GFMC Examination 3: Governmental Financial Management and Control (GFMC) Questions and Answers

Importance of Prior Audit Findings:

When planning a local government financial statement audit, auditors should first reviewprevious audit findingsto identify recurring issues, control weaknesses, or non-compliance areas. This helps auditors focus on areas of higher risk and guides the development of an effective audit strategy.

Explanation of Answer Choices:

A. Government-wide financial statements: Important, but these are reviewed after identifying risk areas from prior findings.

B. Fund financial statements: These are part of the audit process but not the starting point for planning.

C. Reconciliations between fund financial statements: These are analyzed during the audit but come later in the process.

D. Previous audit findings: Correct. Reviewing past findings ensures the auditor addresses previously identified risks and compliance issues.

 What Is GPRA?

TheGovernment Performance and Results Act (GPRA)of 1993 was designed to improve the performance of federal programs by requiring federal agencies to establish goals, measure performance, and report on their progress.

 Stated Purposes of GPRA:

Improve Service Delivery (Option A):GPRA helps agencies align performance goals with customer needs, improving service delivery.

Improve Internal Management Practices (Option B):By requiring performance metrics and evaluations, GPRA enhances internal management and decision-making processes.

Improve Program Effectiveness (Option D):GPRA aims to make federal programs more effective by fostering accountability and linking resources to results.

 Why Option C Is Incorrect:

GPRA does not provide detailedinstructions on program reporting.While it requires agencies to report on their performance, it does not dictate the specific steps or instructions for reporting. Instead, agencies design their own reporting processes within the GPRA framework.

 References and Documents:

Government Performance and Results Act of 1993:Stipulates the law’s objectives but does not mention program reporting instructions.

GAO Report on GPRA Implementation:Highlights GPRA’s purpose to improve performance management and accountability without prescribing reporting instructions.

 What Is Pay.gov?

Pay.govis anelectronic lockbox systemmanaged by the U.S. Department of the Treasury. It allows federal agencies to collect payments electronically, improving efficiency and reducing the time and cost associated with manual payment processing.

It supports online payments for taxes, fees, and other government-related obligations.

 Why Is It an Electronic Lockbox?

Pay.gov consolidates and processes payments on behalf of federal agencies, similar to how a lockbox service processes payments for private businesses.

 Why Other Options Are Incorrect:

A. Zero-balance account:This refers to a type of bank account that maintains a balance of zero by automatically transferring funds as needed, unrelated to Pay.gov’s purpose.

B. Concentration system:Refers to pooling funds from multiple accounts into one central account, not payment processing.

D. Data warehouse system:A data warehouse stores and organizes large amounts of data for analysis, unrelated to payment collection.

 References and Documents:

U.S. Treasury Pay.gov Website:Describes Pay.gov as an electronic lockbox for federal payment processing.

GAO Financial Management Systems Guide:Highlights the role of electronic lockboxes like Pay.gov in improving efficiency.

Fraud Audit Objective:Fraud audits aim to detect and investigate fraudulent activities, strengthen internal controls, and report findings to stakeholders.

Basic Steps in Fraud Audits:

Consulting Legal Counsel: Ensures compliance with legal requirements and protects the organization.

Reporting the Results: Essential to inform stakeholders of findings and corrective actions.

Follow-up on Control Weaknesses: Addresses identified vulnerabilities to prevent future fraud.

Explanation of Incorrect Answer:

D. Considering political ramifications: Irrelevant to fraud audits, as these audits focus on financial and legal matters rather than political considerations.

Compliance Reporting Under Government Auditing Standards (GAS):

GAS requires auditors to assess compliance with applicable laws, regulations, contracts, and grant agreements during audits.

Compliance reporting typically includes:

Identifying areas of noncompliance.

Describing the auditor's responsibility for compliance testing.

Outlining the scope of compliance testing.

Explanation of Answer Choices:

A. Areas of noncompliance: Included in compliance reporting to highlight where the entity failed to meet requirements.

B. The auditor's responsibility for tests of compliance: GAS requires auditors to clarify their role in compliance testing.

C. Review of major internal control cycles: Correct. While internal controls may be assessed, reviewing "major internal control cycles" is not a direct component of compliance reporting.

D. The scope of the compliance testing: GAS mandates that the scope of testing be disclosed in the compliance report.

Control Environment Component:

The control environment is the foundation of an internal control system, setting the tone at the top.

Demonstrating integrity and ethical values is the first principle of the control environment, as outlined in theCOSO Internal Control Framework.

