Auditing and Attestation Paper 25

(b) The requirement is to identify whether an auditor performing an audit in accordance with Government Auditing Standards (the “Yellow Book”) is required to report on noteworthy accomplishments of the program, the scope of the auditor’s testing of internal controls, or both. Answer (b) is correct because the “Yellow Book” requires reporting only upon the scope of the auditor’s testing of internal controls. Answers (a), (c), and (d) all include an incorrect combination of reporting replies.

(b) The requirement is to identify whether an auditor performing an audit in accordance with Government Auditing Standards (the “Yellow Book”) is required to report on recommendations for actions to improve operations, the scope of tests of compliance with laws and regulations, or both. Answer (b) is correct because the “Yellow Book” requires reporting upon the scope of the auditor’s tests of compliance with laws and regulations. Answers (a), (c), and (d) all include an incorrect combination of reporting replies.

(a) The requirement is to identify the correct statement with respect to a financial statement audit conducted in accordance with Government Auditing Standards (the “Yellow Book”). Answer (a) is correct because the auditor issues a report on compliance with laws and internal control, and a report on the financial information. Answer (b) is incorrect because a financial statement audit does not address economy and efficiency in the manner suggested. Answer (c) is incorrect because recommendations for actions to correct problems and improve operations are not ordinarily included. Answer (d) is incorrect because a financial statement audit does not address whether programs are achieving the desired results.

(a) The requirement is to identify the correct statement with respect to a financial statement audit conducted in accordance with Government Auditing Standards (the “Yellow Book”). Answer (a) is correct because the auditor issues a report on compliance with laws and internal control, and a report on the financial information. Answer (b) is incorrect because not all instances of abuse, waste and mismanagement are so reported. Answer (c) is incorrect because the views of officials are not reported. Answer (d) is incorrect because internal control activities designed to detect or prevent fraud are not reported to the inspector general.

(d) The requirement is to identify the circumstance in which an auditor is required to report a falsification of accounting records directly to a federal inspector general. Answer (d) is correct because under Government Auditing Standards a falsification of accounting records must ordinarily be communicated by the auditor to the auditee and, if the auditee fails to make appropriate disclosure, by the auditor to a federal inspector general. Answers (a), (b), and (c) all provide inaccurate descriptions of auditor reporting responsibility. See Government Auditing Standards (the “Yellow Book”) for information on reporting under Government Auditing Standards.

(a) The requirement is to identify a common aspect of various types of audits of recipients of federal financial assistance in accordance with federal audit regulations. Answer (a) is correct because audits of recipients of federal financial assistance include reports on (1) the financial statements, and (2) a separate or combined report on internal control and on compliance with laws and regulations. Answer (b) is incorrect because materiality levels are not ordinarily lower or always determined by the governmental entity. Answer (c) is incorrect because the auditor need not obtain such written management representations. Answer (d) is incorrect because requirements for reporting illegal acts may vary depending upon the type of audit being performed. AU-C 806 provides requirements related to auditing entities that have received governmental financial assistance. In addition, guidance is provided by Government Auditing Standards (GAS), also referred to as the “Yellow Book,” published by the Comptroller General of the United States.

(b) The requirement is to identify to whom an auditor most likely would be responsible for communicating significant deficiencies in the design of internal control. Answer (b) is correct because in audits under Government Auditing Standards, significant deficiencies in the design of internal control are communicated to legislative and regulatory bodies (AU-C 806). Answer (a) is incorrect because the Securities and Exchange Commission does not ordinarily receive information on such deficiencies. Answer (c) is incorrect because while a court-appointed creditors’ committee might in some circumstances receive information on such deficiencies, this practice is not as frequent as is done under Government Auditing Standards. Answer (d) is incorrect because shareholders do not normally receive reports on significant deficiencies or material weaknesses (see AU-C 265).

(c) The requirement is to determine the opinion which an auditor should express in a report on compliance when s/he has detected material instances of noncompliance within the program. AU-C 806 defines these instances of material noncompliance as failures to follow requirements, or violations of regulations or grants which cause the auditor to conclude that the total of the misstatements resulting from these failures or violations is material to the financial statements. Therefore, answer (c) is correct because the auditor should issue a qualified or an adverse opinion. Answer (a) is incorrect because the auditor is required under Governmental Auditing Standards to provide reasonable assurance on the entity’s compliance with the applicable laws and regulations. Answer (b) is incorrect because the auditor must disclose the instances of noncompliance. Answer (d) is incorrect because the auditor should not disclaim an opinion as a result of noncompliance.

(b) The requirement is to determine a documentation requirement that an auditor should follow when auditing in accordance with (also referred to as the “Yellow Book”). Answer (b) is correct because Government Auditing Standards require documentation of supervisory review before the report is issued.

(a) The requirement is to identify the statement that should be included in an auditor’s report on an entity’s compliance with laws and regulations when performing an audit in accordance with Government Auditing Standards. Answer (a) is correct because such compliance reports require a statement that management is responsible for compliance with laws, regulations, contracts, and grants. See AU-C 806 for this requirement and others.