Auditing and Internal Controls Flashcards

Under the Government Accountability Office (GAO) Yellow Book standards, which type of audit opinion is issued when the auditor concludes that financial statements are fairly presented in all material respects?

Answer: Unmodified (unqualified) opinion

An unmodified (unqualified) opinion indicates the financial statements are fairly presented in accordance with the applicable financial reporting framework.

The Defense Contract Audit Agency (DCAA) performs audits primarily under which authority?

Answer: Federal Acquisition Regulation (FAR) Part 42

DCAA performs contract audits for DoD and other federal agencies under FAR Part 42, which governs contract administration and audit functions.

Which internal control component of the COSO framework addresses the organization's objectives, risk tolerance, and the oversight responsibilities of the board?

Answer: Control Environment

The Control Environment sets the tone of an organization and is the foundation for all other components, encompassing governance, ethical values, and accountability.

A DoD financial manager discovers that a control deficiency exists but believes it is unlikely to result in a material misstatement. This deficiency is best classified as a:

Answer: Control deficiency

A control deficiency exists when the design or operation of a control does not allow management to prevent or detect misstatements on a timely basis, but without the severity of a significant deficiency or material weakness.

Which audit standard requires auditors of federal entities to maintain independence in both fact and appearance?

Answer: GAGAS (Generally Accepted Government Auditing Standards)

GAGAS (Yellow Book) requires auditors to be independent in fact and appearance, addressing both organizational and personal independence for government audits.

In DoD, which document serves as the primary vehicle for reporting on the effectiveness of internal controls over financial reporting to the agency head?

Answer: Statement of Assurance

The Statement of Assurance (formerly called the Federal Managers' Financial Integrity Act statement) is the annual report to the agency head on internal control effectiveness.

When an auditor uses sampling to test internal controls, an error found in the sample that would be projected to the population is called:

Answer: Deviation rate

The deviation rate is the rate at which control deviations (errors) occur in the population, estimated by projecting sample deviations to the full population.