Chapter 21 Internal Operational and Compliance Audit

Chapter 21 - Internal, Operational, and Compliance Auditing
Chapter 21 Internal, Operational, and Compliance Auditing

True / False Questions
1. The work of internal auditors is primarily for the enefit of management and the oard of directors. True !alse
2. The first internal auditors were primarily concerned with operational auditing. True !alse
". The passage of the !oreign Corrupt #ractices Act increased the demand for internal auditing. True !alse
$. %&aluation of internal control is one of the general sections of the IIA's Standards of the Professional Practice of Internal Auditing. True !alse
(. In operational auditing, the preliminary sur&ey ser&es as a guide for the de&elopment of the audit program. True !alse
). *hen no weaknesses in internal control are disco&ered during an operational audit, the appropriate report will e either standard un+ualified or un+ualified with e,planatory language. True !alse
21-1
-. Operational audits are primarily concerned with whether an organi.ation follows appropriate laws and regulations. True !alse
/. Compliance procedures are tests of an organi.ation's controls. True !alse
0. In an audit in accordance with Government Auditing Standards, the auditors are re+uired to perform additional compliance procedures eyond those re+uired y generally accepted auditing standards. True !alse
11. In an audit in accordance with the 2ingle Audit Act of 10/$, the auditors must test compliance with the significant re+uirements of all ma3or programs. True !alse
Multiple Choice Questions
11. *hen auditing an entity's financial statements in accordance with 4o&ernment Auditing 2tandards 5the 67ellow 8ook69, an auditor is re+uired to report on: I. ;oteworthy accomplishments of the program. II. The scope of the auditor's testing of internal controls. A. I only. 8. II only. C. 8oth I and II. <. ;either I nor II.
21-2
12. *hen auditing an entity's financial statements in accordance with 4o&ernment Auditing 2tandards 5the 67ellow 8ook69, an auditor is re+uired to report on: I. =ecommendations for actions to impro&e operations. II. The scope of the auditor's tests of compliance with laws and regulations. A. I only. 8. II only. C. 8oth I and II. <. ;either I nor II.
1". A comprehensi&e e,amination of an operating unit or a complete organi.ation to e&aluate its systems, controls, and performance, as measured y management's o 3ecti&es is called a5an9: A. Compilation. 8. Consultation. C. Operational Audit. <. 67ellow 8ook6 audit.
1$. An audit in accordance with the 2ingle Audit Act does not in&ol&e reporting upon: A. Compliance with pro&isions of laws that may ha&e a direct and material affect on each ma3or federal financial assistance program. 8. !inancial statements. C. Internal control o&er operations. <. 2chedule of e,penditures of federal awards.
1(. >nder the 2ingle Audit Act, the auditor must apply procedures to test for compliance and test the effecti&eness of controls for:
A. Option A 8. Option 8 C. Option C <. Option <
21-"
1). Internal auditing is considered to e part of an organi.ation's: A. Accounting system. 8. Control acti&ities. C. ?onitoring. <. %,ternal controls.
1-. *hich of the following is not one of the attri ute standards of the IIA's Standards for the Professional Practice of Internal Auditing@ A. Independence and o 3ecti&ity. 8. Outsourcing. C. #roficiency and professional care. <. #urpose, authority, and responsi ility.
1/. *hich of the following is not re+uired of an indi&idual seeking to ecome a certified internal auditor@ A. Two years work e,perience in internal auditing or its e+ui&alent. 8. 2uccessful completion of a two-day e,amination. C. A accalaureate degree from an accredited college. <. One year of super&isory e,perience.
10. !or the highest degree of independence the director of internal auditing should report directly to: A. The controller. 8. The audit committee of the oard of directors. C. The e,ecuti&e &ice-president. <. The chief accountant.
21. The operational auditors' preliminary conclusions a out potential pro lem areas are summari.ed as: A. The definition of purpose. 8. The audit program. C. The preliminary sur&ey. <. The audit report.