Explanation of Answer Choices:

A. Demonstrate a commitment to integrity and ethical values: Correct. This is a foundational principle of the control environment.

B. Implement control activities through policies: This relates to the "Control Activities" component, not the control environment.

C. Communicate quality information to achieve the entity's objectives: This relates to the "Information and Communication" component.

D. Establish and operate activities to monitor the internal control system: This relates to the "Monitoring Activities" component.

Federal Credit Reform Act of 1990:This Act established a new accounting framework for federal credit programs, such as direct loans and loan guarantees. It requires using thenet present value (NPV)method to measure the costs of loans and guarantees by discounting future cash flows (e.g., loan repayments, defaults) to their present value.

Explanation of Financial Analytical Technique:

Net Present Value (NPV): Accounts for the time value of money by discounting future cash flows to the present. It provides an accurate measure of the economic cost to the government.

Other options:

A. Future value: Focuses on future cash flows, not their present cost.

C. Current value: Not a recognized technique for analyzing long-term cash flows.

D. Regression analysis: A statistical method, unrelated to calculating loan program costs.

 Why Does Management Need Real-Time Data Access?

Real-time access to data enables managers to make timely and informed decisions.

Complex data setspresented clearly and concisely (with minimal distractions) allow decision-makers to focus on the critical insights necessary for strategic and operational planning.

 Why Is Option D Correct?

On-demand access ensures managers can retrieve updated data whenever needed. Presenting the data in a focused and distraction-free format facilitates quick comprehension and decision-making.

 Why Other Options Are Incorrect:

A. Visual representation with indirect information:Including unrelated data can overwhelm users and detract from effective decision-making.

B. Dashboards updated quarterly:Quarterly updates do not meet the need for real-time access.

C. Prior year’s financial data:Decisions based solely on historical data are not responsive to real-time needs.

 References and Documents:

GAO Data Analytics and Visualization Framework:Stresses the importance of real-time, actionable, and distraction-free data for decision-making.

AICPA Dashboard Guidelines:Recommends presenting complex data sets in a clear and accessible format for management use.

Definition of the Condition in an Audit Finding:

The "condition" describes the actual state observed during the audit. It highlights what occurred in practice, serving as the factual basis for the finding.

In this case, the condition is theabsence of receiptsfor multiple credit card purchases.

Explanation of Answer Choices:

A. We identified multiple credit card purchases without receipts to support them: Correct. This is the observed issue (condition).

B. Government policy requires a cardholder to submit receipts for all purchases: This is the "criteria," which defines the standard or rule being audited against.

C. Finance Department personnel did not regularly review purchases to ensure compliance: This is the "cause," explaining why the condition occurred.

D. We recommend that the government implements a timely review of all credit card purchases: This is the "recommendation," not the condition.

First Step in Assessing Compliance:

The first step in evaluating compliance is to develop acomprehensive inventoryof all applicable laws and regulations that the agency must follow.

This ensures the assessment process is thorough and based on a clear understanding of the regulatory environment.

Explanation of Answer Choices:

A. Review legal actions against the agency for noncompliance with laws and regulations: Important, but this comes later as part of identifying past compliance issues.

B. Contact the legislature to secure its views on any areas of regulatory noncompliance: Unnecessary for the initial step of compliance assessment.

C. Develop an inventory of the applicable laws and regulations: Correct. This is the foundational step to ensure all relevant requirements are included in the assessment.

D. Request a compliance review from the agency's chief legal officer: Incorrect. While legal advice may be helpful, it is not the starting point for compliance assessment.

 National Performance Management Advisory Commission Framework:

TheNational Performance Management Advisory Commissiondeveloped a comprehensive framework to integrateperformance measurementinto government operations.

One of its primary goals was to incorporate performance metrics into thebudget processto align resource allocation with program outcomes.

This ensures that budgeting decisions are informed by program performance, improving efficiency and accountability.

 Why the Budget Process?

By linking performance to budgeting, governments can prioritize funding for programs that demonstrate effectiveness and reduce funding for underperforming initiatives.

 Why Other Options Are Incorrect:

A. Internal control plan:Internal controls focus on risk management, not incorporating performance measurement.

B. Financial statements:Performance metrics are not reported in financial statements, which focus on financial position and results.

C. Audit procedures:Audits verify financial accuracy and compliance but do not incorporate performance measurement.

 References and Documents:

National Performance Management Advisory Commission Report (2010):Recommends integrating performance measurement into the budget process.

