Modern Auditing:

Assurance Services and the Integrity

of Financial Reporting, 8th Edition

William C. Boynton
California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson
Portland State University

Chapter 21 – Internal, Operational, and Governmental

Auditing
Chapter Overview
 Internal Auditing Defined
• Internal

• Independent and objective

• Systematic, disciplined approach

• Helps and organization accomplish

its objectives
 Internal Auditing
• Evolution of Internal Auditing

• IIA Code of Ethics

• IIA Attribute and Performance

Standards
– Attribute Standards
– Performance Standards
– Implementation Standards
Relationship with External
Auditors
Operational Auditing Defined
• Systematic process

• Evaluating an organization’s operations

• Effectiveness, efficiency, and economy

of operations

• Reporting to appropriate persons

• Recommendations for improvement

 Phases of an Operational Audit

• Select Auditee

• Plan Audit

• Perform Audit

• Report Findings

• Perform Followup
Financial Statements v.
Operational Audits
 Study Break
1. This part of the internal auditing
definition states the auditor’s judgment
has value when it is free of bias.
A. Internal
B. Independent and objective
C. Systematic, disciplined approach
D. Helps an organization accomplish its
objectives

B. Independent and objective

 Study Break
2. These IIA Attribute and Performance
standards describe the nature of
internal audit services and provide
quality criteria against which the
performance of these services can be
measured.
A. Attribute Standards
B. Performance Standards
C. Implementation Standards
D. None of the above

B. Performance Standards
 Study Break
3. Which of the following is not a
phase of the operational audit?
A. Select auditee
B. Perform audit
C. Report findings to stockholders
D. Perform followup

C. Report findings to stockholders

 Types of Government Audits
• Financial Audits

• Attestation Engagements

• Performance Audits
Generally Accepted Government
Auditing Standards (GAGAS)
• General Standards
– Independence

– Professional judgment

– Competence

– Quality Control and Assurance

Generally Accepted Government
Auditing Standards (GAGAS)
• Fieldwork Standards for Financial Audits
– Auditor communication

– Considering the results of previous audit and

attestation engagements

– Detecting material misstatements resulting

from violations of contract provisions or
grant agreements, or from abuse

– Developing elements of a finding

– Audit documentation
Generally Accepted Government
Auditing Standards (GAGAS)
• Reporting Standards for Financial Audits
– Reporting auditors’ compliance with GAGAS

– Reporting on internal control and on

compliance with laws, regulations, and
provisions of contracts or grant agreements

– Reporting deficiencies in internal control,

fraud, illegal acts, violations of provisions of
contracts or grand agreements, and abuse
Generally Accepted Government
Auditing Standards (GAGAS)
• Reporting Standards for Financial
Audits
– Reporting views of responsible officials

– Reporting privileged and confidential

information

– Report issuance and distribution

Generally Accepted Government
Auditing Standards (GAGAS)
• Reporting on Compliance with Laws
and Regulations

• Reporting on Internal Control

 The Single Audit Act
• Objectives of the Act
– Improve financial management

– Establish uniform requirements for audits

– Promote efficient and effective use of audit

resources

– Ensure reliance and usage of audit work

completed
 The Single Audit Act
• Applicability and Administration
– Federal Financial Assistance

– Major Programs

– Nonmajor Programs

– Cognizant Agency
 Scope of an Audit Under the
Single Audit Act
• General
– Financial Statements
– Internal Controls
– Compliance
– Audit Followup

• Reporting Requirements
– Opinion on Financial Statements
– Report on Internal Control
– Report on Compliance
– Schedule of Findings and Questioned Costs
 Study Break
4. This type of government audit concern
examining, reviewing, or performing
agreed-upon procedures on a subject
matter or an assertion about a subject
matter and reporting on the results.
A. Financial audits
B. Attestation engagements
C. Performance audits
D. Compliance audits

B. Attestation engagements
 Study Break
5. Within the General Standards of
GAGAS, this standard states that staff
assigned to perform the audit or
attestation should collectively possess
adequate professional competence for
the tasks required.
A. Independence
B. Professional judgment
C. Competence
D. Quality Control and Assurance

C. Competence
 Study Break
6. This act established the concept of a
single organizationwide government
audit encompassing both financial and
compliance audits.
A. Securities Act of 1933
B. Securities Act of 1934
C. Single Audit Act
D. None of the above

C. Single Audit Act