Question

In auditing a not-for-profit entity that receives governmental financial assistance, the auditor has a responsibility to:

Group of answer choices

Issue a separate report that describes the expected benefits and related costs of the auditor's suggested changes to the entity's internal control.

Assess whether management has identified laws and regulations that have a direct and material effect on the entity's financial statements.

Notify the governmental agency providing the financial assistance that the audit is not designed to provide any assurance of detecting errors and fraud.

Render an opinion concerning the entity's continued eligibility for the governmental financial assistance.

Answer 1

Answer: The auditor has to perform his duties in connection with an auditing of a not-for-profit entity that receives governmental financial assistance. In this regard please note that the duties of the auditor in such type of auditing of an entity normally is to ensure the following in connection with the activity of the entity.

a) Must have effective and established internal control.

b) Compliance with laws and regulations.

c) Avoidance of fraud and errors.

d) Compliance with the federal assistance programs requirement.

Considering the above let us now analyse the group of answer choices

Choice-1-Issue a separate report that describes the expected benefits and related costs of the auditor's suggested changes to the entity's internal control.

The above choice is incorrect since as explained in a) above, it is duty of auditor to check the effectiveness of the established entity's internal control and issue a separate report on the same about its improvement as required but not on the expected benefits and related costs.

Choice-2-Assess whether management has identified laws and regulations that have a direct and material effect on the entity's financial statements

The above choice is correct since as explained in b) above, it is the duty of auditor to check and assess whether management has identified laws and regulations that have a direct and material effect on the entity's financial statements and bring to the notice of the management its impact on the financial statements and also suggest its improvements if found necessary.

Choice-3-Notify the governmental agency providing the financial assistance that the audit is not designed to provide any assurance of detecting errors and fraud.

The above choice is incorrect since as explained in c) above, it is the duty of auditor to detect the errors and frauds and suggest the improvements in avoidance of the occurrence of the same so that proper presentation of financial statement can be made but not notifying the governmental agency providing the financial assistance that the audit is not designed to provide any assurance of detecting errors and fraud.

Choice-4-Render an opinion concerning the entity's continued eligibility for the governmental financial assistance.

The above choice is incorrect since as explained in d) above, it is the duty of auditor to check and render its opinion on the entity's compliance with respect to the federal assistance programs requirement but not on the entity's continued eligibility for the governmental financial assistance.