GAO Guide on Performance Budgeting:Explains how performance metrics inform budget decisions.

 What Is Government Performance Measurement?

Government performance measurement is the process of setting goals, tracking progress, and evaluating outcomes for government programs and services. This system ensures that public funds are used effectively and that programs achieve intended results.

 How Does It Promote Accountability?

Accountability is the primary goal of performance measurement. It holds government officials and agencies responsible for managing public resources efficiently and achieving measurable outcomes.

By measuring performance, governments can transparently demonstrate how resources are being used and whether programs are meeting their objectives.

 Why Other Options Are Incorrect:

A. Responsibility:While responsibility is important, it refers more to the assignment of duties, not the system of holding entities accountable.

B. Profitability:Governments are not profit-driven organizations; their focus is on service delivery, not profits.

D. Cash Availability:Performance measurement focuses on outcomes, not managing cash flows.

 References and Documents:

Government Performance and Results Act (GPRA):Promotes accountability through performance measurement and reporting.

GAO Report on Performance Accountability:Emphasizes the role of performance measurement in achieving government accountability.

Deterrence of Fraud:

A primary deterrent to fraud is thefear of being caught. When individuals believe there is a high likelihood of detection, they are less likely to commit fraudulent acts.

Strong internal controls, monitoring, and audits increase this fear and serve as effective deterrents.

Explanation of Answer Choices:

A. Delegation of responsibility without oversight: Incorrect. Lack of oversight increases the risk of fraud rather than deterring it.

B. The fear of detection: Correct. The fear of being caught is one of the most effective fraud deterrents.

C. Job satisfaction and sense of "team": While these contribute to a positive work environment, they do not directly deter fraud.

D. Performance of employee background checks: Background checks are a preventive measure but are less effective as a fraud deterrent compared to detection risk.

Definition of Computer-Assisted Audit Techniques (CAATs):

CAATs use software tools to perform audit tasks such as data analysis, testing transactions, and evaluating internal controls.

Obtaining accurate and relevant data is a key first step, as it forms the basis of any analysis performed using CAATs.

Explanation of Answer Choices:

A. Writing the system audit program: This is part of audit planning but not a specific feature of CAATs.

B. Verifying internal controls: While CAATs can be used to test controls, obtaining data is fundamental to this process.

C. Obtaining appropriate data: Correct. CAATs rely on accurate, relevant, and complete data for meaningful analysis.

D. Purchasing data mining software: While software is a tool for CAATs, the focus is on using data, not on acquiring the software itself.

 What Is Vertical Analysis?

Vertical Analysisevaluates a single year's financial statements by expressing each line item as a percentage of a base amount. For example, in an income statement, each expense may be presented as a percentage of total revenue.

This approach helps users understand the relative size of each financial statement item within the context of the total.

 Why Is Vertical Analysis Used for a Single Year?

Vertical analysis focuses solely on relationships within a single set of financial statements, making it the appropriate choice for single-year evaluations.

 Why Other Options Are Incorrect:

A. Comparative:Involves comparing financial data across entities or periods, not within a single year.

B. Horizontal:Focuses on changes in financial data over time (year-to-year comparisons).

C. Trend:Examines patterns over multiple periods to identify long-term trends, not a single year.

 References and Documents:

GAO Financial Audit Manual:Recommends vertical analysis for single-year financial statement evaluations.

AICPA Financial Statement Analysis Guide:Provides detailed examples of vertical analysis techniques.

Understanding Resource Allocation in Street Maintenance:When additional resources are provided for street maintenance, their allocation should address the most pressing infrastructure needs to maximize impact and public benefit.

Key Indicator (Pavement Rating Scores):Pavement rating scores are used to evaluate the condition of roads. Areas with the lowest scores (representing unmet needs) require prioritized funding to bring the infrastructure to acceptable levels.

Explanation of Answer Choices:

A. Number of intersections: The number of intersections is not directly related to road conditions or pavement scores.

B. Historical budgeted amounts: Allocating based on past budgets does not address current infrastructure conditions or unmet needs.

C. Lane miles rated as acceptable by citizens: Roads already rated as "acceptable" do not require immediate attention.

D. Lane miles with unmet needs: Correct, as this aligns with addressing the most critical deficiencies based on the pavement scores.

 What Is an Internal Control Deficiency?

Aninternal control deficiencyoccurs when an organization fails to implement controls to prevent or detect risks effectively.

In this case, responding only to maintenance needs when complaints are received demonstrates a lack of proactive controls, increasing the risk of issues going unnoticed or escalating over time.