21-$
21. A legal aid society pro&ides free legal aid to low-income indi&iduals with funds passedthrough the state welfare department from the >.2. <epartment of Aealth and Auman 2er&ices. In this situation which organi.ation is the primary recipient of the funds@ A. The state welfare department. 8. The <epartment of Aealth and Auman 2er&ices. C. The legal aid society. <. The indi&idual recei&ing the aid.
22. In an audit in accordance with Government Auditing Standards, the auditors are re+uired to pro&ide a report on: A. Compliance with general re+uirements. 8. The schedule of financial assistance recei&ed. C. The organi.ation's internal control. <. !indings and +uestioned costs.
2". *hich of the following types of audits is designed to determine that an organi.ation has complied with the specific re+uirements of ma3or financial assistance programs@ A. An audit in accordance with Government Auditing Standards. 8. A single audit. C. An audit in accordance with generally accepted auditing standards. <. An operational audit.
2$. Compliance auditing procedures are: A. Tests of controls. 8. O ser&ation procedures. C. 2u stanti&e procedures. <. Confirmation procedures.
2(. In an audit in accordance Government Auditing Standards, the auditors are re+uired to pro&ide a report on: A. Compliance applica le to ma3or federal programs. 8. The 2chedule of financial assistance recei&ed. C. Compliance with laws and regulations which are re+uired to e tested y generally accepted auditing standards. <. Internal control systems used in administering federal assistance programs.
21-(
2). In an audit in accordance with generally accepted auditing standards, the auditors must test compliance with those laws and regulations that: A. Aa&e a direct and material effect on the financial statements. 8. Aa&e a direct and material effect on ma3or federal programs. C. Aa&e a material direct or indirect effect on the financial statements. <. Aa&e a material effect on ma3or or nonma3or programs.
2-. =e+uirements of federal financial assistance programs that in&ol&e significant national policy are known as: A. 2pecific re+uirements. 8. ?a3or program re+uirements. C. 4eneral re+uirements. <. #rimary re+uirements.
2/. Costs paid with federal assistance that appear to e in &iolation of a law or regulation are known as: A. Buestioned costs. 8. ;oncompliance costs. C. Improper costs. <. Illegal costs.
20. *hen performing an audit of a city in accordance with the 2ingle Audit Act, an auditor should adhere to: A. Standards for the Professional Practice of Internal Auditing. 8. Government Auditing Standards. C. Operational Auditing Standards. <. Financial Accounting Standards.
"1. A primary purpose of operational auditing standards is to pro&ide: A. A means of assurance that internal control is operating effecti&ely. 8. Aid to the independent auditor in conducting the audit of financial statements. C. The results of internal e,aminations of financial and accounting matters to the company's top-le&el management. <. A measure of management performance in meeting organi.ational goals.
21-)
"1. The primary purpose of the internal auditors' e&aluation of internal control is to: A. <etermine if management has planned and implemented acti&ities needed to attain goals and o 3ecti&es. 8. <etermine the e,tent of tests of controls needed during field work. C. Identify areas for fraud in&estigation. <. <etermine if employees ha&e incompati le duties that ha&e compromised the control en&ironment.
"2. According to the IIA's Standards, an internal auditor's working papers should e re&iewed y the: A. ?anagement of the department eing audited. 8. ?anagement of the internal auditing department. C. Audit committee of the oard of directors. <. ?anagement of the organi.ation's security di&ision.
"". ?anagement is eginning to take correcti&e action on personnel department deficiencies reported during the last internal audit. According to the IIA's Standards, the internal auditor should: A. O&ersee the correcti&e action. 8. #ostpone the ne,t audit of the personnel department until the correcti&e action is completed. C. =efrain from 3udging whether the correcti&e action will remedy the deficiencies. <. !ollow up to see that the correcti&e action satisfies the audit recommendations.
