CGAP Audit Planning and Methodology 2 — Questions and Answers
Question 1: What does 'audit scope' define in a government engagement?
- The budget allocated for the audit engagement
- The boundaries of what the audit will cover, including subject matter, time period, and organizational units (Correct answer)
- The qualifications required of audit staff
- The frequency of progress meetings with management
Correct answer: The boundaries of what the audit will cover, including subject matter, time period, and organizational units
Audit scope establishes the boundaries — what will and will not be examined — including the period, programs, locations, and criteria to be applied.
Question 2: In a performance audit, what are 'criteria' used for?
- The metrics used to evaluate auditor performance
- The standards, benchmarks, or requirements against which the auditor evaluates the subject matter (Correct answer)
- The financial thresholds for determining materiality
- The qualifications for selecting audit staff
Correct answer: The standards, benchmarks, or requirements against which the auditor evaluates the subject matter
Criteria provide the basis for evaluating whether conditions meet expectations; they may come from laws, regulations, best practices, or management's own standards.
Question 3: Which type of audit procedure involves examining original source documents, records, and assets?
- Observation
- Inquiry
- Inspection (Correct answer)
- Analytical procedures
Correct answer: Inspection
Inspection involves examining documents, records, or tangible assets and provides direct physical evidence about their existence or content.
Question 4: What is 'control testing' in a financial statement audit?
- Verifying that controls exist by reading policy manuals
- Testing the operating effectiveness of internal controls to support a reduced level of substantive testing (Correct answer)
- Evaluating whether management's control self-assessments are accurate
- Reviewing the IT system's technical configuration
Correct answer: Testing the operating effectiveness of internal controls to support a reduced level of substantive testing
Control testing (tests of controls) assesses whether internal controls operated effectively during the period, allowing auditors to reduce the extent of substantive testing if controls are effective.
Question 5: In government auditing, what is 'due professional care'?
- Using the most expensive audit tools available
- Applying the diligence, knowledge, and judgment expected of a reasonably prudent auditor in similar circumstances (Correct answer)
- Completing all audit procedures within the budgeted hours
- Reporting all findings regardless of significance
Correct answer: Applying the diligence, knowledge, and judgment expected of a reasonably prudent auditor in similar circumstances
Due professional care requires auditors to exercise the care and skill of a reasonably prudent professional, including appropriate planning, supervision, and documentation.
Question 6: What is the purpose of working papers (audit documentation) in a government audit?
- To satisfy training requirements for new staff auditors
- To support the auditor's conclusions, facilitate supervisory review, and provide evidence if the audit is later questioned (Correct answer)
- To create a permanent record for public disclosure
- To replace the need for a formal audit report
Correct answer: To support the auditor's conclusions, facilitate supervisory review, and provide evidence if the audit is later questioned
Audit documentation supports conclusions, enables supervisory review, and provides a record that demonstrates the audit was conducted in accordance with applicable standards.
CGAP Audit Planning and Methodology 2
What does 'audit scope' define in a government engagement?