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AGA Examination 3: Governmental Financial Management and Control (GFMC) Sample Questions (Q72-Q77):

NEW QUESTION # 72
When considering materiality during the planning phase for the field work for a financial audit, the dollar threshold for materiality is determined by the

A. auditor.
B. auditee.
C. auditor in consultation with the auditee.
D. audit committee.

Answer: A

Explanation:
Materiality in Auditing:
* Materiality refers to the significance of misstatements or omissions in financial statements that could influence the decisions of users relying on those statements.
* During theplanning phaseof a financial audit, the auditor determines the dollar threshold for materiality based on professional judgment, considering the size and nature of the auditee's operations and the needs of financial statement users.
Why the Auditor Determines Materiality:
* Theauditorhas the responsibility to form an independent opinion on the financial statements and must determine materiality thresholds to design audit procedures effectively.
* Materiality thresholds guide the extent of testing and ensure the audit focuses on areas most likely to impact decision-making.
Why Other Options Are Incorrect:
* B. Auditee:The auditee provides the information, but it does not decide the materiality threshold.
* C. Auditor in consultation with the auditee:The auditor may consult with the auditee for context, but the final determination is solely the auditor's responsibility.
* D. Audit committee:While the audit committee oversees the audit, it does not set materiality thresholds.
References and Documents:
* GAAS (Generally Accepted Auditing Standards):States that materiality is determined by the auditor' s judgment.
* AICPA AU-C Section 320:Provides guidance on materiality in planning and performing audits.

NEW QUESTION # 73
The value, in current dollars, of a sum of money to be received in the future describes

A. future value.
B. payback value.
C. present value.
D. annuity value.

Answer: C

NEW QUESTION # 74
The Federal Credit Reform Act requires complex calculations, which are likely to include errors. This is an example of

A. audit risk.
B. inherent risk.
C. detection risk.
D. control risk.

Answer: B

Explanation:
Definition of Inherent Risk:
Inherent risk refers to the risk of material misstatement in financial statements or other reports due to the nature of the subject matter, without considering any controls in place. It arises from the complexity, judgment, or uncertainty involved in the underlying transactions or calculations.
Why This Is Inherent Risk:
* TheFederal Credit Reform Actrequires complex calculations to estimate loan subsidies, interest rates, and cash flows. These calculations inherently involve significant judgment and estimation, making them prone to errors. This is a classic example of inherent risk because the complexity exists regardless of controls.
Why Other Options Are Incorrect:
* A. Audit Risk:This refers to the overall risk that the auditor may issue an incorrect opinion. In this case, the issue is about the inherent complexity of the calculations, not the auditor's procedures.
* B. Control Risk:This is the risk that errors will not be prevented or detected due to weak internal controls. While control risk could contribute to misstatements, it is not the primary issue in this example.
* C. Detection Risk:This is the risk that auditors will not detect a misstatement. This risk relates to audit procedures, not the inherent complexity of the calculations.
References and Documents:
* GAO Yellow Book on Risk Assessment:Explains inherent risk in the context of government financial reporting.
* AICPA Standards on Audit Risk (AU-C 315):Highlights inherent risk as arising from the nature of transactions or subject matter.

NEW QUESTION # 75
An analyst has identified several variables that may be impacting state lottery ticket sales, including investments in advertising, potential pay-out amounts and the size of lottery cards. Which of the following techniques would help determine the extent to which each variable is impacting sales?

A. narrative analysis
B. content analysis
C. regression analysis
D. cost-benefit analysis

Answer: C

Explanation:
* Regression Analysis:
* Regression analysis is a statistical technique used to examine the relationships between a dependent variable (e.g., lottery ticket sales) and one or more independent variables (e.g., advertising, potential payouts, size of lottery cards).
* This method helps quantify the extent to which each variable impacts sales.
* Explanation of Answer Choices:
* A. Content analysis: Incorrect. This method is used to analyze qualitative data (e.g., text or media) rather than numerical relationships.
* B. Cost-benefit analysis: Incorrect. This technique evaluates the costs and benefits of a decision but does not identify the relationships between variables.
* C. Regression analysis: Correct. This technique determines the impact of multiple variables on a single outcome.
* D. Narrative analysis: Incorrect. This is used to analyze stories or qualitative information, not numerical data.
:
Association of Government Accountants (AGA),Data Analytics and Predictive Techniques in Government.
U).S. Census Bureau,Statistical Techniques for Economic Analysis.

NEW QUESTION # 76
The first step in assessing an agency's internal control program's compliance with applicable laws and regulations is to

A. develop an inventory of the applicable laws and regulations.
B. contact the legislature to secure its views on any areas of regulatory noncompliance.
C. request a compliance review from the agency's chief legal officer.
D. review legal actions against the agency for noncompliance with laws and regulations.

Answer: A

Explanation:
* 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.
:
GAO,Standards for Internal Control in the Federal Government (Green Book).
OMB Circular A-123,Management's Responsibility for Internal Control.

NEW QUESTION # 77
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Victoria Walker Victoria Walker

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