Gearty & Duffy, certified public accountants, have been engaged to perform an audit of Sleepy Knoll Township in accordance with OMB Circular A-133. In connection with that engagement, Gearty & Duffy will determine major programs:
a.By testing enough grants to achieve a single specific coverage percentage.
b.By applying a risk-based approach.
c.By applying only a specific dollar threshold, where all programs exceeding the threshold would be considered major.
d.Using a list of programs included in the work plan of the Office of the Inspector General.
Answer:B
Choice "B" is correct. OMB Circular A-133 allows auditors to use a risk-based approach to determine major grants.
Choice "d" is incorrect. The judgment of the Office of the Inspector General would not exclusively influence the selection of major programs.
Choice "c" is incorrect. Programs in excess of $300,000 are generally considered to be major grants; however, the dollar threshold is not the exclusive determinant of major programs.
Choice "a" is incorrect. Risk-based auditing allows auditors to test as little as 25 percent of total federal programs or as much as 50 percent of total federal programs, depending on circumstances and on the auditor's judgment.