"$. The internal auditing department pro&ides information a out control and +uality of performance to: A. ?anagement and the oard of directors. 8. A le&el in the organi.ation sufficient to ensure acceptance of all recommendations. C. Outside agencies for regulatory and financial compliance. <. Any mem er of the organi.ation upon re+uest.
21--
"(. The 4AO standards of reporting for go&ernmental financial audits incorporate the AIC#A standards of reporting and prescri e supplemental standards to satisfy the uni+ue needs of go&ernmental audits. *hich of the following is a supplemental reporting standard for audits in accordance with Government Auditing Standards@ A. A report on the entity's internal control. 8. ?aterial indications of illegal acts should e reported in a document with distri ution restricted to senior officials of the entity audited. C. Instances of a use, fraud, mismanagement, and waste should e reported to the organi.ation with legal o&ersight authority o&er the entity audited. <. All pri&ileged and confidential information disco&ered should e reported to the senior officials of the organi.ation that arranged for the audit.
"). Cent is auditing an entity's compliance with re+uirements go&erning a ma3or federal financial assistance program in accordance with the 2ingle Audit Act. Cent detected noncompliance with re+uirements that ha&e a material effect on that program. Cent's report on compliance should e,press a5an9: A. >n+ualified opinion with a separate e,planatory paragraph. 8. Bualified opinion or an ad&erse opinion. C. Ad&erse opinion or a disclaimer of opinion. <. Dimited assurance on the items tested.
"-. The scope of an internal audit is initially defined y the: A. Audit o 3ecti&es. 8. 2cheduling and time estimates. C. #reliminary sur&ey. <. Audit program.
"/. An operational audit report which deals with the scrap disposal function in a manufacturing company is most likely to address: A. The efficiency and effecti&eness of the scrap disposal function and include any findings re+uiring correcti&e action. 8. *hether the scrap material in&entory is reported as a current asset. C. *hether the physical in&entory count of the scrap material agrees with the recorded amount. <. *hether the scrap materials in&entory is &alued at the lower of cost or market.
21-/
"0. Inter&iewing operating personnel, identifying he o 3ecti&es of the auditee, identifying standards used to e&aluate performance, and assessing the risk inherent in the auditee's operations are acti&ities typically performed in which phase of an internal audit@ A. The fieldwork phase. 8. The preliminary sur&ey phase. C. The audit programming phase. <. The reporting phase.
$1. In go&ernmental accounting, emphasis is placed on: A. Total assets owned y the go&ernmental entity. 8. 4enerating income form funds employed. C. %,penditures of funds. <. The flow of funds through the income statement.
$1. *hich of the following est descri es the scope of internal auditing as it has de&eloped to date@ A. Internal auditing in&ol&es appraising the economy and efficiency with which resources are employed. 8. Internal auditing in&ol&es e&aluating compliance with policies, plans, procedures, laws, and regulations. C. Internal auditing has e&ol&ed to &erifying the e,istence of assets and re&iewing the means of safeguarding assets. <. Internal auditing has e&ol&ed to more of an operational orientation from a financial orientation.
$2. In planning an operational audit, an on-site sur&ey could assist with all of the following, e,cept: A. O taining auditee comments and suggestions on control pro lems. 8. O taining preliminary information on internal control. C. Identifying areas for audit emphasis. <. %&aluating the effecti&eness of the internal control.
21-0

Essay Questions
$". Internal auditors are an important part of the internal control structures of all types of organi.ations. a. <escri e the o 3ecti&es of an internal auditing function. . %,plain two ways that internal auditors may maintain independence with respect to the acti&ities that they audit.
$$. Operational auditing has grown in importance o&er the last few decades. a. <efine operational auditing. . *ho are the ma3or users of operational audit reports. c. Dist the phases of an operational audit.
