CGAP Performance Auditing in Government 2 — Questions and Answers
Question 1: In a performance audit, the 'condition' element of a finding refers to:
- The root cause of an identified problem
- The applicable law or regulation governing the program
- The situation as it actually exists based on audit evidence (Correct answer)
- The auditor's recommendation for corrective action
Correct answer: The situation as it actually exists based on audit evidence
The condition is what the auditor found — the actual state of the program or activity as supported by evidence collected during the audit.
Question 2: Which statement best describes the role of 'materiality' in a government performance audit?
- Materiality applies only to dollar thresholds and is irrelevant in performance audits
- Auditors must consider whether findings are significant enough to affect the user's decision-making or understanding of the program (Correct answer)
- Materiality is determined solely by agency management
- All findings must be reported regardless of their significance
Correct answer: Auditors must consider whether findings are significant enough to affect the user's decision-making or understanding of the program
In performance audits, materiality is a judgment about whether a finding is significant enough to be reported; it encompasses both quantitative and qualitative significance relative to program objectives.
Question 3: An auditor conducting a performance audit selects a program to benchmark against similar programs in other states. This technique is called:
- Regression analysis
- Benchmarking (Correct answer)
- Stratified sampling
- Root cause analysis
Correct answer: Benchmarking
Benchmarking compares a program's performance against similar programs, best practices, or industry standards to identify performance gaps and areas for improvement.
Question 4: Under GAGAS, which of the following represents a threat to an auditor's independence in a performance audit?
- Reviewing prior audit reports on the same program
- Having previously designed the internal controls being audited (Correct answer)
- Interviewing program beneficiaries for qualitative data
- Using a multi-disciplinary team that includes non-accountants
Correct answer: Having previously designed the internal controls being audited
Designing internal controls for an entity and then auditing those same controls creates a self-review threat to independence, which is prohibited under GAGAS unless safeguards eliminate or reduce the threat to an acceptable level.
Question 5: What is the primary purpose of an 'audit objective' in a performance audit?
- To define the scope of financial transactions to be tested
- To clearly state what the audit is intended to answer or accomplish (Correct answer)
- To list the auditing standards that will be applied
- To specify the dollar threshold for materiality
Correct answer: To clearly state what the audit is intended to answer or accomplish
The audit objective defines the specific questions the audit is designed to answer and guides the entire audit process, including evidence collection and reporting.
Question 6: When assessing program efficiency in a performance audit, an auditor would most likely examine:
- Whether the program's financial statements are free from material misstatement
- The ratio of program outputs produced per unit of resource consumed (Correct answer)
- Whether program funds were spent in compliance with appropriations laws
- The qualifications and independence of program management
Correct answer: The ratio of program outputs produced per unit of resource consumed
Efficiency measures how well a program converts inputs (resources) into outputs, so auditors examine the cost per unit of service delivered or the volume of services provided relative to resources used.
Question 7: Which of the following is the most appropriate method for establishing cause in a performance audit finding?
- Accepting management's explanation without corroboration
- Using audit evidence to identify the systemic factors or decisions that led to the condition (Correct answer)
- Referring the matter to a law enforcement agency
- Calculating the statistical significance of the variance
Correct answer: Using audit evidence to identify the systemic factors or decisions that led to the condition
Identifying cause requires auditors to use evidence to determine why the condition exists, such as poor management practices, inadequate resources, or unclear policies — this is essential for crafting actionable recommendations.
CGAP Performance Auditing in Government 2
In a performance audit, the 'condition' element of a finding refers to: