Professional Documents
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Chapter-26 Internal and Governmental Financial Auditing and Operational Auditing
Chapter-26 Internal and Governmental Financial Auditing and Operational Auditing
Chapter-26 Internal and Governmental Financial Auditing and Operational Auditing
Multiple-Choice Questions
1.
easy
b
The IIA Code of Ethics is based on all but which of the following ethical principles?
a. Integrity.
b. Independence.
c. Competency.
d. Confidentiality.
2.
easy
c
3.
easy
c
4.
easy
a
Which of the following is not a similarity between external and internal auditors?
a. Both must be independent of the company.
b. Both must be competent.
c. Both use similar methodologies in performing their work.
d. Both consider risk and materiality in their work.
5.
easy
d
6.
easy
d
Auditing standards _______ external auditors to use the internal auditors for direct assistance on
the audit.
a. discourage
b. prohibit
c. encourage
d. permit
7.
easy
b
The primary source of authoritative literature for doing government audits is the:
a. Purple Book.
b. Yellow Book.
c. Green Book.
d. Red Book.
Arens/Elder/Beasley
8.
easy
c
a
When a state or local government agency receives federal financial assistance, it is subject to
the audit requirements of:
a.
b.
c.
d.
Yellow Book
Yes
No
Yes
Yes
9.
easy
c
Which of the following is not one of the broad categories of operational audits?
a. Functional audits.
b. Organizational audits.
c. Single Audit Act audits.
d. Special assignment audits.
10.
easy
d
11.
easy
b
The IIAs professional practice framework (including its code of ethics and International
Standards for the Professional Practice of Internal Auditing) is commonly referred to as the:
a. Blue Book.
b. Red Book.
c. Green Book.
d. Yellow Book.
12.
easy
b
The professional organization which is responsible for providing guidance for internal auditors
is the:
a. APA.
b. IIA.
c. ABA.
d. AIA.
13.
easy
d
The financial auditing standards of the Yellow Book are ______ the 10 GAAS of the AICPA.
a. the same as
b. quite different from
c. incompatible with
d. consistent with
14.
easy
b
Which of the following is not one of the three phases in an operational audit?
a. Planning.
b. Training and supervising employees.
c. Evidence accumulation and evaluation.
d. Reporting and follow-up.
15.
medium
a
16.
medium
The Yellow Book recognizes that, because of the sensitivity of government activities and their
public accountability, in government audits the thresholds of acceptable audit risk and tolerable
Arens/Elder/Beasley
17.
medium
b
The Single Audit Act requires that an audit be conducted for recipients who receive total federal
funds in any fiscal year of:
a. $1,000,000 or more.
b. $500,000 or more.
c. $300,000 or more.
d. $100,000 or more.
18.
medium
b
An audit conducted in accordance with the Yellow Book must include an audit report that states
the audit was performed in accordance with:
a. GAAS.
b. GAGAS.
c. GASA.
d. SAS.
19.
medium
d
An audit designed to evaluate the efficiency and effectiveness of an organization or some part of
an organization would not be called a(n):
a. performance audit.
b. management audit.
c. operational audit.
d. compliance audit.
20.
medium
c
Which of the following is not one of the major differences between financial and operational
auditing?
a. The financial audit is oriented to the past, but an operational audit concerns performance
for the future.
b. The financial audit report is distributed to many readers, but the operational audit report
goes to a few managers.
c. Financial audits deal with the information on the financial statements, but operational
audits are concerned with the information in the ledgers.
d. Financial audits are limited to matters that directly affect the financial statements, but
operational audits cover any aspect of efficiency and effectiveness.
21.
medium
d
Before an operational audit for effectiveness can be performed, there must be:
a. a financial audit by an independent auditor.
b. a financial audit by an internal auditor.
c. a review performed by either an independent or an internal auditor.
d. specific criteria developed to define effectiveness.
22.
medium
d
Auditors involved in planning, performing, or reporting on audits under GAGAS must complete
____ hours of continuing professional education in each two-year period.
a. 20
b. 40
c. 60
d. 80
23.
medium
b
Arens/Elder/Beasley
d.
interact.
Special operational auditing assignments arise at the request of management.
24.
medium
b
25.
medium
a
Which of the following is not a difference between operational auditing and financial auditing?
a. Both must be CPAs.
b. Operational audit reports are usually of a restricted distribution while financial audit
reports are widely distributed.
c. Operational audits often cover non-financial issues while financial audits do not.
d. None of the above is a difference.
26.
medium
c
27.
medium
d
a.
b.
c.
d.
Responsibilities
Yes
No
No
Yes
Reporting Structure
No
No
Yes
Yes
28.
challenging
d
29.
challenging
d
A(n) _________ audit emphasizes how efficiently and effectively functions interact.
a. operational
b. compliance
c. financial
d. organizational
30.
challenging
b
Arens/Elder/Beasley
31.
challenging
c
What distinguishes internal control evaluation and testing for financial and operational
auditing?
a. Purpose of the work.
b. Scope of the work.
c. Both a and b.
d. Neither a nor b.
32.
challenging
c
Of the many hours of continuing professional education required every two years, how many
must be in subjects related to the government environment and government auditing for auditors
involved in planning, performing and reporting on audits under GAGAS?
a. 8 hours
b. 16 hours
c. 24 hours
d. 32 hours
33.
Challenging
b
a.
b.
c.
d.
34.
challenging
d
External financial statement auditors must obtain evidence regarding what attributes of an
internal audit department if the external auditors intend to rely on the internal auditors work?
a.
b.
c.
d.
