Modern Auditing:
Assurance Services and the Integrity
of Financial Reporting, 8th Edition
William C. Boynton
California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson
Portland State University
Chapter 21 – Internal, Operational, and Governmental
Auditing
Chapter Overview
Internal Auditing Defined
• Internal
• Independent and objective
• Systematic, disciplined approach
• Helps and organization accomplish
its objectives
Internal Auditing
• Evolution of Internal Auditing
• IIA Code of Ethics
• IIA Attribute and Performance
Standards
– Attribute Standards
– Performance Standards
– Implementation Standards
Relationship with External
Auditors
Operational Auditing Defined
• Systematic process
• Evaluating an organization’s operations
• Effectiveness, efficiency, and economy
of operations
• Reporting to appropriate persons
• Recommendations for improvement
Phases of an Operational Audit
• Select Auditee
• Plan Audit
• Perform Audit
• Report Findings
• Perform Followup
Financial Statements v.
Operational Audits
Study Break
1. This part of the internal auditing
definition states the auditor’s judgment
has value when it is free of bias.
A.
B.
C.
D.
Internal
Independent and objective
Systematic, disciplined approach
Helps an organization accomplish its
objectives
B. Independent and objective
Study Break
2. These IIA Attribute and Performance
standards describe the nature of
internal audit services and provide
quality criteria against which the
performance of these services can be
measured.
A.
B.
C.
D.
Attribute Standards
Performance Standards
Implementation Standards
None of the above
B. Performance Standards
Study Break
3. Which of the following is not a
phase of the operational audit?
A.
B.
C.
D.
Select auditee
Perform audit
Report findings to stockholders
Perform followup
C. Report findings to stockholders
Types of Government Audits
• Financial Audits
• Attestation Engagements
• Performance Audits
Generally Accepted Government
Auditing Standards (GAGAS)
• General Standards
– Independence
– Professional judgment
– Competence
– Quality Control and Assurance
Generally Accepted Government
Auditing Standards (GAGAS)
• Fieldwork Standards for Financial Audits
– Auditor communication
– Considering the results of previous audit and
attestation engagements
– Detecting material misstatements resulting
from violations of contract provisions or
grant agreements, or from abuse
– Developing elements of a finding
– Audit documentation
Generally Accepted Government
Auditing Standards (GAGAS)
• Reporting Standards for Financial Audits
– Reporting auditors’ compliance with GAGAS
– Reporting on internal control and on
compliance with laws, regulations, and
provisions of contracts or grant agreements
– Reporting deficiencies in internal control,
fraud, illegal acts, violations of provisions of
contracts or grand agreements, and abuse
Generally Accepted Government
Auditing Standards (GAGAS)
• Reporting Standards for Financial
Audits
– Reporting views of responsible officials
– Reporting privileged and confidential
information
– Report issuance and distribution
Generally Accepted Government
Auditing Standards (GAGAS)
• Reporting on Compliance with Laws
and Regulations
• Reporting on Internal Control
The Single Audit Act
• Objectives of the Act
– Improve financial management
– Establish uniform requirements for audits
– Promote efficient and effective use of audit
resources
– Ensure reliance and usage of audit work
completed
The Single Audit Act
• Applicability and Administration
– Federal Financial Assistance
– Major Programs
– Nonmajor Programs
– Cognizant Agency
Scope of an Audit Under the
Single Audit Act
• General
–
–
–
–
Financial Statements
Internal Controls
Compliance
Audit Followup
• Reporting Requirements
–
–
–
–
Opinion on Financial Statements
Report on Internal Control
Report on Compliance
Schedule of Findings and Questioned Costs
Study Break
4. This type of government audit concern
examining, reviewing, or performing
agreed-upon procedures on a subject
matter or an assertion about a subject
matter and reporting on the results.
A.
B.
C.
D.
Financial audits
Attestation engagements
Performance audits
Compliance audits
B. Attestation engagements
Study Break
5. Within the General Standards of
GAGAS, this standard states that staff
assigned to perform the audit or
attestation should collectively possess
adequate professional competence for
the tasks required.
A.
B.
C.
D.
Independence
Professional judgment
Competence
Quality Control and Assurance
C. Competence
Study Break
6. This act established the concept of a
single organizationwide government
audit encompassing both financial and
compliance audits.
A.
B.
C.
D.
Securities Act of 1933
Securities Act of 1934
Single Audit Act
None of the above
C. Single Audit Act