 Why Is Option C Correct?

Proactive maintenance schedules and inspections are essential for ensuring the safety and functionality of critical infrastructure like dams. Relying solely on complaints or employee reports is a reactive approach and represents a deficiency in internal controls.

 Why Other Options Are Incorrect:

A. Inspecting completed work:This is a proper control to ensure compliance with contract specifications.

B. Releasing the bond after work completion:This ensures contractual obligations are met and is a good control practice.

D. Checking bidder references:This is part of the procurement process and a valid internal control.

 References and Documents:

GAO Standards for Internal Control (Green Book):Emphasizes proactive controls and monitoring for critical operations.

Federal Infrastructure Maintenance Best Practices:Highlights proactive inspections and maintenance as essential controls.

 What Are the Four General Government Auditing Standards?

These standards, as defined in theGAO Yellow Book (Government Auditing Standards):

Qualifications:Auditors must have the necessary professional skills and competence to perform their work.

Independence:Auditors must remain free from personal, external, and organizational impairments to maintain objectivity.

Due Professional Care:Auditors must exercise care and diligence, adhering to professional standards and ethical requirements.

Quality Control:Auditors must establish and maintain a system of quality control to ensure audit work meets professional standards.

 Why Is Option D Correct?

These four elements are explicitly outlined in the GAO Yellow Book as the core principles of government auditing standards.

 Why Other Options Are Incorrect:

A. Compliance, timeliness, qualifications, and due professional care:Timeliness and compliance are not part of the four general standards; they are components of audit objectives.

B. Supervision, planning, management controls, and evidence:These are aspects of audit performance, not general standards.

C. Planning, internal controls, independence, and irregularities:Planning and internal controls are part of the audit process, not general standards.

 References and Documents:

GAO Yellow Book (Generally Accepted Government Auditing Standards - GAGAS):Lists qualifications, independence, due professional care, and quality control as the four general standards.

AICPA Audit Standards:Aligns with GAGAS in emphasizing these four principles.

Definition of Cost-Effectiveness Measures:

Cost-effectiveness measures assess therelationship between inputs (resources used)andoutcomes (results achieved)to determine whether a program delivers value for the resources invested.

Explanation of Answer Choices:

A. Efficiency measures: Incorrect. These relate inputs to outputs, focusing on how efficiently resources are used to produce services, but not directly tied to outcomes.

B. Process measures: Incorrect. These measure activities or steps within a program but do not assess outcomes.

C. Cost-effectiveness measures: Correct. These directly link inputs to outcomes, measuring the program’s effectiveness in achieving its objectives relative to costs.

D. Activity measures: Incorrect. These track the level of activity or effort but not outcomes or effectiveness.

 Why Measure Performance Based on Cost per Ton of Trash Collected?

Costper ton of trash collectedis a direct, objective, and quantifiable measure of the contractor’s performance. It reflects how efficiently the contractor is operating relative to the amount of trash being managed.

This measure aligns with the principle of output-based performance evaluation, which focuses on results (e.g., tons of trash collected) rather than inputs or unrelated factors.

 Why Other Options Are Incorrect:

A. Per mile traveled:Mileage is not directly tied to performance; it depends on the route structure and geography, not the quantity of trash collected.

C. Comparison with closest comparable jurisdiction:While this may provide context, it is not a specific performance measure.

D. Per employee:Employee count does not directly measure performance or efficiency in trash collection operations.

 References and Documents:

GAO Guide on Contract Performance Evaluation:Recommends using measurable and outcome-based metrics like cost per ton collected for performance reviews.

Best Practices in Local Government Contracting (AGA):Highlights output-based measures for evaluating contractor performance.

 Investment Management Basics:

The first step in investment management is establishing theobjectivesof the investment program. This requires consensus among key stakeholders, such as managers, on what the investment goals are (e.g., risk tolerance, return expectations, liquidity needs).

Without clear objectives, subsequent steps like developing policies or selecting investments cannot be effectively carried out.

 Why Consensus Is Important:

Investment objectives must align with the organization’s mission, risk tolerance, and financial goals.

Consensus ensures that all managers are on the same page before developing specific strategies or policies.

 Why Other Options Are Incorrect:

A. Ensure employees understand their investment options:Employee understanding is not the first step; it comes later when the investment strategy is implemented.

C. Develop an investment policy manual:This happens after the objectives have been established.

D. Establish criteria for divesting:Divestment criteria are part of the investment policy and are determined later.

 References and Documents:

GAO Financial Management Guide:Highlights setting objectives as the first step in investment management.

