AGA CGFM Exam Dumps

* Role of the Independent Auditor in Financial Reporting:

Independent auditors evaluate internal controls as part of their audit procedures to support an opinion on the fair presentation of the financial statements. This includes assessing whether internal controls over financial reporting are designed and operating effectively.

This evaluation helps ensure that financial statements are free of material misstatements, whether due to error or fraud.

* Why Management Does Not Do This:

Management designs and implements internal controls but does not evaluate them to support the auditor's opinion. Management's responsibility is to certify the accuracy of the financial statements, while the auditor provides an independent opinion.

* Why Other Options Are Incorrect:

C . The program office: This entity oversees operations but does not perform evaluations to support an audit opinion.

D . The audit committee: The committee provides oversight of the audit process but does not perform the evaluation itself.

* Reference and Documents:

GAAS (Generally Accepted Auditing Standards): Outlines the responsibilities of independent auditors regarding internal control evaluation.

GAO Yellow Book: Specifies the role of external auditors in evaluating internal controls during financial audits.

* National Performance Management Advisory Commission Framework:

The National Performance Management Advisory Commission developed a comprehensive framework to integrate performance measurement into government operations.

One of its primary goals was to incorporate performance metrics into the budget process to align resource allocation with program outcomes.

This ensures that budgeting decisions are informed by program performance, improving efficiency and accountability.

* Why the Budget Process?

By linking performance to budgeting, governments can prioritize funding for programs that demonstrate effectiveness and reduce funding for underperforming initiatives.

* Why Other Options Are Incorrect:

A . Internal control plan: Internal controls focus on risk management, not incorporating performance measurement.

B . Financial statements: Performance metrics are not reported in financial statements, which focus on financial position and results.

C . Audit procedures: Audits verify financial accuracy and compliance but do not incorporate performance measurement.

* Reference and Documents:

National Performance Management Advisory Commission Report (2010): Recommends integrating performance measurement into the budget process.

GAO Guide on Performance Budgeting: Explains how performance metrics inform budget decisions.

* What Are Open-Ended Mutual Funds?

Open-ended mutual funds are investment vehicles that allow investors to buy and sell shares at the current net asset value (NAV), which is determined daily.

These funds are highly liquid and can be easily valued, making them a sound investment option for pension funds.

* Why Are They Suitable for Pension Funds?

Pension funds require investments that are easily valued, transparent, and provide liquidity to meet benefit obligations. Open-ended mutual funds meet all these criteria.

* Why Other Options Are Incorrect:

B . Reverse repurchase agreements: While they can be part of investment strategies, they are not easily valued compared to open-ended mutual funds.

C . Derivative instruments: Derivatives can be complex and difficult to value, making them less suitable for pension funds that prioritize transparency and simplicity.

D . Internal investment pools: These are investment vehicles used by governments, but their valuation may not be as straightforward or frequent as mutual funds.

* Reference and Documents:

GAO Guide to Investment Management for Pension Funds: Recommends transparent, easily valued investments like mutual funds.

AICPA Pension Plan Audit Guidelines: Emphasizes liquidity and valuation in pension fund investments.

Federal Entities and Internal Controls:

Federal entities assess internal controls to ensure efficient, effective, and economical use of resources while achieving program objectives.

Internal control assessments often identify areas for improvement, such as reducing waste or increasing operational efficiency.

Explanation of Answer Choices:

A . Confirm that all management objectives will be met: Internal controls reduce risk but do not guarantee all objectives will be achieved.

B . Identify program areas where efficiencies may be gained: Correct. Internal controls are assessed to optimize operations and identify improvements.

C . Ensure there is no fraud, waste, or abuse within the entity: While controls mitigate risks of fraud, waste, or abuse, assessments aim to identify opportunities for efficiency.

D . Determine what legislation is not applicable to the entity: This is unrelated to internal control assessments.

GAO, Standards for Internal Control in the Federal Government (Green Book).

Office of Management and Budget (OMB), Circular A-123, Internal Control Systems.

* Why Should Management Consider the Cost of Internal Controls in Relation to Benefits?

The cost-benefit principle states that the cost of implementing and maintaining internal controls should not exceed the benefits derived from those controls. Effective internal controls help mitigate risks, improve efficiency, and ensure compliance, but their implementation comes with costs (e.g., time, resources, systems).

Management must evaluate whether the benefits of preventing or detecting potential issues (e.g., fraud, errors) justify the associated costs.

* Why Other Options Are Incorrect:

A . The available budget: While the budget is important, internal controls are not solely dictated by budget constraints; their effectiveness and benefit-to-cost ratio are key considerations.

B . Inherent risks: While inherent risks are a factor in determining control needs, the relationship between cost and benefit remains the primary consideration.

D . Risk of collusion: Controls address collusion risks, but management does not prioritize collusion specifically when assessing cost versus benefit.

* Reference and Documents:

COSO Internal Control Framework: Highlights the cost-benefit principle when implementing controls.

GAO Standards for Internal Control (Green Book): Emphasizes balancing costs with benefits when designing internal control systems.