CGAP Types of Auditing 5 — Questions and Answers
Question 1: Which of the following statements correctly distinguishes internal from external auditing in a government context?
- Internal auditors report exclusively to the legislature, while external auditors report to management
- External auditors are independent of the audited entity, while internal auditors are part of the organization they audit (Correct answer)
- Internal auditors cannot perform compliance audits, only financial audits
- External auditors are prohibited from conducting performance audits under government standards
Correct answer: External auditors are independent of the audited entity, while internal auditors are part of the organization they audit
External auditors maintain independence from the audited entity, while internal auditors operate within the organization and report to management or an audit committee.
Question 2: A legislative auditor examines whether a corrections department's recidivism reduction program is cost-effective compared to similar programs in other states. This audit addresses which objective?
- Compliance with federal sentencing guidelines
- Economy of resource acquisition
- Efficiency of program delivery
- Effectiveness of program outcomes relative to costs (Correct answer)
Correct answer: Effectiveness of program outcomes relative to costs
Benchmarking outcomes relative to costs across programs is an effectiveness evaluation, assessing whether the program achieves results worth the investment.
Question 3: Under the Yellow Book framework, which of the following is considered an element common to both financial audits and performance audits?
- Both require an opinion on fair presentation of financial statements
- Both require auditors to maintain independence and follow ethical standards (Correct answer)
- Both must be conducted by external audit organizations
- Both require examination of internal controls over financial reporting
Correct answer: Both require auditors to maintain independence and follow ethical standards
Independence and ethical standards are fundamental requirements that apply to all types of engagements under Government Auditing Standards.
Question 4: A municipal auditor reviews a park department's maintenance contracts to determine whether the department obtained competitive bids and awarded contracts to the lowest qualified bidder. This is BEST classified as a:
- Financial audit
- Compliance audit (Correct answer)
- Operational efficiency audit
- Program results audit
Correct answer: Compliance audit
Verifying that procurement procedures such as competitive bidding rules were followed is a compliance audit.
Question 5: A government audit report concludes that a social services agency's case management system processes 30% fewer cases per staff member than comparable agencies. This finding relates to which performance dimension?
- Economy
- Efficiency (Correct answer)
- Effectiveness
- Equity
Correct answer: Efficiency
Efficiency measures the relationship between inputs (staff) and outputs (cases processed); a lower ratio indicates inefficiency.
Question 6: Which of the following engagement types provides the LOWEST level of assurance under Government Auditing Standards?
- Financial statement audit
- Performance audit
- Agreed-upon procedures engagement (Correct answer)
- Attestation examination
Correct answer: Agreed-upon procedures engagement
Agreed-upon procedures engagements provide no assurance level expressed by the auditor; the auditor only reports findings based on procedures agreed to by specified parties.
Question 7: When a performance audit reveals that a government agency's program is achieving its goals but at excessive cost, the auditor's primary finding is a deficiency in:
- Effectiveness
- Economy (Correct answer)
- Compliance
- Equity
Correct answer: Economy
Achieving goals at excessive cost indicates the program is effective but not economical, pointing to an economy deficiency.
CGAP Types of Auditing 5
Which of the following statements correctly distinguishes internal from external auditing in a government context?