$(. ?any go&ernment and nonprofit organi.ations are re+uired to ha&e an audit in accordance with 4o&ernment Auditing 2tandards. a. *ho de&elops 4o&ernment Auditing 2tandards@ . <escri e the re+uirements of an audit in accordance with 4o&ernment Auditing 2tandards. c. <escri e the auditors' responsi ilities for testing for compliance with laws and regulations in an audit in accordance with 4o&ernment Auditing 2tandards.
21-11
Chapter 21 Internal, Operational, and Compliance Auditing Answer Cey
True / False Questions
1. The work of internal auditors is primarily for the enefit of management and the oard of directors. T !E
Difficulty: Easy
2. The first internal auditors were primarily concerned with operational auditing. FA"#E
Difficulty: Medium
". The passage of the !oreign Corrupt #ractices Act increased the demand for internal auditing. T !E
Difficulty: Easy
$. %&aluation of internal control is one of the general sections of the IIA's Standards of the Professional Practice of Internal Auditing. FA"#E
Difficulty: ard
21-11
(. In operational auditing, the preliminary sur&ey ser&es as a guide for the de&elopment of the audit program. T !E
Difficulty: Medium
). *hen no weaknesses in internal control are disco&ered during an operational audit, the appropriate report will e either standard un+ualified or un+ualified with e,planatory language. FA"#E
Difficulty: Medium
-. Operational audits are primarily concerned with whether an organi.ation follows appropriate laws and regulations. FA"#E
Difficulty: Medium
/. Compliance procedures are tests of an organi.ation's controls. FA"#E
Difficulty: ard
0. In an audit in accordance with Government Auditing Standards, the auditors are re+uired to perform additional compliance procedures eyond those re+uired y generally accepted auditing standards. FA"#E
Difficulty: ard
21-12
11. In an audit in accordance with the 2ingle Audit Act of 10/$, the auditors must test compliance with the significant re+uirements of all ma3or programs. T !E
Difficulty: Medium
Multiple Choice Questions
11. *hen auditing an entity's financial statements in accordance with 4o&ernment Auditing 2tandards 5the 67ellow 8ook69, an auditor is re+uired to report on: I. ;oteworthy accomplishments of the program. II. The scope of the auditor's testing of internal controls. A. I only. $% II only. C. 8oth I and II. <. ;either I nor II.
Difficulty: ard Source: AI!PA
12. *hen auditing an entity's financial statements in accordance with 4o&ernment Auditing 2tandards 5the 67ellow 8ook69, an auditor is re+uired to report on: I. =ecommendations for actions to impro&e operations. II. The scope of the auditor's tests of compliance with laws and regulations. A. I only. $% II only. C. 8oth I and II. <. ;either I nor II.
Difficulty: ard Source: AI!PA
21-1"
1". A comprehensi&e e,amination of an operating unit or a complete organi.ation to e&aluate its systems, controls, and performance, as measured y management's o 3ecti&es is called a5an9: A. Compilation. 8. Consultation. C% Operational Audit. <. 67ellow 8ook6 audit.
Difficulty: Medium
1$. An audit in accordance with the 2ingle Audit Act does not in&ol&e reporting upon: A. Compliance with pro&isions of laws that may ha&e a direct and material affect on each ma3or federal financial assistance program. 8. !inancial statements. C% Internal control o&er operations. <. 2chedule of e,penditures of federal awards.
Difficulty: ard
1(. >nder the 2ingle Audit Act, the auditor must apply procedures to test for compliance and test the effecti&eness of controls for:
A. Option A $% Option 8 C. Option C <. Option <
Difficulty: Medium
21-1$
1). Internal auditing is considered to e part of an organi.ation's: A. Accounting system. 8. Control acti&ities. C% ?onitoring. <. %,ternal controls.
Difficulty: Medium
1-. *hich of the following is not one of the attri ute standards of the IIA's Standards for the Professional Practice of Internal Auditing@ A. Independence and o 3ecti&ity. $% Outsourcing. C. #roficiency and professional care. <. #urpose, authority, and responsi ility.
Difficulty: Medium
1/. *hich of the following is not re+uired of an indi&idual seeking to ecome a certified internal auditor@ A. Two years work e,perience in internal auditing or its e+ui&alent. 8. 2uccessful completion of a two-day e,amination. C. A accalaureate degree from an accredited college. &% One year of super&isory e,perience.
Difficulty: Medium
10. !or the highest degree of independence the director of internal auditing should report directly to: A. The controller. $% The audit committee of the oard of directors. C. The e,ecuti&e &ice-president. <. The chief accountant.
Difficulty: Easy
21-1(
21. The operational auditors' preliminary conclusions a out potential pro lem areas are summari.ed as: A. The definition of purpose. 8. The audit program. C% The preliminary sur&ey. <. The audit report.
Difficulty: Medium
21. A legal aid society pro&ides free legal aid to low-income indi&iduals with funds passedthrough the state welfare department from the >.2. <epartment of Aealth and Auman 2er&ices. In this situation which organi.ation is the primary recipient of the funds@ A% The state welfare department. 8. The <epartment of Aealth and Auman 2er&ices. C. The legal aid society. <. The indi&idual recei&ing the aid.
Difficulty: ard
22. In an audit in accordance with Government Auditing Standards, the auditors are re+uired to pro&ide a report on: A. Compliance with general re+uirements. 8. The schedule of financial assistance recei&ed. C% The organi.ation's internal control. <. !indings and +uestioned costs.
Difficulty: Medium
2". *hich of the following types of audits is designed to determine that an organi.ation has complied with the specific re+uirements of ma3or financial assistance programs@ A. An audit in accordance with Government Auditing Standards. $% A single audit. C. An audit in accordance with generally accepted auditing standards. <. An operational audit.
Difficulty: Medium
21-1)
2$. Compliance auditing procedures are: A. Tests of controls. 8. O ser&ation procedures. C% 2u stanti&e procedures. <. Confirmation procedures.
Difficulty: Medium
2(. In an audit in accordance Government Auditing Standards, the auditors are re+uired to pro&ide a report on: A. Compliance applica le to ma3or federal programs. 8. The 2chedule of financial assistance recei&ed. C% Compliance with laws and regulations which are re+uired to e tested y generally accepted auditing standards. <. Internal control systems used in administering federal assistance programs.
Difficulty: Medium
2). In an audit in accordance with generally accepted auditing standards, the auditors must test compliance with those laws and regulations that: A% Aa&e a direct and material effect on the financial statements. 8. Aa&e a direct and material effect on ma3or federal programs. C. Aa&e a material direct or indirect effect on the financial statements. <. Aa&e a material effect on ma3or or nonma3or programs.
Difficulty: Medium
2-. =e+uirements of federal financial assistance programs that in&ol&e significant national policy are known as: A. 2pecific re+uirements. 8. ?a3or program re+uirements. C% 4eneral re+uirements. <. #rimary re+uirements.
Difficulty: Medium
21-1-
2/. Costs paid with federal assistance that appear to e in &iolation of a law or regulation are known as: A% Buestioned costs. 8. ;oncompliance costs. C. Improper costs. <. Illegal costs.
Difficulty: Medium
20. *hen performing an audit of a city in accordance with the 2ingle Audit Act, an auditor should adhere to: A. Standards for the Professional Practice of Internal Auditing. $% Government Auditing Standards. C. Operational Auditing Standards. <. Financial Accounting Standards.
Difficulty: ard
"1. A primary purpose of operational auditing standards is to pro&ide: A. A means of assurance that internal control is operating effecti&ely. 8. Aid to the independent auditor in conducting the audit of financial statements. C. The results of internal e,aminations of financial and accounting matters to the company's top-le&el management. &% A measure of management performance in meeting organi.ational goals.
