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Free Financial GFMC Exam Questions (page: 3)

Page 3 of 24
PDF with 115 Questions

In an internal control evaluation, what are the roles of management and the auditor regarding the risk of fraud, waste and abuse?

  1. Management identifies risks, auditors assess control effectiveness.
  2. Auditors identify risks, management implements control measures.
  3. Both management and auditors determine risk tolerance levels.
  4. Management mitigates risks, auditors monitor compliance with controls.

Answer(s): A

Explanation:

Role of Management in Internal Control Evaluation:
Responsibility for Risk Identification: Management has the primary responsibility for designing, implementing, and maintaining an effective system of internal controls. As part of this process, management identifies the risks related to fraud, waste, and abuse that could impact financial reporting or operational efficiency.
Mitigating Risks: Once risks are identified, management is responsible for mitigating them by developing appropriate policies, procedures, and controls.
Role of the Auditor in Internal Control Evaluation:
Assessing Control Effectiveness: Auditors are not responsible for designing or implementing controls; rather, their role is to evaluate whether the controls put in place by management are effective. They do this through testing, observation, and other audit procedures. Fraud Risk Assessment: As part of their duties under Generally Accepted Government Auditing Standards (GAGAS), auditors must assess the risk of material misstatement due to fraud and evaluate how management's controls address those risks.
Why Other Options Are Incorrect:
B . Auditors do not identify risks--this is management's job. Auditors evaluate and assess the controls already in place.
C . Determining risk tolerance is a governance and management responsibility, not the joint responsibility of auditors and management.
D . Management mitigates risks, but auditors don't monitor compliance with controls--they test and evaluate the controls as part of their audit procedures.
Reference and Documents:
GAGAS (Yellow Book) by GAO: Emphasizes management's responsibility for risk identification and the auditor's responsibility for assessing control effectiveness. COSO Internal Control Framework (2013): Highlights management's responsibility for risk assessment and control design, while auditors provide independent assurance.



For financial audits, generally accepted auditing standards require that auditors accomplish all of the following tasks EXCEPT

  1. adequately plan the work.
  2. make the audit report available to the public.
  3. obtain sufficient appropriate audit evidence.
  4. supervise any assistants.

Answer(s): B

Explanation:

What Do Generally Accepted Auditing Standards (GAAS) Require for Financial Audits? GAAS outlines specific requirements for auditors conducting financial audits, including:

Adequately Planning the Work (Option A): Proper planning ensures that audits are efficient and thorough.
Obtaining Sufficient, Appropriate Audit Evidence (Option C): This is critical to support the auditor's opinion on the financial statements.
Supervising Assistants (Option D): Supervising any audit staff ensures that work is performed in accordance with standards.
What Does GAAS Not Require?
GAAS does not specifically require auditors to make the audit report available to the public (Option B).
While making reports available to the public may be required by other laws, regulations, or organizational policies, it is not a standard requirement under GAAS. The decision to make the report public often lies with the audited entity or governing bodies.
Reference and Documents:
AICPA Statements on Auditing Standards (SAS): The foundational standards that define GAAS requirements.
GAGAS (Yellow Book): While GAGAS may have additional reporting requirements, it does not mandate public access to the audit report unless stipulated by law.



The first step when gathering data for making strategic sourcing decisions is

  1. contacting vendors to submit bids under the request for bid process.
  2. researching spend data by category for each business unit.
  3. contacting business units to find out if there are existing purchasing contracts in place.
  4. developing supplier performance measures to add into the purchase agreements.

Answer(s): B

Explanation:

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



A material weakness in internal control over financial reporting is defined as a deficiency that

  1. results in a misstatement to the basic financial statements.
  2. results in a material misstatement in other accompanying financial information.
  3. did not allow management to perform their assigned responsibility to prevent, detect and correct misstatements in a timely manner.
  4. creates a reasonable possibility of a material misstatement to the financial statements that will not be detected in a timely manner.

Answer(s): D

Explanation:

Definition of a Material Weakness:
According to auditing standards, a material weakness in internal control over financial reporting is a deficiency or combination of deficiencies that creates a reasonable possibility of a material misstatement in the financial statements that will not be prevented or detected on a timely basis.
Key Characteristics of a Material Weakness:
Reasonable Possibility: The likelihood of a misstatement is more than remote but less than certain. Material Misstatement: The error or omission could impact the decisions of users relying on the financial statements.
Timely Detection: The deficiency allows errors to go undetected for an extended period, potentially affecting financial statement reliability.
Why Other Options Are Incorrect:
A . A misstatement in the basic financial statements may result from a material weakness, but the definition focuses on the reasonable possibility, not the actual result. B . A material weakness impacts the financial statements, not "other accompanying financial information."
C .
While timely detection is part of the issue, the definition focuses on the reasonable possibility of a misstatement, not management's inability to perform specific duties.
Reference and Documents:
GAAS (AICPA SAS No. 115): Provides the formal definition of material weaknesses and guidance for auditors in evaluating control deficiencies.
COSO Framework: Emphasizes the need for effective internal controls to mitigate material misstatement risks.



An agency uses pavement rating scores as a key indicator for a street maintenance program. If the legislature provided the agency with an additional $5 millionjthe new resources should be allocated based upon

  1. the number of intersections.
  2. historical budgeted amounts.
  3. lane miles rated as acceptable by the citizens.
  4. lane miles with unmet needs.

Answer(s): D

Explanation:

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.


Reference:

Government Finance Officers Association (GFOA), Best Practices in Capital Asset Management. Federal Highway Administration (FHWA), Performance-Based Planning and Programming Guidebook.



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