CGFM Internal Controls and Government Auditing 1 — Questions and Answers
Question 1: Which publication defines the standards for internal control in the federal government, commonly known as the 'Green Book'?
- OMB Circular A-123
- GAO's Standards for Internal Control in the Federal Government (Correct answer)
- FASAB SFFAS No. 7
- FFMIA of 1996
Correct answer: GAO's Standards for Internal Control in the Federal Government
GAO's Standards for Internal Control in the Federal Government, known as the 'Green Book,' provides the framework for federal agencies to establish and evaluate internal controls.
Question 2: What are the five components of internal control identified in the Green Book?
- Planning, Budgeting, Reporting, Auditing, Compliance
- Control Environment, Risk Assessment, Control Activities, Information and Communication, Monitoring (Correct answer)
- Authorization, Recording, Reporting, Reviewing, Correcting
- Leadership, Operations, Finance, Compliance, Ethics
Correct answer: Control Environment, Risk Assessment, Control Activities, Information and Communication, Monitoring
The five components are Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring, aligned with the COSO framework.
Question 3: Which law requires federal agencies to annually assess and report on the effectiveness of their internal controls over financial reporting?
- Chief Financial Officers Act of 1990
- Federal Managers' Financial Integrity Act of 1982 (Correct answer)
- Inspector General Act of 1978
- Government Performance and Results Act of 1993
Correct answer: Federal Managers' Financial Integrity Act of 1982
The Federal Managers' Financial Integrity Act (FMFIA) of 1982 requires agency heads to annually evaluate and report on the adequacy of their internal control and financial systems.
Question 4: What is the purpose of the Single Audit Act?
- To consolidate all federal audits into one annual audit by GAO
- To require non-federal entities that expend significant federal awards to undergo a comprehensive audit (Correct answer)
- To eliminate duplicate audits of federal agencies
- To standardize financial statements for all government entities
Correct answer: To require non-federal entities that expend significant federal awards to undergo a comprehensive audit
The Single Audit Act requires states, local governments, and non-profit organizations that expend $750,000 or more in federal awards annually to have a single, organization-wide audit.
Question 5: In government auditing, what does 'GAGAS' stand for?
- Generally Accepted Government Auditing Standards (Correct answer)
- Government Agency and Grant Auditing Standards
- General Accountability and Government Audit Standards
- Government Approved GAAP Auditing Standards
Correct answer: Generally Accepted Government Auditing Standards
GAGAS stands for Generally Accepted Government Auditing Standards, also known as the 'Yellow Book,' issued by GAO for audits of government entities and federally funded programs.
Question 6: What is a 'material weakness' in the context of internal controls?
- A minor error in financial reporting
- A deficiency or combination of deficiencies that creates a reasonable possibility of a material misstatement not being prevented or detected (Correct answer)
- A budget variance exceeding 5%
- An unauthorized transaction under $10,000
Correct answer: A deficiency or combination of deficiencies that creates a reasonable possibility of a material misstatement not being prevented or detected
A material weakness is a significant deficiency in internal controls such that there is a reasonable possibility of a material misstatement in financial statements going undetected.
CGFM Internal Controls and Government Auditing 1
Which publication defines the standards for internal control in the federal government, commonly known as the 'Green Book'?