Difficulty: Medium
"1. The primary purpose of the internal auditors' e&aluation of internal control is to: A% <etermine if management has planned and implemented acti&ities needed to attain goals and o 3ecti&es. 8. <etermine the e,tent of tests of controls needed during field work. C. Identify areas for fraud in&estigation. <. <etermine if employees ha&e incompati le duties that ha&e compromised the control en&ironment.
Difficulty: ard Source: IIA
21-1/
"2. According to the IIA's Standards, an internal auditor's working papers should e re&iewed y the: A. ?anagement of the department eing audited. $% ?anagement of the internal auditing department. C. Audit committee of the oard of directors. <. ?anagement of the organi.ation's security di&ision.
Difficulty: Medium Source: IIA
"". ?anagement is eginning to take correcti&e action on personnel department deficiencies reported during the last internal audit. According to the IIA's Standards, the internal auditor should: A. O&ersee the correcti&e action. 8. #ostpone the ne,t audit of the personnel department until the correcti&e action is completed. C. =efrain from 3udging whether the correcti&e action will remedy the deficiencies. &% !ollow up to see that the correcti&e action satisfies the audit recommendations.
"$. The internal auditing department pro&ides information a out control and +uality of performance to: A% ?anagement and the oard of directors. 8. A le&el in the organi.ation sufficient to ensure acceptance of all recommendations. C. Outside agencies for regulatory and financial compliance. <. Any mem er of the organi.ation upon re+uest.
Difficulty: Easy Source: IIA
21-10
"(. The 4AO standards of reporting for go&ernmental financial audits incorporate the AIC#A standards of reporting and prescri e supplemental standards to satisfy the uni+ue needs of go&ernmental audits. *hich of the following is a supplemental reporting standard for audits in accordance with Government Auditing Standards@ A% A report on the entity's internal control. 8. ?aterial indications of illegal acts should e reported in a document with distri ution restricted to senior officials of the entity audited. C. Instances of a use, fraud, mismanagement, and waste should e reported to the organi.ation with legal o&ersight authority o&er the entity audited. <. All pri&ileged and confidential information disco&ered should e reported to the senior officials of the organi.ation that arranged for the audit.
Difficulty: Medium Source: AI!PA
"). Cent is auditing an entity's compliance with re+uirements go&erning a ma3or federal financial assistance program in accordance with the 2ingle Audit Act. Cent detected noncompliance with re+uirements that ha&e a material effect on that program. Cent's report on compliance should e,press a5an9: A. >n+ualified opinion with a separate e,planatory paragraph. $% Bualified opinion or an ad&erse opinion. C. Ad&erse opinion or a disclaimer of opinion. <. Dimited assurance on the items tested.
Difficulty: Medium Source: AI!PA
"-. The scope of an internal audit is initially defined y the: A% Audit o 3ecti&es. 8. 2cheduling and time estimates. C. #reliminary sur&ey. <. Audit program.
21-21
"/. An operational audit report which deals with the scrap disposal function in a manufacturing company is most likely to address: A% The efficiency and effecti&eness of the scrap disposal function and include any findings re+uiring correcti&e action. 8. *hether the scrap material in&entory is reported as a current asset. C. *hether the physical in&entory count of the scrap material agrees with the recorded amount. <. *hether the scrap materials in&entory is &alued at the lower of cost or market.
"0. Inter&iewing operating personnel, identifying he o 3ecti&es of the auditee, identifying standards used to e&aluate performance, and assessing the risk inherent in the auditee's operations are acti&ities typically performed in which phase of an internal audit@ A. The fieldwork phase. $% The preliminary sur&ey phase. C. The audit programming phase. <. The reporting phase.
$1. In go&ernmental accounting, emphasis is placed on: A. Total assets owned y the go&ernmental entity. 8. 4enerating income form funds employed. C% %,penditures of funds. <. The flow of funds through the income statement.
