CGAP MCQ 4 — Questions and Answers
Question 1: Which of the following situations would most likely impair an auditor's independence under GAGAS?
- The auditor previously audited the same entity two years ago
- The auditor's spouse is a senior manager at the audited entity (Correct answer)
- The auditor used the entity's office space for one day during fieldwork
- The auditor attended a government-sponsored training event
Correct answer: The auditor's spouse is a senior manager at the audited entity
A close family member in a key management position at the audited entity creates a personal impairment to independence under GAGAS.
Question 2: The 'efficiency' component of a government performance audit measures:
- Whether program goals have been achieved
- The cost per unit of output produced (Correct answer)
- Whether the entity complied with applicable laws
- The accuracy of financial records
Correct answer: The cost per unit of output produced
Efficiency measures the relationship between outputs produced and resources consumed, often expressed as cost per unit of output.
Question 3: An auditee disagrees with the auditor's finding in a draft report. The appropriate GAGAS procedure is to:
- Remove the finding from the final report
- Include the auditee's response and the auditor's evaluation of it in the final report (Correct answer)
- Escalate the disagreement to the legislature immediately
- Delay issuing the report until agreement is reached
Correct answer: Include the auditee's response and the auditor's evaluation of it in the final report
GAGAS requires that auditee responses to findings be included in the report along with the auditor's assessment of those responses.
Question 4: Which document establishes the scope, objectives, and methodology for a specific government audit engagement?
- Audit charter
- Audit program (Correct answer)
- Engagement letter
- Management representation letter
Correct answer: Audit program
The audit program documents the specific procedures, scope, and objectives for the current engagement and guides fieldwork.
Question 5: Under GASB standards, which basis of accounting is used for governmental funds?
- Full accrual basis
- Cash basis
- Modified accrual basis (Correct answer)
- Budgetary basis
Correct answer: Modified accrual basis
Governmental funds use the modified accrual basis, recognizing revenues when measurable and available, and expenditures when a fund liability is incurred.
Question 6: A CGAP auditor finds that a city consistently awards no-bid contracts to a vendor owned by a council member's relative. This situation most directly raises concerns about:
- Budget appropriation accuracy
- Procurement compliance and conflicts of interest (Correct answer)
- Revenue recognition timing
- Depreciation methodology
Correct answer: Procurement compliance and conflicts of interest
No-bid contracts awarded to related parties raise significant procurement compliance and conflict-of-interest concerns requiring audit attention.
Question 7: Which of the following is a key responsibility of those charged with governance in a government entity?
- Performing daily transaction processing
- Overseeing the financial reporting process and internal controls (Correct answer)
- Conducting the external audit
- Approving individual employee expense reports
Correct answer: Overseeing the financial reporting process and internal controls
Those charged with governance are responsible for oversight of the financial reporting process, internal controls, and the audit function.
CGAP MCQ 4
Which of the following situations would most likely impair an auditor's independence under GAGAS?