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Question 21

The scope of a single audit engagement includes all of the following EXCEPT

Correct Answer: C
* Scope of Single Audit:The scope includes:
* Financial Statements: Ensuring accurate reporting of financial activities.
* Internal Controls: Evaluating effectiveness in compliance with federal requirements.
* Compliance: Ensuring compliance with the terms and conditions of the award.
* Explanation of Answer Choices:
* A. Financial statements: Included in the audit.
* B. Internal controls: Included to ensure compliance.
* C. Performance results: Correct. Single audits do not assess program outcomes or effectiveness.
* D. Compliance with terms of the award: Included to ensure federal funds are used appropriately.
:
Uniform Guidance (2 CFR Part 200),Audit Requirements.
Government Accountability Office (GAO),Yellow Book: Standards for Audits of Federal Awards.
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Question 22

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

Correct Answer: D
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.
References 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.
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Question 23

A state agency has begun a pilot program with a community action agency for a community-based approach to provide services to underserved areas. A review after the first year compared the number of families served by both agencies and identified efficiencies reached by having community involvement. What type of engagement was used to review the pilot program?

Correct Answer: C
* Type of Engagement for Reviewing Pilot Programs:
* A performance audit evaluates theeffectiveness, efficiency, and economyof programs or operations.
* In this case, the review of the pilot program assessed the number of families served and the efficiencies achieved through community involvement, which aligns with performance auditing objectives.
* Explanation of Answer Choices:
* A. Financial audit: Focuses on the accuracy of financial statements, not program effectiveness or efficiency.
* B. Single audit: Focuses on compliance with federal grant requirements, not program evaluation.
* C. Performance audit: Correct. This type of audit reviews program outcomes and operational efficiencies.
* D. Attestation: Provides assurance on specific subject matter but does not evaluate program performance.
:
GAO,Government Auditing Standards (Yellow Book).
Association of Government Accountants (AGA),Performance Auditing Best Practices.
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Question 24

When planning for local government financial statement audit, what data source should the auditor consider first?

Correct Answer: D
* Importance of Prior Audit Findings:
* When planning a local government financial statement audit, auditors should first review previous audit findingsto identify recurring issues, control weaknesses, or non-compliance areas. This helps auditors focus on areas of higher risk and guides the development of an effective audit strategy.
* Explanation of Answer Choices:
* A. Government-wide financial statements: Important, but these are reviewed after identifying risk areas from prior findings.
* B. Fund financial statements: These are part of the audit process but not the starting point for planning.
* C. Reconciliations between fund financial statements: These are analyzed during the audit but come later in the process.
* D. Previous audit findings: Correct. Reviewing past findings ensures the auditor addresses previously identified risks and compliance issues.
:
GAO,Government Auditing Standards (Yellow Book).
AICPA,Audit Planning and Risk Assessment Best Practices.
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Question 25

An agency benefit program allows employees who commute by public transit up to 10 free taxi trips home per calendar year. Employees can use the program for personal or family health emergencies. The most appropriate method to check for abuse of this program is

Correct Answer: D
Why Verify Transit Use Before Taxi Use?
* The program is intended for employees who commute by public transit. Verifying transit use on the day the taxi service was used ensures employees are adhering to program rules.
* Random sampling is cost-effective and practical for identifying abuse without needing to review all records.
Why Other Options Are Incorrect:
* A. Looking for individuals using the service more than 10 times:This only identifies overuse but does not confirm whether program rules were followed.
* B. Checking destination addresses for hospitals/clinics:This assumes all emergencies involve medical visits, which is not always the case.
* C. Matching destination addresses to home addresses:This does not confirm transit use and may not identify abuse of the program.
References and Documents:
* GAO Fraud Prevention Guide:Recommends using random sampling to check compliance with program rules.
* Best Practices for Internal Controls in Benefit Programs:Emphasizes verifying eligibility and usage to detect potential abuse.
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