CDFM Auditing and Internal Controls 2 — Questions and Answers
Question 1: 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?
- Adverse opinion
- Unmodified (unqualified) opinion (Correct answer)
- Disclaimer of opinion
- Qualified opinion
Correct answer: Unmodified (unqualified) opinion
An unmodified (unqualified) opinion indicates the financial statements are fairly presented in accordance with the applicable financial reporting framework.
Question 2: The Defense Contract Audit Agency (DCAA) performs audits primarily under which authority?
- Office of Management and Budget Circular A-123
- 10 U.S.C. § 240
- Federal Acquisition Regulation (FAR) Part 42 (Correct answer)
- OMB Circular A-11
Correct 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.
Question 3: Which internal control component of the COSO framework addresses the organization's objectives, risk tolerance, and the oversight responsibilities of the board?
- Risk Assessment
- Control Activities
- Control Environment (Correct answer)
- Information and Communication
Correct 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.
Question 4: 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:
- Material weakness
- Significant deficiency
- Control deficiency (Correct answer)
- Reportable condition
Correct 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.
Question 5: Which audit standard requires auditors of federal entities to maintain independence in both fact and appearance?
- GAAS (Generally Accepted Auditing Standards)
- GAGAS (Generally Accepted Government Auditing Standards) (Correct answer)
- IFRS Audit Framework
- PCAOB AS 1000
Correct 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.
Question 6: In DoD, which document serves as the primary vehicle for reporting on the effectiveness of internal controls over financial reporting to the agency head?
- Statement of Assurance (Correct answer)
- Inspector General Report
- Management Decision Letter
- Corrective Action Plan
Correct 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.
Question 7: When an auditor uses sampling to test internal controls, an error found in the sample that would be projected to the population is called:
- Sampling risk
- Non-sampling risk
- Deviation rate (Correct answer)
- Expected population error
Correct 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.
CDFM Auditing and Internal Controls 2
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?