had a practical effect of changing the direction of trend data typically would be considered material regardless of size




    True - A potential misstatement that had a practical effect of changing the direction of trend data typically is considered material, regardless of size.
  80. T/F An independent auditor typically issues three separate audit reports in connection with a Single Audit

    True - The auditor prepares one report in an ordinary financial statement audit conducted in accordance with GAAS, two reports in a GAGAS engagement, and three reports in a single audit engagement.
  81. T/F An auditor's letter to management may not be necessary in a GAGAS audit.

    True - Auditors are required to communicate all reportable conditions. In GAGAS audits, including Single Audits, this communication takes the form of the auditor's reports on internal control and compliance and the accompanying schedule of findings and questioned costs. For government audits not subject to Yellow Book standards, reportable conditions are communicated to management in a separate management letter.
  82. T/F GFOA recommends that every government establish an audit committee

    True - GFOA recommends that every government establish an audit committee or its equivalent.
  83. T/F In some situations independent auditors are permitted to rely upon the work of internal auditors
     
    • True - The independent auditor of the financial statements may be able to rely on the internal auditor's work to limit the amount of study and testing that would otherwise be necessary to form an opinion on the fair presentation of the financial statements.

What would you like to do?

Home > Flashcards > Print Preview