Competence
Yes
No
No
Yes
Essay Questions
35.
easy
What organization establishes auditing standards for internal auditors and what are those
standards commonly called?
Answer:
Auditing standards for internal auditors are established by the Internal Auditing
Standards Board. They are commonly known as the Red Book.
36.
medium
Arens/Elder/Beasley
37.
medium
External auditors typically consider internal auditors effective if they meet three criteria. What
are these criteria?
Answer:
External auditors typically consider internal auditors effective if they are:
Independent of the operating units being evaluated
Competent and well-trained
Have performed relevant audit tests of the internal controls and financial statements
38.
medium
How do the risk and materiality thresholds change in a government audit compared to a
financial statement audit of a public company?
Answer:
The Yellow Book recognizes that in government audits the thresholds of acceptable audit
risk and materiality may be lower than in an audit of a commercial enterprise. This is
because of the sensitivity of government activities and their public accountability.
39.
medium
40.
medium
The Institute of Internal Auditors has established Ethical Principles for its members. List each of
the principles.
Answer:
The IIAs ethical principles are:
Integrity.
Objectivity.
Confidentiality.
Competency.
41.
medium
Arens/Elder/Beasley
43.
medium
44.
medium
Operational auditing is the review of an organization for efficiency and effectiveness. Discuss
what is meant by the terms effectiveness and efficiency.
Answer:
Effectiveness refers to the degree to which the organizations objectives and goals are
accomplished.
Efficiency refers to the degree to which costs are reduced without reducing
effectiveness.
45.
challenging
Audit tests as required by the Single Audit Act must meet several specific objectives. One
objective is to determine whether the amounts reported as expenditures were for allowable
services. Identify three other specific objectives.
Answer:
Whether the records show that those who received services or benefits were eligible to
receive them.
Whether matching requirements, levels of effort, and earmarking limitations were
met.
Whether federal financial reports and claims for advances and reimbursements
contain information that is supported by the books and records from which the basic
Arens/Elder/Beasley
46.
challenging
The auditing standards of the Yellow Book are consistent with the ten generally accepted
auditing standards of the AICPA. There are, however, important additions/modifications in the
Yellow Book. For example, the Yellow Book recognizes that materiality and risk are lower due
to the nature of the government enterprise. Discuss the other additions/modifications.
Answer:
Quality control. Auditors of government entities must have an appropriate system of
internal quality control and participate in an external quality control review program.
Compliance auditing. The audit should be 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.
Reporting. The report on financial statements must describe the scope of the auditors
testing of compliance with laws and regulations and internal controls and present the
results of those tests, or refer to a separate report containing that information.
47.
challenging
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.
Answer:
The following reports are required:
Match seven of the terms (a-o) with the descriptions/definitions provided below (1-7):
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
Arens/Elder/Beasley
Compliance audit
Economy and efficiency audit
Effectiveness
Efficiency
Functional audit
Government Auditing Standards
Government audit
Institute of Internal Auditors
Operational auditing
Organizational audit
Program audit
Single Audit Act
Special assignment
n.
o.
1.
2.
3.
4.
5.
6.
Federal legislation that provides for a single coordinated audit to satisfy the
audit requirements of all federal funding agencies.
7.
Statements issued by the Internal Auditing Standards Board of the IIA to provide
authoritative interpretation of the IIA Practice Standards.
49.
easy
b
50.
easy
b
Current professional auditing standards prohibit external auditors from using internal auditors
for direct assistance on external audits.
a. True
b. False
51.
easy
b
Current professional auditing standards require external auditors to use internal auditors for
direct assistance on external audits.
a. True
b. False
52.
easy
a
The objectives of internal auditors are considerably broader than the objectives of external
auditors.
a. True
b. False
53.
easy
a
For financial auditing, the audit report typically goes to many users of financial statements,
whereas operational audit reports are intended primarily for management.
a. True
b. False
54.
easy
a
55.
easy
b
56.
Effectiveness refers to the degree to which costs are reduced without reducing efficiency.
Arens/Elder/Beasley
easy
b
a.
b.
57.
easy
a
Efficiency refers to the degree to which costs are reduced without reducing effectiveness.
a. True
b. False
58.
easy
b
59.
easy
a
60.
easy
a
Effectiveness is concerned with whether defined goals are achieved, whereas efficiency is
concerned with whether the goals are achieved with a minimum use of resources.
a. True
b. False
61.
easy
b
Operational audits may be performed by internal auditors and government auditors, but not by
external auditors.
a. True
b. False
Benchmarking is one source of evaluation criteria for completing an operational audit.
a. True
b. False
62.
easy
a
True
False
63.
easy
a
The two most important qualities for an internal auditor to possess are independence and
competence.
a. True
b. False
64.
easy
b
Program audits are primarily focused on inefficient uses of federal funds in sponsored
programs.
a. True
b. False
65.
easy
a
66.
medium
a
Professional guidelines for performing internal audits for companies are not as well-defined as
for external audits.
a. True
b. False
67.
medium
b
To help them remain independent of the operations they audit, internal auditors should report
directly to the controller.
a. True
b. False
68.
medium
a
Arens/Elder/Beasley
69.
medium
a
The Internal Auditing Standards Board issues Statements on Internal Auditing Standards.
a. True
b. False
70.
medium
a
71.
medium
b
Internal auditors should have the authority to require implementation of suggestions for
improvement.
a. True
b. False
72.
medium
b
The Red Book specifies all auditing standards issued by the U.S. General Accounting Office.
a. True
b. False
73.
challenging
a
Arens/Elder/Beasley