COSO Framework for Investment Risk Management:Stresses the importance of aligning objectives before policy development.

 What Is Strategic Sourcing?

Strategic sourcing is a systematic process aimed at optimizing an organization’s purchasing activities to maximize value and minimize costs. It involves analyzing spending, selecting suppliers, and negotiating contracts strategically rather than reactively.

 Why Start with Spend Data?

Analyzing Spend Data:The first step is to understand the organization’s current spending patterns by analyzing spend data by category and by business unit. This helps identify high-cost areas, redundancies, and opportunities for cost savings.

Importance of Data-Driven Decisions:Without knowing where and how money is being spent, it’s impossible to make informed strategic sourcing decisions.

 Why Other Options Are Incorrect:

A. Contacting Vendors:Vendors are contacted later in the process after the spend analysis is complete and sourcing strategies are determined.

C. Contacting Business Units:While checking for existing contracts is part of the process, it happens after analyzing spend data.

D. Developing Supplier Performance Measures:This step occurs much later, typically after supplier selection and contract execution.

 References and Documents:

GAO Guide to Strategic Sourcing (2013):Recommends starting with a detailed spend analysis as the foundation for effective sourcing decisions.

Single Audit Report Requirements:

A single audit evaluates the financial statements and compliance with federal award requirements.

Thefinancial statement opinionmust state whether the financial statements arefairly presented in accordance with Generally Accepted Accounting Principles (GAAP).

Explanation of Answer Choices:

A. Free from fraud: Incorrect. Auditors do not provide an opinion on fraud; they assess for material misstatements.

B. Fairly presented in accordance with GAAP: Correct. The financial statement opinion is issued based on compliance with GAAP.

C. Fairly presented in accordance with GASB: Incorrect. GASB (Governmental Accounting Standards Board) provides guidance for state and local governments, but financial statements must comply with GAAP as the overarching standard.

D. Fairly presented in accordance with GAO: Incorrect. The GAO (Government Accountability Office) issues auditing standards, not financial reporting standards.

 What Is a Risk Profile?

Arisk profileis the formal listing and assessment of an agency's top risks. It identifies the risks that could significantly impact an organization’s ability to achieve its objectives and prioritizes them based on factors like likelihood and impact.

 Why Is the Risk Profile Important?

The risk profile helps management focus on the most critical risks and allocate resources to address them effectively. It is a core element of enterprise risk management frameworks (e.g., COSO ERM).

In the federal government,OMB Circular A-123requires agencies to maintain a risk profile as part of their internal control and risk management processes.

 Why Other Options Are Incorrect:

B. Risk Management Plan:This is broader and includes strategies for mitigating and monitoring risks, not just listing and assessing them.

C. Risk Assessment:This is a process used to identify and evaluate risks but does not specifically refer to the formal listing of risks.

D. Risk Register:While similar to a risk profile, a risk register typically includes more granular details, such as specific control measures, responsibilities, and timelines.

 References and Documents:

OMB Circular A-123:Requires federal agencies to develop a risk profile as part of their risk management framework.

COSO ERM Framework (2017):Describes the risk profile as a tool for managing enterprise-wide risks.

Antideficiency Act Overview:

TheAntideficiency Act (31 U.S.C. §§ 1341, 1342, 1517)prohibits federal agencies from:

Obligating or expending funds in excess of their appropriations.

Entering into contracts without sufficient appropriated funds.

Violating the Act is a serious matter, and agencies are required to report such violations to Congress and the President.

Explanation of Answer Choices:

A. Federal Managers’ Financial Integrity Act: Incorrect. This Act requires agencies to assess internal controls, not monitor appropriations.

B. Federal Financial Management Improvement Act: Incorrect. This Act focuses on improving financial systems, not budgetary compliance.

C. Antideficiency Act: Correct. This Act directly prohibits expenditures beyond appropriations.

D. Sarbanes-Oxley Act: Incorrect. This Act applies to corporate financial reporting, not federal appropriations.

 What Are Liquidity Ratios?

Liquidity ratios are financial metrics used to measure an organization’s ability to meet its short-term financial obligations as they come due. These ratios assess whether the organization has sufficient liquid assets (like cash, receivables, or short-term investments) to cover its current liabilities (debts or obligations due within a year).

 Why Are They Relevant to Creditors?

