GAS, often referred to as theYellow Book, outlines the responsibilities of auditors conducting financial statement audits for government entities.
One core requirement is that auditors must consider compliance with applicable laws, regulations, contracts, and grant agreements that could materially affect financial statements.
Explanation of Answer Choices:
A. Design tests to assess compliance with laws, regulations, contracts, and grant agreements: Correct. This is a required component under GAS to ensure financial statements are materially accurate and comply with legal and regulatory frameworks.
B. Identify violations of laws which could be punishable by monetary penalties: Incorrect. Auditors are not required to investigate or pursue penalties but to focus on material misstatements or risks.
C. Identify expenditures that exceed the related obligations: Incorrect. While this could indicate an issue, auditors are not required to specifically test for this unless it relates to material misstatements or compliance issues.
D. Design tests to detect fraud, waste, and abuse: Incorrect. Auditors are not specifically required to detect fraud, waste, and abuse, though they should be alert to indicators.
References:
Government Accountability Office (GAO),Government Auditing Standards (Yellow Book).
Uniform Guidance (2 CFR Part 200),Audit Requirements for Federal Programs.
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