21-21
$1. *hich of the following est descri es the scope of internal auditing as it has de&eloped to date@ A. Internal auditing in&ol&es appraising the economy and efficiency with which resources are employed. 8. Internal auditing in&ol&es e&aluating compliance with policies, plans, procedures, laws, and regulations. C. Internal auditing has e&ol&ed to &erifying the e,istence of assets and re&iewing the means of safeguarding assets. &% Internal auditing has e&ol&ed to more of an operational orientation from a financial orientation.
$2. In planning an operational audit, an on-site sur&ey could assist with all of the following, e,cept: A. O taining auditee comments and suggestions on control pro lems. 8. O taining preliminary information on internal control. C. Identifying areas for audit emphasis. &% %&aluating the effecti&eness of the internal control.
Essay Questions
21-22
$". Internal auditors are an important part of the internal control structures of all types of organi.ations. a. <escri e the o 3ecti&es of an internal auditing function. . %,plain two ways that internal auditors may maintain independence with respect to the acti&ities that they audit. a. Internal auditing is an independent, o 3ecti&e assurance and consulting acti&ity designed to add &alue and impro&e an organi.ation's operations. It helps an organi.ation accomplish its o 3ecti&es y ringing a systematic, disciplined approach to e&aluate and impro&e the effecti&eness of risk management, control, and go&ernance processes. . The internal auditors maintain independence y: %nsuring that the organi.ational status of the internal auditing department is sufficient to permit the accomplishment of its o 3ecti&es, and #olicies and procedures regarding the assignment of internal auditors to assignments.
Difficulty: Medium
$$. Operational auditing has grown in importance o&er the last few decades. a. <efine operational auditing. . *ho are the ma3or users of operational audit reports. c. Dist the phases of an operational audit. a. An operational audit is a comprehensi&e e,amination of an operating unit or a complete organi.ation to e&aluate its performance, as measured y management's o 3ecti&es. It focuses on effectiveness, efficiency, and economy. . The ma3or users of operational reports are top management, including the oard of directors and, especially in the case of go&ernmental organi.ations, Congress. c. The phases in an operational audit include: <efinition of purpose. !amiliari.ation. #reliminary sur&ey. #rogram de&elopment. =eporting the findings. !ollow-up.
Difficulty: ard
21-2"
$(. ?any go&ernment and nonprofit organi.ations are re+uired to ha&e an audit in accordance with 4o&ernment Auditing 2tandards. a. *ho de&elops 4o&ernment Auditing 2tandards@ . <escri e the re+uirements of an audit in accordance with 4o&ernment Auditing 2tandards. c. <escri e the auditors' responsi ilities for testing for compliance with laws and regulations in an audit in accordance with 4o&ernment Auditing 2tandards. a. The >nited 2tates 4eneral Accounting Office 54AO9 esta lishes Government Auditing Standards. . The re+uirements of an audit in accordance with Government Auditing Standards include: #erform audit procedures re+uired y generally accepted auditing standard. Increase emphasis on ethical principles related to pu lic interestE integrityE o 3ecti&ityE proper use of go&ernment information, resources, and positionE and professional eha&ior. Communicate information a out the nature of the audit and the le&el of assurance pro&ided to management, those charged with go&ernance, appropriate o&ersight odies re+uiring the audits, those responsi le for acting on audit findings, and others authori.ed to recei&e such reports. Consider the results of pre&ious audits and follow-up on significant findings and recommendations in prior-year audit reports. #ro&ide additional audit documentation. #erform audit procedures to pro&ide reasona le assurance of detecting material &iolations of pro&isions of contracts and grants. Issue written reports on compliance with laws and regulations and on internal control. In some cases, report fraudulent or illegal acts directly to a go&ernment agency or another third party. c. >nder Government Auditing Standards the auditors must perform test of compliance with laws and regulations that ha&e a direct and material effect on the financial statements--the same as under generally accepted auditing standards.
Difficulty: ard
21-2$

Chapter 21 Internal Operational and Compliance Audit

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Chapter 21 - Internal, Operational, and Compliance Auditing