Creditors care deeply about an entity's ability to repay its debts in a timely manner. Liquidity ratios provide a snapshot of the organization's financial health and give insight into its capacity to meet short-term demands. They are essential tools in evaluating whether a government entity (federal, state, or local) or any other organization can pay its creditors without needing to secure additional financing or liquidate long-term assets.

 Common Liquidity Ratios:

The most commonly used liquidity ratios are:

Current Ratio:This measures the organization’s ability to pay off its current liabilities with current assets.Formula:Current Assets ÷ Current Liabilities

Quick Ratio (Acid-Test Ratio):A stricter version of the current ratio, it excludes less liquid assets (like inventory) to assess the organization’s immediate ability to pay short-term debts.Formula:(Current Assets - Inventory) ÷ Current Liabilities

Cash Ratio:Focuses only on the most liquid assets, such as cash and cash equivalents.Formula:Cash + Cash Equivalents ÷ Current Liabilities

 How Do Liquidity Ratios Apply to Governmental Accounting?

In governmental accounting, liquidity ratios are crucial for determining whether a governmental entity has the financial flexibility to manage short-term obligations like accounts payable, payroll, and other operating costs. For example:

State and local governments use liquidity ratios to show stakeholders their ability to sustain operations without financial strain.

Government-wide financial statements (under GASB standards) often emphasize liquidity to demonstrate fiscal health to bondholders and credit rating agencies.

 Why Not Other Ratios?

A. Budgetary Cushion Ratios:These focus on the organization’s ability to withstand revenue shortfalls and maintain budgetary reserves, not specifically on meeting creditor demands.

C. Debt Burden Ratios:These measure the overall burden of debt on the organization but don’t directly address short-term liquidity or solvency.

D. Turnover Ratios:These evaluate operational efficiency (e.g., how quickly assets like inventory are converted into revenue), which doesn’t directly relate to creditor demands.

 References and Documents:

Government Financial Manager (GFM) Competency Framework by the Association of Government Accountants (AGA):Section on “Financial Analysis” emphasizes the importance of liquidity ratios in assessing short-term solvency for government entities.

GASB Concepts Statement No. 1:Discusses the need for governmental financial reporting to provide information on financial condition, including short-term liquidity.

AGA Performance Management Framework Guide (2023):Highlights liquidity ratios as critical tools for demonstrating fiscal responsibility and transparency in public sector financial management.

 What Is Inventory Control?

Inventory controlrefers to the processes and systems used to manage stock levels, including determining how much inventory to keep on hand, reordering stock, and maintaining optimal levels to meet operational needs while minimizing costs.

Determining stock levels is a central function of inventory control, ensuring the organization has the right amount of inventory to meet demand without overstocking or understocking.

 Why Other Options Are Incorrect:

B. Safeguard control:This refers to protecting inventory from theft, damage, or loss, not determining stock levels.

C. Management control:This is a broader term encompassing oversight and governance, not specific to inventory.

D. Supply control:This typically refers to managing supply chains and suppliers, not the internal control of inventory levels.

 References and Documents:

GAO Inventory Management Guide:Defines inventory control as the process of determining and maintaining appropriate stock levels.

Best Practices in Government Inventory Management (AGA):Emphasizes the role of inventory control in balancing supply and demand.

Responsibility for Internal Controls:

Managementholds the primary responsibility for establishing, implementing, and maintaining an organization’s internal control system.

This responsibility is outlined in frameworks such as COSO’sInternal Control - Integrated Frameworkand the GAO’sGreen Book.

Roles of Other Parties:

A. Accountants: While accountants may assist in designing or assessing controls, they are not primarily responsible.

B. Internal auditors: Their role is to evaluate the effectiveness of controls, not establish them.

D. Audit committee: Provides oversight but does not implement or design controls.

Limiting Public Reporting in Attestation Engagements:

Government auditing standards allow auditors to limit public reporting in rare cases, such as when disclosing certain information could compromise sensitive or ongoing legal proceedings.

The goal is to protect the integrity of investigations or legal actions while maintaining transparency where possible.

Explanation of Answer Choices:

A. Auditors detect material fraud: Auditors are required to report material fraud to appropriate authorities, not limit reporting unless legal proceedings are affected.

B. Audit report would compromise ongoing legal proceedings: Correct. This is a valid reason to limit public reporting under auditing standards.

C. Auditor detects non-compliance with provisions of law: Non-compliance must be disclosed unless legal considerations warrant confidentiality.

D. Entity management fails to satisfy legal requirements: This would typically be reported, not withheld.