CGAP Auditing & Corporate Governance 3 — Questions and Answers
Question 1: Which of the following BEST describes 'performance auditing' in the public sector?
- Examining only financial transactions for accuracy
- Evaluating economy, efficiency, and effectiveness of government programs (Correct answer)
- Verifying compliance with procurement regulations exclusively
- Reviewing payroll records for mathematical accuracy
Correct answer: Evaluating economy, efficiency, and effectiveness of government programs
Performance auditing (value-for-money auditing) examines whether government programs achieve their intended outcomes economically, efficiently, and effectively.
Question 2: Under GAGAS, independence is required for which types of engagements?
- Only financial audits
- Only performance audits and attestation engagements
- All GAGAS audit and attestation engagements (Correct answer)
- Only fraud investigations
Correct answer: All GAGAS audit and attestation engagements
GAGAS requires auditors to be independent for all audit and attestation engagements, covering financial, performance, and attestation work.
Question 3: A government auditor discovers that a program manager has not complied with a federal grant requirement. This finding should be reported as a:
- Significant deficiency in internal control
- Instance of noncompliance (Correct answer)
- Material weakness
- Control environment deficiency
Correct answer: Instance of noncompliance
Failure to comply with laws, regulations, or grant requirements is classified and reported as noncompliance in government audit reports.
Question 4: The Sarbanes-Oxley Act (SOX) Section 404 requirement for management to assess internal controls over financial reporting most directly influenced public sector auditing by:
- Eliminating the need for government audit committees
- Raising expectations for internal control documentation and testing in government entities (Correct answer)
- Requiring government entities to register with the SEC
- Mandating rotation of all government auditors every five years
Correct answer: Raising expectations for internal control documentation and testing in government entities
SOX's rigorous internal control assessment standards raised the bar for documentation and testing expectations in both private and public sector contexts.
Question 5: Which reporting element is unique to government audit reports under GAGAS compared to private sector audit reports?
- Auditor's signature
- Management's response to findings
- Statement on compliance with laws and regulations (Correct answer)
- Description of audit scope
Correct answer: Statement on compliance with laws and regulations
GAGAS requires auditors to report on compliance with laws, regulations, and provisions of contracts or grant agreements, which is not standard in private sector audits.
Question 6: In a government entity, 'segregation of duties' is primarily designed to:
- Reduce the number of employees needed to process transactions
- Prevent or detect errors and fraud by dividing key tasks among different individuals (Correct answer)
- Speed up transaction processing by specializing roles
- Satisfy external auditor requests for efficiency
Correct answer: Prevent or detect errors and fraud by dividing key tasks among different individuals
Segregation of duties divides authorization, custody, and recordkeeping among different individuals so no single person can commit and conceal errors or fraud.
Question 7: Which international framework specifically guides public sector governance and was developed by the International Organisation of Supreme Audit Institutions (INTOSAI)?
- COSO ERM Framework
- ISSAI (International Standards of Supreme Audit Institutions) (Correct answer)
- ISO 31000 Risk Management
- PCAOB Auditing Standards
Correct answer: ISSAI (International Standards of Supreme Audit Institutions)
INTOSAI developed the ISSAIs, which provide the international standards framework for supreme audit institutions and public sector auditing worldwide.
CGAP Auditing & Corporate Governance 3
Which of the following BEST describes 'performance auditing' in the public sector?