[md27]

Hi Everyone,

While going over some multiple choice questions, I came across a question that confused me, and I’m hoping somebody could help make sense of it.

The auditor’s objective in a compliance audit of a governmental entity include:
A) Providing negative assurance regarding a legal determination of compliance.
B) Minimizing control risk on noncompliance.
C) Forming an opinion on whether the government complied in all material respects with applicable compliance requirements.
D) Limiting auditing procedures and audit exposure to the standards described by GAAS and GAGAS.

The answer is C, but why? I thought an opinion was only given on the FS, and we report on internal controls and compliance. C mentions that we do give an opinion on compliance. Clarification would be greatly appreciated!

[maplewood]

@md27

According to AU-801.10 The auditor's objectives in a compliance audit are to:
a. obtain sufficient appropriate audit evidence to form an opinion and report at the level specified in the governmental audit requirement on whether the entity complied in all material respects with the applicable compliance requirements; and
b. identify audit and reporting requirements specified in the governmental audit requirement that are supplementary to GAAS and Government Auditing Standards, if any, and perform procedures
to address those requirements.

Hope that helps!

[Joetse]

This is a strange question and probably won't show up on the CPA exam. It is not covered in Becker – we have not been shown any compliance audits on governmental entities except for Single Audits – which is an audit of compliance over MAJOR PROGRAMS of a government, as well as ICOC for those programs – REGARDING their compliance with the applicable contractual requirements of spending of Fed Financial Assistance, or for Yellow Book, compliance with some SPECIFIC regulation regarding grants/contracts/laws, IN CONNECTION with the F/S, not whether that government/state/city itself is complying with all aspects of the law/rules/regulations of the land, as that would be a lot!!! (Bidding, elections, abuse of resources, performance, bribes, construction contracts, hiring freezes, selling senate seats, etc etc etc!!!)
These types of audits are called performance audits, which Becker does not show an example, and has 4 objectives, of which compliance is one of them. I think it's just a badly worded question and just wants you to apply common sense to get at the answer, which is a no duh answer. The only answer choice which an AUDIT would apply is one in which you form an opinion, and answer choice C is the only one that says opinion. All the other choices are wrong, because Single Audits aren't limited to GAAS and GAGAS, the purpose is not to minimize control risk, and the objective is not a legal determination, but rather an opinion, and reporting findings.

[Author]

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