AUD CPA Practice Questions: Nature, Scope, and Objectives of Audits Under the GAO

Audits Under the GAO

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In these videos, we walk through 5 AUD practice questions in each to teach about nature, scope, and objectives of audits under the GAO. These questions are from AUD content area 1 on the AICPA CPA exam blueprints: Ethics, Professional Responsibilities, and General Principles.

The best way to use each video is to pause each time we get to a new question in the video, and then make your own attempt at the question before watching us go through it.

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Nature, Scope, and Objectives of Audits Under the GAO

This overview consolidates the nature, scope, and objectives of the different audit types and engagements discussed, emphasizing their unique characteristics under Government Auditing Standards (Yellow Book) and related frameworks.


1. Financial Audit

Nature:

  • Focuses on providing reasonable assurance that the financial statements are fairly presented, free of material misstatement, whether due to fraud or error.
  • Includes limited compliance testing to evaluate whether laws, regulations, and agreements that could materially affect the financial statements are followed.

Scope:

  • Involves planning, risk assessment, testing of financial statement amounts and disclosures, and evaluating internal controls over financial reporting.
  • May include compliance testing, but only where noncompliance could materially impact the financial statements.

Objectives:

  • Express an opinion on whether the financial statements are presented fairly in accordance with the applicable framework (e.g., GAAP, GASB).
  • Identify and report on material weaknesses or significant deficiencies in internal controls.
  • Report material noncompliance with laws or regulations that could impact financial reporting.

2. Performance Audit

Nature:

  • Focuses on evaluating the efficiency, effectiveness, and economy of operations, programs, or activities.
  • Includes assessing whether resources are being used appropriately to achieve program objectives.

Scope:

  • Broader than financial audits, covering program outcomes, operational processes, compliance with applicable laws and regulations, and use of public funds.
  • May include qualitative and quantitative analysis, benchmarking, and recommendations for improvement.

Objectives:

  • Assess whether goals and objectives are being met effectively and efficiently.
  • Provide recommendations to improve governance, accountability, and program outcomes.
  • Evaluate compliance with laws or regulations as they relate to operational performance.

3. Attestation Engagement

Nature:

  • Involves providing an independent evaluation of a specific subject matter or an assertion made by management, often based on agreed-upon criteria.
  • Can focus on compliance, internal controls, or financial and nonfinancial data.

Scope:

  • Defined by the type of engagement:
    • Examinations: Provide reasonable assurance about the subject matter.
    • Reviews: Provide limited assurance based on less extensive procedures.
    • Agreed-Upon Procedures: Focus on specific procedures requested, with no assurance provided.

Objectives:

  • To provide findings, conclusions, or assurance about the subject matter evaluated.
  • Enhance decision-making and accountability by addressing specific stakeholder concerns.

4. Single Audit

Nature:

  • Combines a financial audit with a compliance audit for entities that expend $750,000 or more in federal funds in a fiscal year.
  • Designed to ensure accountability in the use of federal funds, focusing on compliance with federal program requirements.

Scope:

  • Includes:
    • A financial audit of the entity’s financial statements.
    • A compliance audit to evaluate adherence to federal program requirements (e.g., allowable costs, eligibility, reporting).
    • Assessment of internal controls over compliance for major federal programs.

Objectives:

  • Express an opinion on whether the financial statements are fairly presented.
  • Report on compliance with federal program requirements for major programs.
  • Identify and report on significant deficiencies or material weaknesses in internal controls over compliance.

Key Distinctions Between Engagements

  • Financial Audits vs. Single Audits:
    Financial audits focus primarily on financial reporting, while single audits combine financial and full compliance audits for federal programs.
  • Performance Audits vs. Financial Audits:
    Performance audits focus on operational efficiency and effectiveness, not financial statement accuracy.
  • Attestation Engagements vs. Audits:
    Attestation engagements are narrower in focus, addressing specific subject matters or assertions, unlike audits, which assess broader financial or operational areas.

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