CGAP Auditing & Corporate Governance 5 — Questions and Answers
Question 1: A government auditor's 'professional skepticism' is BEST demonstrated by:
- Assuming all management representations are false
- Critically assessing audit evidence without accepting it at face value, regardless of past experience (Correct answer)
- Conducting surprise audits without notifying the auditee
- Refusing to accept any oral evidence during fieldwork
Correct answer: Critically assessing audit evidence without accepting it at face value, regardless of past experience
Professional skepticism means maintaining a questioning mind and critically evaluating evidence, neither assuming honesty nor dishonesty by default.
Question 2: Under the Single Audit Act, a 'major program' determination is significant because:
- Major programs receive no federal funding oversight
- Major programs must be audited in detail for compliance with federal requirements (Correct answer)
- Major programs are exempt from the schedule of expenditures of federal awards
- Major programs require a separate audit firm from the financial audit
Correct answer: Major programs must be audited in detail for compliance with federal requirements
The Single Audit Act requires detailed compliance auditing of major federal programs to ensure grant funds are used in accordance with applicable requirements.
Question 3: Which governance body characteristic MOST supports audit committee effectiveness in a public sector entity?
- Majority of members are current employees of the entity
- Members have financial expertise and serve independently from management (Correct answer)
- The committee meets annually to review the audit plan
- Members are appointed by the Chief Executive Officer
Correct answer: Members have financial expertise and serve independently from management
An effective audit committee requires members with financial expertise who are independent from management to provide objective oversight.
Question 4: In government performance auditing, 'economy' is measured by examining:
- Whether program outputs achieved desired societal outcomes
- Whether inputs (resources) are acquired at the lowest reasonable cost while meeting quality standards (Correct answer)
- Whether services are delivered without waste or redundancy
- Whether the program achieved its stated performance targets
Correct answer: Whether inputs (resources) are acquired at the lowest reasonable cost while meeting quality standards
Economy focuses on input acquisition — obtaining the right quality and quantity of resources at the lowest reasonable cost.
Question 5: When a government internal auditor has a 'self-review threat' to independence, the BEST mitigation is to:
- Disclose the threat to management and proceed normally
- Assign a different auditor who had no involvement in the work being reviewed (Correct answer)
- Limit the scope of the audit to areas not previously reviewed
- Request an extended timeline to overcome the bias
Correct answer: Assign a different auditor who had no involvement in the work being reviewed
The most effective mitigation for a self-review threat is removing the auditor from reviewing their own prior work and assigning an independent auditor.
Question 6: Which condition would cause a government auditor to issue a 'disclaimer of opinion' on financial statements?
- Minor misstatements in footnote disclosures
- Pervasive scope limitations that prevent gathering sufficient appropriate evidence (Correct answer)
- Disagreement with management on a single accounting estimate
- Detection of a material but isolated misstatement
Correct answer: Pervasive scope limitations that prevent gathering sufficient appropriate evidence
A disclaimer of opinion is issued when scope limitations are so pervasive that the auditor cannot obtain sufficient evidence to form any opinion.
Question 7: A CGAP exam scenario shows that a government entity's board receives audit reports but takes no corrective action. This represents a failure in which governance function?
- Control activities
- Risk identification
- Oversight and accountability (Correct answer)
- Information technology controls
Correct answer: Oversight and accountability
Failing to act on audit findings is a breakdown in oversight and accountability — a core governance responsibility of the board.
CGAP Auditing & Corporate Governance 5
A government auditor's 'professional skepticism' is BEST demonstrated by: